Mission Impossible
Nov 1, 2008 12:00 PM
Specialty apparel seller Forever 21 has its sights set on expansion. In early October, reports surfaced the retailer had made a bid for stores belonging to the department store chain Mervyns — 150 of them. The company reportedly put a bid in with New York City-based Miller Buckfire & Co., Mervyns' financial advisor.
Hayward, Calif.-based Mervyns originally had filed for Chapter 11 bankruptcy. But in late October the firm changed course and has opted for Chapter 7 — meaning immediate liquidation. The ramifications for Forever 21 are that it will have to go through a bankruptcy auction to buy the assets, instead of acquiring operating stores directly from the retailer, says James C. Bieri, president and CEO of the Bieri Co., a Detroit-based consulting firm.
Forever 21's leadership must think this is the perfect time to buy real estate on the cheap, says Howard Davidowitz, chairman of Davidowitz & Associates, Inc., a New York City-based retail consulting firm, but he calls the move “suicide.”
“There is nothing wrong with experimenting with larger stores, but not at this scale; this could take down the whole company,” he notes. “It hasn't worked for [any other specialty chain]; it's too big of a jump and they are betting the company on it.”
Davidowitz points to the example of Steve & Barry's, which filed for Chapter 11 bankruptcy in July. It was lured by the discounted rents offered by landlords with distressed properties, but the larger store fleet proved to be a disaster.
