Hilo Hattie files for bankruptcy

The company said the filing will enable it to move forward with plans to open a new flagship store in Waikiki, as well as to strengthen and stabilize the company.

"We're not closing. We're staying in business. We see this as a fresh start," Chief Executive Ted Nelson said. "It's a tough economy, but that just requires us to be better business people and better merchants."

The filing came less than five months after the chain with seven stores in Hawaii and two in Southern California was purchased by TOC Inc., which operates Hilo Hattie as Pomare Ltd.

"The rapidly deteriorating economy, historic oil price levels, and the weakening of Hawaii's tourist-driven economy has hit all local companies, including Hilo Hattie, hard," Nelson said.

He said none of Hilo Hattie's 256 employees will be affected.

The company is trying to sell its large flagship store in an industrial area near downtown Honolulu, where hundreds of tourists are bussed in every day. Having a new store in Waikiki would eliminate the need to transport the tourists and allow for many more visits per day.

"There's literally 20,000 people on the sidewalk right at our door every day," Nelson said.

Despite its reorganization, the overall tightening of credit and available capital and the company's struggles, Nelson said he is confident the company can secure a Waikiki lease with Royal Hawaiian Center, which is owned by Kamehameha Schools.

Nelson said the company has also been changing its product line in recent months to jump-start sales, offering a more authentic Hawaiiana and high-quality product.

Hilo Hattie had sales of about $56 million last year, a 19 percent decline from the previous year. Nelson said 2008 will be "meaningfully" lower that last year.

Hilo Hattie, which was founded by Jim Romig on Kauai in 1963, listed both its assets and liabilities at between $10 million and $50 million on its filing.

The company said it had between 1,000 and 5,000 creditors, with Maui Divers of Hawaii as its largest unsecured creditor at $1.25 million. Some Maui Divers operations are in Hilo Hattie stores.

"We've made good progress in the past few months to restructure the company's financial affairs and to set it on a positive course," Nelson said. "Unfortunately, the sudden drop in visitors to Hawaii and the sharp economic downturn statewide has left us no choice but to seek Chapter 11 relief."

The store was named after Calra Haili, who died in 1979 after a long career in music and hula dance. Haili, who performed Hawaiian music and dance across the country, legally adopted the name Hilo Hattie after her comic performance of the song "When Hilo Hattie Does the Hilo Hop" became popular in the 1930s.