Ailing retailer Harry & David expected to survive, but shrink

Mar 15, 2011

One of the best known Northwest brands is on the verge of bond default or bankruptcy according to financial analysts. Gourmet food retailer Harry & David is one of the biggest employers in southern Oregon. It also has a network of anxious suppliers around the region.

Nothing seems amiss at Harry & David's flagship store in Medford. The display tables are brimming with gift baskets, gourmet goodies and Moose Munch snacks. But some of the shoppers I spoke with know the company has fallen on hard times. Carolyn Leger and her husband were shopping for deals:

"Four Royal Riviera pears for one dollar. And there's nothing wrong with them! They're perfect."

Asked how much she would miss Harry & David, Leger responded:

"We’d miss them, but not that much. I mean we'd get by. It's a specialty store. It sells luxury items. These are treats. (But) It's just all the jobs. It's kind of sad, really."

The recession and heavy discounting hammered profits at Harry & David. The company is also weighed down by debt from a 2004 takeover by private equity firms. So the wolves are now at the door.

Can Harry & David be Saved?

"Absolutely. There's no question about it," says Renee Fellman, a corporate turnaround specialist based in Portland.

"If a company has almost half a billion dollars in annual revenue, there is surely something there of value that somebody -- or maybe multiple somebodies -- can turn into a profitable company," says Fellman.

She says Harry & David has other things going for it too, not the least of which is its famous brand name. It also owns hundreds of acres of Rogue Valley orchards. But Fellman says the company may be too deep in the hole to avoid bankruptcy reorganization:

"In the case of Harry & David where there are undoubtedly many vendors, an out-of court restructuring would be tough. They probably have lots of leases that they want to abandon. That can be done easily through Chapter 11. If they want to sell the company, they'll literally have to go through Chapter 11."

Some Retail Stores Shut

Over the past month, Harry & David closed at least 11 retail stores in other parts of the country. The downsizing seems to be accelerating.

Southern Oregon University business professor Charles Jaeger advised Harry & David on strategy in the past. Now he would tell managers not to abandon brick and mortar stores entirely. Seventy retail stores remain (from a peak of about 130) according to the corporation’s website.

"I'm sure they'll be looking at those on a store-by-store basis. But I would hope that they don't close all of them down and give that up as a channel because I think it does bring value to the brand and to the whole company," says Jaeger.

Jaeger is among those who see bankruptcy reorganization as practically inevitable.

The company itself is talking only through press releases. Those describe ongoing negotiations with bondholders to restructure its debt. Our requests to interview a top manager were repeatedly turned down.

Northwest Job Impact

Harry & David has roughly 2,000 local workers. Lots of other Northwest companies sell ingredients and services to Harry & David. They too now worry about the future. Chris Martin owns and manages Troon Vineyard in Oregon's Applegate Valley.

Martin watches cases of wine come off the bottling line, some of which he'd like to sell through Harry & David:

"Harry & David has been my number one point of sale for our wine over the couple years. They've been extremely supportive. I know that I'm not alone in that as a local winery. Having them have troubles or potentially going away, which no one wants to see, would have negative ramifications for all of us."

Martin says his winery recently used its social media accounts to urge followers to rally around the historic retailer.

Regardless of how Harry & David restructures, everyone interviewed for this story expects it to come out the other side smaller.