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Mervyn’s, the mid-tier department store chain of 177 outlets, went into bankruptcy with a $465 million debtor in possession provision that guarantees its existence for the time being. This chain was sold by Target to venture capitalists.

Its predominance in California has hurt the retailer as the housing crisis in that state has sapped retail sales. One can only wonder if Mervyn’s is the canary in the mineshaft and if other retailers may follow suit. The 97 year old Boscov’s has been rumored to be in some financial difficulties as factors have not been guaranteeing all orders to the privately-held retailer that has 49 stores.

The problem with Boscov’s has been its purchase of May Company doors from Macy’s. Most of these 10 acquired stores are in Maryland, a competitive market that Boscov’s management had little experience in.

While larger department store chains have stronger financing, Macy’s recently assured its own employees that its financial liquidity was just fine. At that time, retail observers wondered why Macy’s would bring that subject up when no one was speculating that the department store chain had any problems.

It is becoming increasingly obvious that financial factors, which guarantee manufacturers will be paid, are scrutinizing retailers’ books. This indicates that cash flow concerns are evident throughout the retail world. It also implies that financially weaker entities will go into the holidays with less inventories.

Manufacturers that cannot find factors who will financially guarantee their shipments will be forced to dump merchandise to opportunistic wholesalers. Last fall Macy’s and other department store chains did not accept holiday merchandise, much of which was discounted by TJMaxx and Ross Stores.

Bon-Ton also acquired a large number of department stores that are also underperforming. For the remainder of 2008 and the first-half of 2009, a Darwinian principle of survival will more than likely cloak the retail scene, not unlike recessions we have seen in the past. For greater discussion of why the department store model is breaking down, read the current issue of The Informationist.