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On Front Lines of Debt Crisis, Luggage Maker Fights for Life

Julie Jargon. Wall Street Journal. (Eastern edition). New York, N.Y.: Jan 9, 2009. pg. A.1
Abstract (Summary)

By expanding the mailing list tenfold, to 10,000 households, and more than doubling their product line to 250 items,
they calculated that within five years Hulme could reach revenue of $2 million with positive cash flow.

Full Text (1956 words)

(c) 2009 Dow Jones & Company, Inc. Reproduced with permission of copyright owner. Further reproduction or
distribution is prohibited without permission.
ST. PAUL, Minn. -- When Chuck Bidwell and Jennifer Guarino took over J.W. Hulme Co. a few years ago, their plan
was to transform the tiny maker of duck-hunting gear and fishing-rod bags into a luxury luggage company.
They applied the modern American business playbook: Borrow heavily to grow fast. The strategy worked -- until the
credit crisis threw out those rules.
Now the two business partners are struggling to pull their company, and their lives, out of a spiral. The pain is rippling
through a broad circle of investors, employees, suppliers and family members.
Mr. Bidwell, a 63-year-old serial entrepreneur and collector of vintage Buicks, is selling his beloved cars, is about to
lose his house and is getting divorced from his wife of less than two years, partly due to their financial nightmare. Ms.
Guarino has drained her savings, had her credit cards shut off, and is fielding phone calls "weekly," she says, from a
frustrated relative who loaned her money.
Ms. Guarino, 46, says her dream was to build a business "that was not just a job, but was a passion." Instead, she
and Mr. Bidwell have had to lay off employees, stop paying investors, and renegotiate bills with their suppliers. Still,
there's no guarantee the 104-year-old business will survive.
At small companies nationwide, a similar cycle is playing out. This is bad news for the U.S. economy: In recent years,
small employers -- the typical one has a staff roughly Hulme's size -- accounted for most U.S. new-job creation,
according to the Small Business Administration. Small companies of 500 or fewer people employ more than half of the
country's private-sector workers.
Many relied too heavily on lending, whether from banks or credit cards, says Bill Dunkelberg, chief economist at the
National Federation of Independent Business. "That's why bankruptcies are up," he says.

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In fact, business bankruptcies rose 49% to 38,651 in the fiscal year ended Sept. 30 from a year earlier.
Mr. Bidwell and Ms. Guarino's aggressive borrowing was "pretty typical of small businesses," says their main lender,
Fizal Kassim of Maple Bank in Champlin, Minn. He loaned Hulme more than $550,000 over five years.
The two owners have eclectic resumes: Mr. Bidwell has worked at Target Corp., Tonka Toys Inc. and a cigarette
distributor. He once started an air-filtration company, and about a decade ago helped launch a local "currency" in
Minneapolis, the HeroCard, designed to let people earn credits for volunteer work that could be spent like regular
money.
As for Ms. Guarino, she was a handbag designer in California before more recently running regional magazines
including Minnesota Parent.
She also worked with Mr. Bidwell at CHC Data Inc., maker of the HeroCard. That's when the two made a pact: If they
ever spotted a business they both liked, they would consider buying it.
Over the years, Mr. Bidwell suggested various businesses, including a maker of robotic arms for assembly lines. "I
was like, 'Robotic arms? No thank you,'" Ms. Guarino says.
But when he found J.W. Hulme, she was on board. "I heard 'leather' and loved it," she says.
Founded in 1905, Hulme at first made World War I military tents, and later, canvas awnings, car covers and, for a
time, travel bags for upscale retailers including Orvis. But by 2003, Hulme was losing $150,000 a year on about
$450,000 in revenue.
Mr. Bidwell and Ms. Guarino bought Hulme that year in a transaction that will total $600,000 when final payments to
the previous owner are made next year.
They took over a tiny factory that employed three people mostly making hunting gear.
Their strategy: Expand into luxury goods with wider appeal -- briefcases, backpacks, women's handbags -- and
develop a high-end, in-house catalog. By expanding the mailing list tenfold, to 10,000 households, and more than
doubling their product line to 250 items, they calculated that within five years Hulme could reach revenue of $2 million
with positive cash flow.
It required upfront investment. Ms. Guarino and Mr. Bidwell hired six workers, upgraded their sewing machines,
leather-splitting equipment and computer server, and bought mailing lists.
Borrowing became crucial. Mr. Bidwell took a $130,000 second mortgage on his house -- no sweat, because, like
houses across the U.S., his was increasing in value.
Hulme's primary financial backer was Maple Bank, the lender run by Mr. Kassim. In 2003, Maple loaned Hulme
$70,000 and gave it a $200,000 line of credit, the first in a series of ever-larger loans.
Mr. Kassim, 51, calls himself a conservative lender. Maple, which he founded, has never done home loans, but
instead focuses on business lending and consumer banking -- CDs, checking accounts. "We are not a bank involved
in exotic stuff like derivatives and hedges," he says.

