Hilo Hattie has attracted a buyer for its flagship store in Honolulu that could help the venerable but struggling Hawaii retailer emerge from bankruptcy, perhaps as a chain with much smaller stores.
A California real estate investment firm has offered to pay $4.8 million for the leasehold property on Nimitz Highway in Iwilei that has long been the backbone of Hilo Hattie operations.
Mark Storfer, Hilo Hattie chief operating officer, said the company’s preferred plan is to exit the 87,000-square-foot Iwilei location and open a dramatically smaller store in Waikiki in a space between 2,000 and 4,000 square feet.
"We’ve long said the Nimitz space is much too big for us," he said. "We’re moving away from the large specialty retail stores."
Hilo Hattie, which buses in customers to its flagship store from Waikiki, uses only 33,000 square feet of the Nimitz space for retail. Much of the balance once housed manufacturing operations that were outsourced several years ago.
Storfer said a portion of proceeds from a sale could be used to pay for a smaller and more efficient store in Waikiki that could become the first of a few stores in Oahu’s pre-eminent visitor destination.
Three to four ideal potential locations for the first store have been scoped out, Storfer said. "We’ve already determined they are good locations for Hilo Hattie," he said. A few more small Waikiki stores could be added later.
Whether such a move happens depends partly on how a sale of the Nimitz store plays out.
The offer to buy the building was made by Laguna Beach, Calif.-based Adobe/Avery Parkway LLC, which has agreed to let other potential bidders compete for the Nimitz store space at an auction through U.S. Bankruptcy Court in Honolulu.
Hilo Hattie has proposed holding an auction July 31.
Storfer said other potential buyers have expressed new or renewed interest in acquiring the Nimitz property since Adobe/Avery made its offer in a March 25 letter of intent. Any competing bidder willing to pay more than $5.1 million could vie for the property, if an auction is approved by the court under the proposed terms.
Obtaining higher bids would help Hilo Hattie creditors get more of what they are owed as the retailer tries to emerge from Chapter 11.
Hilo Hattie filed bankruptcy Feb. 19 with $8.1 million in assets and $13.2 million in debts.
The company had suffered a plunge in fiscal-year sales to $15.6 million last year from $23.6 million in 2013.
The revenue hemorrhage left the 52-year-old retailer facing eviction actions by landlords. Right before filing bankruptcy, Hilo Hattie closed three of its seven stores — in Kihei, Maui; Kailua-Kona; and Hilo — in an emergency cost-cutting move that resulted in 60 employee layoffs.
Hilo Hattie’s remaining stores were its Nimitz Highway flagship, a 2,100-square-foot location at Ala Moana Center, an 18,000-square-foot store at the The Outlets of Maui in Lahaina, and a 13,500-square-foot store in Lihue.
In April, Hilo Hattie received court approval to reduce the size of its Maui store to 4,500 square feet.
Storfer said Hilo Hattie’s inclination is to retain its store leases at Ala Moana Center and in Lihue, though the company hasn’t yet determined whether it will seek to make the Lihue store smaller.
In Honolulu the Nimitz store represents the biggest asset — and a big liability — for Hilo Hattie.
"Even though the property is the most significant asset held by the debtor, the property also constitutes a substantial drag on the debtor’s business," Hilo Hattie said in a recent court filing. "The debtor has determined that the highest and best use of the property for the debtor’s future is to sell the property to the highest bidder."
The retailer owed the store’s landlord, an affiliate of the Harry & Jeanette Weinberg Foundation, $2.5 million in back rent when it filed bankruptcy.
The foundation’s affiliate, Honolulu Ltd., has agreed to settle that debt for $1 million in proceeds from the sale of Hilo Hattie’s lease plus half of any bid amount over $4.8 million.
Also under the proposed sale, the lease for the property would be extended for 20 years to 2059.
Another term presented by Adobe/Avery would pay the firm $250,000 for its effort and expense at trying to buy the lease if it is outbid by a competing buyer.
Storfer said he doesn’t know what Adobe/Avery intends to do with the building if its bid prevails. It’s possible that the firm, or some other successful buyer, could offer to lease back part of the property to Hilo Hattie. Storfer said Hilo Hattie would agree to such a deal if it were offered at the right economic terms.
Adobe/Avery, which is led by real estate lawyer and investor Alec J. Glasser, could not be reached for comment.
