Harry & David’s Bankruptcy: Downturn or Wall Street?
Harry & David landed in bankruptcy
court last week. Although many articles naturally blamed the economy, more
than a few are placing the blame squarely at the feet of Wasserstein & Co.,
which purchased the purveyor of fruit and food baskets in 2004.
is gaining some unusual press since many local farmers and landscapers in both
Oregon and Ohio are affected. Harry & David grows or
makes about 85 percent of its products. During seasonal times, 6,000 workers
would join its permanent staff of 2,000 in Medord, Oregon to pick, pack and
ship fruit around the world. Brad Hicks, chief executive officer of the Medford/Jackson
County chamber of commerce, told Business Week, "Harry & David
has been a cornerstone of our community."
The following are some of the
reasons given for the bankruptcy filing:
- The Recession: Sales are said to have begun falling since 2008 as
businesses slashed corporate gift budgets and consumers cut spending in the
weak economy. As a commentator to The New York Times article on the
filing stated, "Hairy & Dead. Who knew selling pears for 20 bucks
a piece wasn’t a sustainable model?"
- The Internet/New Competitors: Online competitors have grown significantly
and many source products from cheaper places to provide more competitive
pricing. Also supermarkets as well as stores like Walmart and Target have
begun offering more gift-food items.
- Overexpansion: Since being acquired by Wasserstein, Harry & David
attempted to accelerate growth by moving into wine, chocolate and flowers.
It also opened more than 100 stores and bought smaller competitors such as
Cushman Fruit in 2008. It closed 52 unprofitable stores before filing for
bankruptcy protection and now operates 70 stores. Joe Feldman, an analyst
at Telsey Advisory Group in New York, told Business Week, "They
may have tried to get into the retail store strategy too aggressively."
- Debt load: Wasserstein was able to reportedly recoup 1.25 times
its investment in acquiring Harry & David but the buyout left the retailer
saddled with $200 million in debt versus none before the acquisition. That
left it particularly vulnerable when the recession hit. Oregon State Rep.
Dennis Richardson told The Wall Street Journal, "Buying a successful
company like Harry & David and crushing it under millions in bonding
debt required to pay for the purchase may be known as brilliant financial
maneuvering on Wall Street. Oregon citizens have a different name for it."
Harry & David is expected to try to reorganize in bankruptcy proceedings
under a smaller size.
- Harry & David’s Bankruptcy Rocks Medford, Oregon – Business
- Harry & David’s failed Mr. Fix-It – Fortune
- Harry & David Bankruptcy Filing Creates Ripple Effects – The Wall
- Harry & David Files for Bankruptcy – The New York Times
- What a pair: Harry & David and Wall Street – The Seattle Times
Discussion Questions: How much of Harry & David’s bankruptcy filing appears to be due to the economy versus over-expansion and debt issues? How should the company reorganize itself?