Sunday, March 4, 2001
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Posted on: Sunday, March 4, 2001

With finances in order, Liberty House looks to future

Liberty House saga resolved over frenetic weekend

By Andrew Gomes and Frank Cho
Advertiser Staff Writers

As Hawaii’s oldest and largest retailer emerged last week from three years of bankruptcy proceedings, its future and whether it survives a changing and increasingly competitive retail market now rests squarely on its shoulders.

"No excuses," John Monahan, Liberty House’s chief executive, says of the retailer’s future.

All of the distractions of the lengthy and contentious court battle are gone. The 152-year-old company is profitable and under new guidance and owners. It is no longer weighed down by debt and is able to make quicker decisions. Its management has learned valuable lessons.

But not gone are the inherent challenges to succeeding in the perilous business of department store retailing, driven by quickly changing consumer buying patterns, the need to anticipate trends, and marked by a growing number of competitors.

Perhaps no one is more cognizant of that than Monahan, who helped lead the retailer before and through its lengthy bankruptcy and says "the consumer votes every day."

He reiterated that several times Friday, the day after signing the final documents that ended Liberty House’s bankruptcy battle, the state’s longest and largest Chapter 11 case ever.

"I don’t want anyone to get the impression that we’re happy — that we’re satisfied with our business where we are," he said. "We think we’re going in the right direction, but there’s so much, much, much more to do.

"We’re in a very difficult business. The department store business right now is reeling. The retail business is very difficult. That being said, I think we still have some tremendous opportunities to grow our business."

Industry backlash

That growth, however, won’t come easy. Across the country, the department store industry is in the midst of a backlash as specialty stores erode department store market share by selling consumers name-brand merchandise. It’s a battle that has some losing sales and refocusing their strategies.

"Part of the problem with Liberty House and other department stores is this tremendous dependency on designer brands," said George Whalin, president of San Marcos, Calif.-based Retail Management Consultants. "You still have an awful lot of Tommy Hilfiger or Ralph Lauren. That dependency has hurt them I believe."

How Liberty House will change its image is something Monahan said he can’t discuss specifically until he meets with the company’s new board in the next several weeks. But, he says, "We shouldn’t look like a department store. It’s hard, but it has to be done."

Part of Liberty House’s strategy so far, according to Monahan, has been to get away from "labels and logos" and focus on lifestyle merchandise — products people want that enrich and add value to their lives — such as fountains, fans and organizers. Many of the items fit island living, like surf gear, feng shui, casual furniture and poster art for Hawaii’s high proportion of home renters. "We are just scratching the surface in what can be done in that regard," Monahan said.

And the retailer’s focus remains on local customers. In the mid-’90s, Liberty House got hurt when it chased Japanese tourist shoppers and failed to see its business with locals was being undermined by competitors such as Ross, Gap and others. When tourist business fell off, the company was in financial trouble. It filed for bankruptcy in March 1998.

Today visitors make up less than 20 percent of Liberty House customers, compared with 33 percent in the past. Monahan said the company is committed to growing its kamaaina business, and if tourist sales increase it will primarily be because of increased visitor spending. "We can never again forget that the local customer is our core business," he said.

New competition

But other retailers are keying on residents and visitors for sales, too. One of the biggest potential threats to Liberty House is Seattle-based department store Nordstrom. Nordstrom, which used to operate Liberty House shoe departments, opened its own shoe stores here in late 1997 and an off-price Nordstrom Rack last year. The company also planned to open a full-line department store at Ala Moana Center, but abandoned the effort in August. Still, a company official said Friday that Nordstrom continues to look for a site in Hawaii.

Analysts say other retailers also are expected to enter the local market this year, lured by the state’s economic growth as the Mainland economy cools. And existing competition continues changing. Costco now sells furniture and art. Fountains cascade on the shelves of Longs Drug. And one-time manufacturers like Tommy Bahama are opening their own stores.

"There is an enormous amount of competition Liberty House will have to face that was not there three years ago" when the retailer filed for bankruptcy, said Sid Doolittle, a Chicago-based retail consultant and former 28-year Montgomery Ward employee and executive.

Doolittle notes that being free from bankruptcy oversight allows the retailer to make changes more quickly, but said the retailer also faces the challenge of winning over a new generation of customers — children of the

baby boomers. "A lot will depend on how successful the switch has been," he said. "The younger customers are not as impressed with more traditional retailers."

To be sure, Liberty House has made significant operational strides while devoting enormous amounts of time to bankruptcy matters. While sales have remained relatively flat, the retailer has improved from the financial hardship that led to bankruptcy, earning nearly $9 million in each of the past two years. Liberty House also may be better positioned now in other ways as well. Before filing bankruptcy, the retailer was laden with $149 million of debt, and had maintained as much as $245 million of debt when JMB Realty Corp. acquired it in its purchase of Amfac. Liberty House emerged from bankruptcy with just $20 million of debt.

Building on progress

Still, the years spent in bankruptcy court present a challenge today for the retailer. "At this very moment, it appears we have a recession coming or at least a slowdown ... 2001 will definitely be a flat to down year for most retailers," Doolittle said. "That means you will have to better manage your inventory and be more creative."

Monahan says he believes the company is ready to meet that challenge — emerging from court better able to move quicker, more decisively and with improved focus. Monahan notes that the company also will have a valued adviser in Duncan MacNaughton, a local retail developer who has been a part of retailing’s evolution in Hawaii. MacNaughton is on the retailer’s new board of directors.

"We have been given a wonderful opportunity," Monahan said. "There really are no excuses any longer."

Andrew Gomes can be reached by phone at 525-8065, or e-mail at Frank Cho can be reached by phone at 525-8088, or by e-mail at

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