Ok – in the all the recent news, Mervyn’s, the big clothing retailer, has been bought out and is being liquidated.
But the news stories don’t seem to explain why. Why is Mervyn’s history? What led them to have to sell out–Did shoppers just not like it all of the sudden?
Mismangement?
There was some weird stuff going on with Mervyn’s.
First, they were bought by what later became Target, and aggressively expanded in the 80’s and 90’s. That expansion was not viable and they ended up closing and selling off a lot of stores many dozens of stores.
Target then sold the chain to a group of private equity funds, who decided to close several more stores which weren’t profitable. Then they ran into liquidity problems and couldn’t get merchandise from their suppliers. With not enough merchandise to move, they were unable to meet their debt obligations, and had no choice but to file for bankruptcy.
But one of the odd things was the structure the new owners chose for the company, where they made Mervyn’s stores pay rent to a separate company that took over all their real-estate assets. A lawsuit alleged that the plan all along was to use the rental income to pay for the leveraged buyout of the stores, then liquidate everything.
A good business model is no longer a simple one. “Buy clothing cheap to sell at a discount” may work, but it won’t impress anyone, it won’t make anyone’s career, and most importantly, it won’t maximize profit and growth.
In the most recent corporate climate - which, admittedly, may have just ended, but which has not yet been replaced - you either make constant profit-squeezing and constant growth your first priority or you lose your company. And sometimes you lose it anyway. You have to take the risks of over-leveraging, over-structuring, and over-everything, or the market loses interest in you.
It really doesn’t matter, sometimes, what’s best for your customers (who are not your market anymore, really) or even for your continued survival. You have to play the game by the rules of the biggest kids on the block, or you don’t get to play at all.
Why is wall street constant growth so necessary? Isn’t maintaining your situation , if profitable, enough to stay in business? Why not?
I could never tell who they were trying to be. The merchandise wasn’t good enough to compete with Nordstrom or Macy’s and the prices weren’t good enough to compete with Target or Walmart. There is one holding a close-out sale near us and the supposed 50-70% off prices still can’t compete with the Target next door. I found at least one instance where they put a higher price sticker on a pair of pants so that the discount price would be higher.
Is it me, or are there simply TOO MANY retailers? I mean , when i was a kid, you had two or three chains in the Boston area-Filene’s, Jordan marsh, and Bradley’s (low end). Now we have tons of stores-I wonder if the retail sector is simply too big?
If you’re not improving margins and expanding to the largest reasonable footprint possible, then eventually one of your competitors WILL and then they’ll defeat you.
Standing still works in some situations, certainly, at least for a time, but fashion retail isn’t one of them; too many clothing stores out there for that to work.
Investors want the stock price to go up. So they want growth. And then the company expands beyond its means and gets killed.
In response, the trend in recent years is for successful companies to go private, by using their cash and big loans to buy out all the stock holders. This isn’t a magical fix though… Tribune Corp filed for chapter 11 bankruptcy today after going private recently. The loans they had to take out to go private were too much of a weight on the company.
Well, all of those have gone out of business or been acquired, so that’s not a very good starting point.
Well I think they’re placed badly. For example, I can open my living room window and hit three Targets with well-thrown fastballs, and maybe ping the hull of two vacant Circuit Citys with two of the ricochets. There’s also a Wal-Mart, and couple K-Marts a little farther out if I need some cheapo $10 work pants.
The further from the city you get though the less access people have to these stores and the less choices they have. I have friends who live up in the mountains who have to drive like 90 minutes to get to the nearest decent shopping center. “Only” an hour to Wal-mart though I think.
In yesteryear, people bought stock not only to make money but to own a PIECE of things.
We had a manufacturing economy so people like to own something tangible. As we moved toward a service economy, people got into the notion of getting into the stock market simply to own money, not a piece of a company.
If you made 110% on your stocks the person goes to his financial adviser and says “Why didn’t I make 111%?” And if you didn’t your clients left.
If you’re a comptroller and your company made 150% over forecast you are asked “WHY didn’t we make 151% over forecast?”
Privite Equaity Firms want the highest possible money. They buy say Chrysler and they don’t care about cars, they care about profit. It’s about getting IN, and getting OUT at the right time.
People like Henry Kaiser cared about money, but they also cared about railroads. Chrysler like money, he liked cars but the building he built in Chicago was a monument to his ego. Hilton liked profits, but he liked his hotels.
Now it is about $$$$$$$$$ and that is it.
I’m not saying this is good or bad, I’m saying that is how it is.
Business models no longer teach customer service, they teach hiring a new clerk every 6 months at minimum wage, who insults customers and causes a 2% business loss is better than one who causes no business loss but gets time off for sick leave, vacation, and of course requires a slightly higher salary.
As hard as people find to believe ALL of these factors go into deciding things
Horsefeathers. Stock has always been about money and control. Sentimental value ends where real value begins.
Well, the point of “owning a piece” was to get dividends. Once companies started skipping the dividends and hoarding cash, they had to grow the business and stock price to attract investors. Expansion and acquisitions are the classic ways to spend your cash to grow your gross.