Kunimune, whose family has operated the Kuni Dry Goods stores since 1948, said that he tried everything to keep his business afloat during these tough economic times.

He reduced expenses and cut inventory. Then he began to close his stores one by one before shutting down the whole business in December.

"Business conditions were getting worse and worse," Kunimune said. "If anyone were to tell me that they wanted to open up a business here in Hawaii, I would say that they were out of their mind."

That pessimistic outlook is likely shared by many local small business operators. According to Dun & Bradstreet Corp., a record 396 businesses failed last year in Hawaii, an increase of 46.7 percent from 1995's 270 failures.

Hawaii's rate of increase was the fourth highest in nation, following Colorado where business failures leaped 50.8 percent; Illinois, up 50.8 percent, and Alaska, up 46.8 percent, Dun & Bradstreet said.

The data covers all companies that shut due to bankruptcy, foreclosure or receivership. The figures also include companies that voluntarily shut down.

Despite the record number, Hawaii's business failures last year were smaller in value than in 1995. Dun & Bradstreet, which is based in Murray Hill, N.J., said the combined debt of the local companies that failed last year was $101.4 million, down 1.3 percent from 1995's $102.7 million.

But many of the failures involved long-time Hawaii businesses. Besides Kuni Dry Goods, other businesses that closed last year included the 40-year-old Tahitian Lanai restaurant in Waikiki and the Paniolo Cafe in Punaluu.

Leroy Laney, chief economist at First Hawaiian Bank, said that business failures, like bankruptcies, tend to reflect past economic activity and are not a good gauge of future economic activity. But he acknowledged the local economy is showing little growth and may continue to grow at a slow pace for a couple of years.

"I don't think there's any denying that Hawaii's economy remains weak," Laney said.

Small business advocate Bette Tatum blames state lawmakers for the trend, saying they're making the business environment hostile to employers.

Tatum, state director of the National Federation of Independent Business, said many local entrepreneurs are frustrated by the high local taxes and the high costs of paying for mandated benefits such as health-care costs for workers.

Kunimune, in particular, took issue with a recent auto insurance reform proposal by the state House. The bill would shift medical costs for auto accident victims largely to employers.

"The anti-business philosophy permeates the Legislature," Kunimune said. "They just don't want to help businesses. It's a sad state of affairs."