They were up nearly 60% in
1997 over 1996 in Hawaii

By Peter Wagner
Star-Bulletin

Hawaii's stuck-in-the-mud economy led 630 local businesses to shut down in 1997, a 59.5 percent increase from 1996's record of 395 business failures, a national report says.

Preliminary figures released by consulting firm Dun & Bradstreet Corp. also show that the total liabilities of those failed businesses rose 25 percent, to $137.6 million last year from $109.9 million in 1996.

Analysts say businesses, already burdened with high costs in Hawaii, are failing because customers aren't spending.

Businessman Jed Gaines, whose 23-year-old company Apartment Appearances Inc. was among the casualties last year, says things went sour after a record year in 1993.

"I had devastating losses from 1994 to 1996 because my clients were cutting back," said Gaines, whose company specialized in highly detailed house cleaning.

In a separate recent report, the Washington-based American Bankruptcy Institute said Hawaii's 44 percent rise in bankruptcy filings last year was the second highest in the nation, behind only the northern district of West Virginia, which had a 45.9 percent hike. Nationally, bankruptcies rose 19 percent to a record 1.4 million filings last year, the institute said.

The two bleak reports come at a time of snowballing layoffs in Hawaii, a situation some predict will get worse.

"We have not bottomed out yet," said state Sen. Sam Slom (R, Aina Haina), who is also president of Small Business Hawaii. "With the layoffs started by banks and other large retailers, this is a signal to other businesses that this is the time to do it."

Hawaii has been hobbled by nearly eight years of economic stagnation.

"A lot of my clients are filing for bankruptcy because their companies are going out of business," said Greg Dunn, a Honolulu attorney whose firm, Dunn & Dunn, has been filing 60 to 70 bankruptcies a month for the past several years.

"It has a rippling effect. People get laid off, then they file for bankruptcy and they don't have the money to spend. It affects the economy, and it's kind of scary."

The Dun & Bradstreet report said that out of the 50 states and Washington D.C., Hawaii had the fourth-highest rate of increase in business failures in 1997.

That's the same rank it held in the 1996 report, which showed a 46.7 percent increase in local business failures from 1995.

Hawaii's 59.5 percent increase in 1997 business failures compares with a 16 percent rise nationally, the first rise in three years. The report said 83,384 U.S. companies closed last year, compared with 71,931 in 1996.

"The number of failures is now approaching the high levels reached in the recession of the early 1990s," said Joseph W. Duncan, chief economic advisor to Dun & Bradstreet.

But Duncan noted the economic impact has been subdued because business liabilities are relatively low. Nationally, liabilities of failed companies were at $37.4 billion last year, compared with more than $90 billion in 1991 and 1992.

Honolulu attorney Steven Guttman sees reported business failures as the tip of an iceberg.

"There's an awful lot of businesses that do quiet closings and if you're a customer, you just notice they're no longer there," he said.

Indeed, Dun & Bradstreet does not include businesses that closed with debts paid in full. The Murray Hill, N.J.-based company said its report includes companies that have closed through bankruptcy and foreclosure or voluntarily shut with debts outstanding.

Despite Hawaii's poor showing, many local businesspeople say they are working hard to make ends meet.

"It's a matter of cutting expenses where you can," said Helen Rapoza, owner of Helen's Haven salon on Kilauea Avenue.

At the Old Waialae Road Cafe on South King Street, Liz Perry and business partner Connie Sutherland put in long hours to trim the payroll. "You put in the hours versus having employees do it," said Perry.