How Hawaiian Telcom, Hilo Hattie and Central Pacific Bank Rebounded from the Brink
Turning around three of Hawaii’s biggest companies
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Almost at the same time Yeaman was leading the turnaround at Hawaiian Telcom, Mark Storfer, COO of Hilo Hattie, was chaperoning that company through its own Chapter 11 saga. Storfer, a well-known business consultant in Hawaii, already had a reputation for dealing with troubled companies. "I was at Liberty House as COO in 1998 when we filed for Chapter 11," he says. "That company was in reorganization for three years, then we successfully emerged and sold the company to the Macy's division of Federated Department Stores." Storfer clearly knows something about unhappy families.
So, when California businessman Ted Nelson was considering buying troubled Hilo Hattie from founder Jim Romig, he hired Storfer to help with the due diligence. That began Hilo Hattie's whirlwind path to Chapter 11. "I quickly realized," Storfer says, "that, in order to survive, we would need to seek protection from federal Bankruptcy Court, which we did in October 2008." That turned out to be just one small step in the company's turnaround.
Hilo Hattie, which has gone through three owners in as many years, is an excellent example of plans gone awry. First, the company negotiated a favorable payment arrangement with its creditors, only to have that deal quashed by the plummeting economy and filing for bankruptcy. One of the advantages of Chapter 11 is that it's sometimes easier to get financing, because bankruptcy lenders move to the front of the creditor line. Storfer says Nelson had bankruptcy financing arranged in advance to help get the company out of Chapter 11. "Unfortunately, when we filed in the fall of 2008, that was the economic meltdown. Ted's financing dried up very quickly."
In the end, Donald Kong, whose company, Royal Hawaiian Creations, was one of Hilo Hattie's largest creditors, acquired the stock from Nelson and brought the company out of bankruptcy. As with Hawaiian Telcom, Chapter 11 erased most of the rest of the company's liabilities. "The court only required Hilo Hattie to pay 5 percent of its debt," Storfer says. (He notes, though, that the court doesn't always wipe the slate clean this way. "In the case of Liberty House, we repaid most of our debt. That's because Liberty House was better capitalized and was able to demonstrate in court that it could generate sufficient future profit.")
While it's helpful to start with a clean slate, to really turn around a troubled company, you've got to know what went wrong to begin with. In Hilo Hattie's case, that part was clear. "It was a textbook mistake," Storfer says. "Expansion – aggressive, fast, poorly thought out store expansion to the Mainland. We had stores in Florida, Tennessee, California, Nevada and Arizona, and I can say, with hindsight, what happened: poor site selection, poor planning, poor demographics and huge capital investments over a short period of time. Most of the stores were only opened about a year and we had to close them all. Jim Romig, the founder, is a friend of mine, but I'm sure if he had it to do over again, he wouldn't do all that expansion – at least not the way he did."
So, while the cure for Hawaiian Telcom might have been bringing new services to market, for Hilo Hattie, it was getting back to basics. That included painful cost cuts – layoffs, rent reductions and store closures – but it was mainly a renewed focus on the company's Nimitz flagship store rather than a planned move to Waikiki.
"The Nimitz location was fine," Storfer says, "but we needed a reason for visitors to come here. It had to be more than just the product." Now, Hilo Hattie has a hula studio, a kumu hula and hula dancers. Visitors can see a hula show or take lessons or visit the company's aloha shirt museum. There's also a "Hawaiian-style" Internet café where guests can enjoy Hawaiian food and beverages. "I think we're the only place in town selling Dole Whips," Storfer says. It's all part of a new strategy to create a destination shopping experience.
Is the plan working? "The numbers are all pointing in the right direction," Storfer says. "We submitted a five-year sales and profitability plan to the court and, one-and-a-half years in, we're right on target. We're showing increases of 30-plus percent in sales, which is above our competitors, we understand.
"Of course," he adds, "the figures of the last couple of years were easy to beat; not like the heyday numbers of 2005 and 2006."
* Did not supply information for Top 250.
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