A sluggish economy stampeded through an already-fragile industry like a rogue tornado in 2008, flattening everything in its path and leaving behind a smattering of once-proud companies that were unable to pick themselves off the proverbial mat. The prospect of consolidation couldn’t stave off bankruptcy for some of the major players within the industry, as several manufacturers and retailers were forced to file for Chapter 11 amidst an economic environment fraught with plunging sales and waning consumer interest. Most notable among companies who fell into bankruptcy in 2008 were Mervyns, Boscovs, and Steve & Barry’s.



Mervyns’ July declaration of bankruptcy came after the department store chain reported a net loss of $64 million during fiscal 2007. Shortly following Mervyns’ Chapter 11 filing, the company received a commitment of $465 million in DIP (debtor-in-possession) financing from a group of lenders to fund operations while the company is in bankruptcy. In October, Mervyns representatives said they had exhausted all other options, and announced that all remaining Mervyns stores would be shuttered following the holiday season.

Steve & Barry’s

Also in July, sporting goods retailer Steve & Barry’s filed for Chapter 11 protection, citing a combination of factors, including a “liquidity shortfall as a result of credit market volatility and general economic conditions…” Despite reports that Steve & Barry’s stores had been underperforming, representatives for the retailer maintained that sales in the front-end of 2008 had been up 70%. Regardless, the company was unable to overcome a critical financial blow sustained when it defaulted on a loan made in March by General Electric Co.’s commercial lending unit.


Likewise, many retail experts attributed the company’s collapse to a precarious business model built on “sweetheart” deals from landlords and razor-thin margins. According to court filings, Steve & Barry’s tried unsuccessfully to find a buyer or investor prior to its Chapter 11 filing.
In August, Steve & Barry’s agreed to be purchased by a unit of investment firms Bay Harbour Management and York Captial Management for $168 million.

The firms planned to operate the apparel chain as a going concern and to acquire the retailer’s store leases, merchandise from stores, and all intellectual property rights, including celebrity and brand licenses. However, struggling sales and “the general health of the American economy and the state of the retail market…” prompted the retailer to file for bankruptcy protection for a second and apparently final time in November.

Shoe Pavilion
After suffering a first quarter loss of $6.3 million that was fresh on the heels of a $16.3 million loss for fiscal 2007, Shoe Pavilion filed for voluntary bankruptcy protection in July. According to its filing at the U.S. Bankruptcy Court, the Sherman Oaks, CA-based retailer had $61 million in assets and between $25 million and $27 million in liabilities.


Boscov’s filed for bankruptcy in August, following a bout with credit issues that management attributed to decreased consumer spending. In its filing in bankruptcy court, the 97-year old department store chain listed $538 million in assets and $479 million in debts as of May 3, 2008.
In September, Versa Capital Management, Inc., a Philadelphia-based private equity firm that recently acquired Bob’s Stores, agreed to purchase Boscov’s out of bankruptcy, but the deal was terminated when a family group led by former Boscov’s chairman Albert Boscov and former president Edwin Lakin agreed to purchase the assets in November.

Goody’s Family Clothing
Also succumbing to bankruptcy this year was Goody’s Family Clothing, which filed for protection in June citing the pressures from tightening credit markets, among other factors.