Mervyns to close 19 stores in Washington and Oregon

HAYWARD, Calif. — Mervyns said Monday it will close 20 stores in three states by next year, affecting more than 1,400 positions, as the struggling retailer aims to improve its profits.

Thirteen of the stores are in Washington, six in Oregon and one in Salt Lake City. All are to be closed by February 2007. A company spokeswoman said 221 full-time and 659 part-time jobs will be lost in Washington. The store in Bellingham will close in March, with the other dozen closing a year from now. Ten of the stores are in the Puget Sound area: Bellevue, Everett, Lacey, Lynnwood, Olympia, Puyallup, Redmond, Silverdale, Tacoma and Tukwila.

Last September, the Hayward-based company announced it was closing 62 stores in eight states. That process is expected to be completed by next month.

The move will allow Mervyns to concentrate its investments on existing and new store locations in its profitable core markets in the West and Southwest, the company said.

"We are confident that these decisions are right for Mervyns' future growth and success, and are consistent with the strategy that we announced in September 2005," said Vanessa Castagna, executive chairwoman of Mervyns' board.

Mervyns has been steadily losing market share to more nimble competitors for years. Frustrated with the chain's meager returns, Target sold Mervyns last year for $1.65 billion to a group of investors that includes Sun Capital Partners, Cerberus Capital Management and Lubert-Adler and Klaff Partners.

The demise of Mervyns in the Puget Sound area means less competition for Kohl's Department Stores, a discount chain that prefers suburban locations. The chain, based in Menomonee Falls, Wis., is opening its first store in Washington state in Vancouver, Wash., in late spring and is expected to locate another store in Snohomish County.

Retailers are coming off a holiday season that turned out better than at least some expected. Overall sales for November and December increased 6.4 percent over 2004, with consumers spending a total of $438.6 billion, according to the National Retail Federation. Same-store sales increased a more modest 3.2 percent for U.S. chain retailers, according to the International Council of Shopping Centers.

On Monday in New York at the National Retail Federation's annual convention, retailers said they expect rising energy costs, coupled with a slowdown in the housing boom that has fueled markets across the country, to put a crimp in retail spending this year.

The normally optimistic group is tempering its forecast this year, calling for a 4.7 percent growth in 2006 retail sales, down from a 6.1 percent gain in 2005. Real consumer spending, which rose 3.7 percent last year, will increase only 2.8 percent this year.

"While we don't expect the housing bubble to burst, we are beginning to see some leaks," said Tracy Mullin, president of the National Retail Federation.

As home prices have skyrocketed around the country, consumers in recent years have been cashing out. They have turned to a combination of home-equity loans, mortgage refinancing and capital gains from home sales as a way to fund both home improvements and other spending.

"As interest rates go up, people are going to find it more loath to take out home-equity lines of credit," said Rosalind Wells, chief economist for the National Retail Federation. "Consumers are not going to feel as anxious to tap into their home values."

Freddie Mac estimates that about $205 billion was extracted from home values in 2005, up from $142 billion in 2004. A study by Federal Reserve economists found that money from home values added about $700 billion to economic activity last year, which translates into as much as 8 percent of total consumer spending.

That's been good news for retailers, particularly building-material stores, warehouse clubs and electronics retailers, which reported the best performances last year, including regular double-digit increases.

As the housing market slows, Wells expects building-material stores and furniture stores to be the first to see the impact on sales. By comparison, she expects relatively strong performances in the areas of electronics, clothing, accessories, food and beverage, and health and personal care.

"Everyone's increases will look a little more modest, but they will still outperform the average," Wells said. "We're looking at a slowing of consumer spending, nothing dire, not a recession."

Other industry analysts said Monday that in 2006 the key to success for many retailers will come from those who do the best job of understanding their consumer. Some who have succeeded at this in recent years include Nordstrom, Neiman Marcus, Chico's and Best Buy.

"It used to be all about the product," said Janet Hoffman, managing partner in charge of North American retail for Accenture. "Now, it's changed to being all about understanding the customer and what do they want to buy? It's about really getting inside the consumer's mind."

Kurt Barnard, president of Barnard's Retail Consulting Group, expects 2006 will be a difficult year for the apparel industry.

"There's a lack of newness, nothing exciting," Barnard said. "Apparel is going to be a stick in the mud."

In a panel discussion, Federated Department Stores Chairman Terry Lundgren said he expects traffic to its Web site to surge as it converts former May Department Stores to the Macy's nameplate. When Macy's enters a new market, it experiences a jump in traffic to its site, Lundgren said. He said that trend should continue as Macy's integrates May stores after Federated's $11 billion acquisition of its former rival.

Federated, parent of Macy's and Bloomingdale's, ultimately expects to operate roughly 850 Macy's stores, up from about 450.

Federated is preparing for the boom and has "zero limitation in terms of what resources are available to grow the dot-com business," Lundgren said.

"I believe this business will continue to grow significantly for us, clearly double-digit for the next three or four years," he said.

Lundgren said the retailer has studied its shoppers and found that 72 percent of transactions come from a ZIP code within 20 minutes of a Macy's stores.

Asked if he feared Web-site sales would cannibalize store sales, Lundgren said he has stopped worrying about that issue.

"I don't have a choice," he said, when it comes to offering online shopping. "It's what the customer wants."

This report contains information from The Associated Press, Reuters and The Miami Herald.