updated 10/17/2008 4:10:23 PM ET 2008-10-17T20:10:23

Ailing department store chain Mervyns LLC, which filed for Chapter 11 bankruptcy protection in July, said Friday that it plans to begin liquidation sales at its remaining 149 stores and wind down its business.

The Hayward, Calif.-based chain said in a statement that after completing a thorough analysis of all available options, including a sale of the company, the board determined that holding liquidation sales during the holiday season was the best way to maximize value for the company's creditors. It also cited a challenging retail environment and declining liquidity as factors forcing the company's liquidation. Mervyns now operates mainly in California and has seen its sales drop further as the state is among the hardest hit by the real estate slump.

Mervyns plans to pursue the liquidation under the Chapter 11 bankruptcy code, which typically allows companies to retain more control over the selling off of assets. The company said it intends to retain an outside professional services firm to assist in the liquidation sales of inventory.

"We are disappointed with this outcome but the company's declining liquidity position and the extremely challenging retail environment, together with the fact that we have exhausted all other possibilities, requires that we take this action," said John Goodman, chief executive of Mervyns. "We are confident that the deep discounts available through going out of business sales will drive significant traffic in our stores."

Mervyns' announcement marks the latest retail obituary and represents yet another blow to the nation's malls, which are grappling with increasing vacancy rates in a deteriorating economic environment. On Tuesday, specialty retailer Linens 'n Things, which filed for bankruptcy protection in May, announced it will begin liquidation sales at its stores as early as this week after failing to find a buyer that wanted to operate the company.

Gadget retailer Sharper Image Corp., which filed for bankruptcy in February and eventually liquidated its stores, is seeking a new life as a wholesaler. It announced on Monday it signed a $540 million licensing agreement with manufacturer HoMedics to create gadgets to be sold in the U.S. and elsewhere.

The big problem with Mervyns, a 59-year-old chain, was that it had been squeezed between high-end department stores and discounters like Wal-Mart Stores Inc. Before its bankruptcy filing, Mervyns had been shuttering stores and leaving states such as Oregon and Washington since 2005, after a consortium of private equity players including Sun Capital Partners Inc. bought Mervyns from Target Corp. for $1.2 billion.

In April, Mervyns appointed Goodman, who had been president and general manager of the Dockers brand — a key supplier to Mervyns — as president and chief executive. But the chain's heavy concentration in California has made a turnaround harder.

Last month, Mervyns sued the private equity firms involved in the leveraged buyout of the chain from Target, alleging the deal stripped the retailer of its real estate assets, forcing it into bankruptcy.

Mervyns said in the suit that the investment group, which included Cerberus Capital Management and Sun Capital Management, bought Mervyns in 2004, acquired its real estate and leased it back to the company at substantially increased rates. Mervyns says the increased rent was used to finance the buyout.

© 2013 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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