The economic downturn has claimed one of its first high-end victims — Dallas-based Harold’s Stores Inc.
This story first appeared in the November 11, 2008 issue of WWD. Subscribe Today.
The company, which operates 41 upscale men’s and women’s specialty stores and two outlet units in 19 states, on Friday filed a liquidating Chapter 11 petition with a bankruptcy court in Oklahoma City.
As recently as September, Harold’s obtained $1.8 million in additional financing in the form of a new subordinated loan from Ronus Inc. Court papers said Ronus and Harold’s primary shareholder, Ronald de Waal, were unwilling to fund the retailer’s operation in light of ongoing losses. Harold’s court papers cited the “very difficult current macroeconomic and consumer environment creating declines across the retail industry and the fact that apparel trends are not as robust as in the past” as reasons for reduced foot traffic in its stores.
Legal papers filed with the bankruptcy court said that, for the 26 weeks ended Aug. 2, Harold’s incurred a net loss of $7.7 million and realized net cash used in operating activities of $4.6 million.
According to a court affidavit filed by Ronald Staffieri, Harold’s chief executive officer, through the first two quarters of this year, Harold’s total sales were down 23.6 percent compared with the first half of last year. As of the petition date, the retailer employed 559 people. Many are part-time employees, and most work as retail associates in the stores.
Harold’s current liabilities on Aug. 2 exceeded its current assets by $12.2 million, and total liabilities exceeded total assets by $19.8 million, according to Staffieri’s affidavit.
The petition listed both estimated assets and estimated liabilities at between $10 million and $50 million.
Harold’s, which targeted affluent adults between the ages of 30 and 50, began operations in 1948 when Harold Powell, a Norman, Okla., resident, opened a men’s apparel store offering Ivy League styled-apparel in a site across from the University of Oklahoma. Women’s apparel was added later.
In 2001, de Waal became the primary shareholder and moved corporate headquarters to Dallas.
Staffieri said Harold’s hired Richter Consulting Inc. last month to try to find a buyer. When none emerged, the retailer began analyzing the four bids it did receive for a liquidation of the merchandise. Harold’s chose Gordon Brothers to handle the sale of the merchandise, furniture, fixtures and equipment. The retailer wants the court to approve liquidation sales as soon as possible after the filing to preserve the value of seasonal merchandise on hand.
Harold’s court papers said it stopped paying its bills in October. It was able to obtain $22 million in debtor-in-possession financing from Wells Fargo Retail Finance, which is still pending bankruptcy court approval. Harold’s already owes Wells Fargo $24.1 million under its pre-petition credit agreement.
Harold’s largest unsecured creditor is DZ Trading Ltd. of Montclair, Calif., which is owed $848,271. Other unsecured creditors include Quad/Graphics Inc., Chicago, $340,254; Cole-Haan Footwear, Boston, $233,023; United Parcel Service, The Lakes, Nev., $192,537, and A. Marinelli Shoes & Accessories Inc., Miami, $117,841.