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Rough ride for retail

By   /   Friday, August 8th, 2008  /   Comments Off on Rough ride for retail

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Throughout the Tri-Counties, retailers large and small are showing signs of weakness amid a troubled economy as major retailers file for bankruptcy protection and smaller ones close their doors.

 

On July 29, Mervyns department store announced it had filed for Chapter 11 bankruptcy with the intention of restructuring the operations of its 177 stores in seven western states.

On the Central Coast, Mervyns maintains six stores in San Luis Obispo, Santa Maria, Lompoc, Ventura, Oxnard and Thousand Oaks.

In its bankruptcy filings, the company said its long-term turnaround plan to grow sales and improve store productivity was thwarted by “external economic factors.”

“Chief among these external factors are the decline in the housing market and the tightening of the credit markets which have led, respectively, to a decline in consumer discretionary spending, including in the apparel and home décor sectors, and to a tightening of credit terms by Mervyns’ suppliers and their factors,” said Executive Vice President, Chief Financial Officer and Chief Administrative Officer Charles Kurth in an affidavit.

Mervyns spokesperson Andrew Siegel said at this time, the company has no plans to close any of its stores, though he can’t guarantee that won’t be part of the restructuring plan.

“The [bankruptcy] process gives the company an opportunity to restructure its debt and business line operations,” Siegel said. “Of course the objective is to strengthen the company so Mervyns can compete successfully but it would be premature to speculate on what specific actions the company might take or which individual stores might be affected.”

Siegel said he could not comment on the performance of the company’s Central Coast locations, as Mervyns does not release regional data of its stores.

Following years of poor financial results, Pier 1 Imports closed its downtown Santa Barbara location this year. The company did not immediately return a call requesting the reason for the closure. For the quarter ended May 31, the company reported a net loss of $32.8 million. In the prior quarter, Pier 1 had announced its first quarter of positive earnings in 12 quarters.

In June, the company submitted and subsequently withdrew a proposal to acquire Cost Plus World Market for $4 a share, a move the company said would provide Cost Plus with resources “to operate more efficiently in a difficult retail environment.”

Although this summer Starbucks coffee announced nearly 90 store closures in California, only one was in the Tri-Counties, in Simi Valley. In choosing which stores to close, the company said it studied specific store profitability and considered “the impact of current and anticipated economic trends.”

Starbucks would not disclose information on individual store performance in the region, but a representative said the list of closures is considered final pending operational and contractual factors and events.

San Luis Obispo Chamber of Commerce President David Garth, however, said he has seen fewer stores close recently and doesn’t believe a so-called recession is to blame for weak businesses.

“I think sometimes weak businesses blame the economy for problems they have generated themselves and I think Mervyns is a classic example,” Garth said. “Mervyns has been having trouble for years. … Starbucks is different. I think they are impacted by disposable income for sure but they … expanded too fast and have said that they were competing with themselves.”

Java Jones owner Brett Winslow, who founded his first coffeehouse in Isla Vista about 15 years ago, said the economy had nothing to do with his recent decision to close one of his locations at 1101 State St., Santa Barbara.

“The rent went up significantly and it’s just sad,” he said. “Santa Barbara has turned into an outlet mall – it’s no longer about mom and pops. One of saddest things as you go up State Street is all the little businesses that made Santa Barbara special and unique are being replaced. The last thing we need is another Starbucks.”

The Adventures for Kids bookstore closed its doors July 31. According to the retailer’s Web site, the store on Telegraph Road in Ventura closed because of “many reasons.” The business’ phone was disconnected, but according to published reports, owner Barbara O’Grady cited low revenues and competition from national discount book sellers as main reasons for the company’s recent failure.

In Santa Barbara, there has been talk that a locally operated bridal salon is planning to close, but the owner would not return calls from the Business Times and an employee said she could not comment on the possible closure.

Garth said a tighter economy can encourage business owners to improve their operations by scrutinizing their own business practices.

“That doesn’t mean some aren’t struggling but the best ones are thinking of it as way to restructure and rework their business, which is a tremendous talent of small businesses,” Garth said. “The ones that wring their hands and cry about it aren’t going to make it.”

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