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Harry & David's Bankruptcy: Downturn or Wall Street?

Written by Tom Ryan

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.

The bankruptcy 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:

  1. 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?"
  2. 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.
  3. 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."
  4. 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.

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