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Hulme got off to a strong start. Sales grew 89%, to $1.4 million by 2006, and the company turned a profit, Mr. Bidwell
says. The owners declined to disclose net profit, but say earnings before taxes and other items that year totaled
$325,000.
But little setbacks can have big consequences when a strategy relies heavily on debt. That October, Hulme sought a
$700,000 Small Business Administration loan from St. Stephen State Bank, another local lender. SBA loans are
typically 75%-guaranteed by the government, and are easy for banks to sell (at a profit) to other investors down the
line.
Expecting its loan quickly, Hulme cranked up production. But the money got delayed six months amid management
changes at St. Stephen.
At a coffeeshop one evening in April 2007, Hulme's two owners met to talk debt. Ms. Guarino told Mr. Bidwell they
should slow their growth.
Mr. Bidwell says he reminded her that orders from their previous catalog mailings had met or exceeded projections. If
they stuck to the plan, he said, they could bring in enough cash to service debts.
"I didn't have enough information to constructively argue the point," Ms. Guarino says now. "I thought, 'He's done this
before . . . maybe I'm just out of my league.'"
Sticking to the plan meant borrowing more money -- and fast. Big chunks of cash are needed at certain times to pay
for catalogs. Late mailings aimed at Mother's Day, for example, mean missed sales.
Mr. Bidwell borrowed about $500,000 from past business associates, friends and relatives, including his daughter.
Still, Hulme missed key mailing dates in mid-2007.
As the 2007 Christmas selling season loomed, Hulme was scrambling. That November, Ms. Guarino left her $130,000a-year job at the magazine publisher to focus solely on Hulme. She, too, approached a family member for a loan. She
vowed to repay the relative, whom she declined to name, in 90 days.
By year's end, Hulme rang up more than $1.5 million in revenue, well short of the owners' $2 million projection.
Capital spending was up 27% to $935,000, and the $1.2 million worth of new debt from the SBA and other investors
had pushed Hulme's total debt past $2 million.
That put the company's ratio of debt to equity at 5.53, compared with 2.94 a year earlier. A ratio of three or greater is
typically frowned upon by lenders, says Sean Egan of credit-rating firm Egan-Jones.
And Hulme needed to borrow more. Last January they went to see Mr. Kassim at Maple Bank to ask for $250,000 to
get out the next round of catalogs.
Mr. Kassim was no longer in a lending mood. The U.S. financial crisis was starting to bubble up. Economists were
talking about recession. Mr. Kassim worried about the market for Hulme's $1,200 leather rolling duffles and $500
garment bags.
"Chuck said that because he deals in luxury goods, he wouldn't be affected by the slowing economy, because his
customers are affluent," Mr. Kassim recalls. "But I wasn't so sure."

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He was most concerned about Hulme's $1 million inventory. Mr. Kassim says he likes to see inventory at less than
50% of sales, whereas Hulme's was two-thirds. Reduce inventory, he said, then come back.
The two owners stopped paying themselves their $40,000 annual salaries and laid off almost half their 14 employees.
The layoffs didn't surprise Martha Didio, who had been a Hulme seamstress since 1984. "They had been running out
of supplies, like the hardware that goes on the bags, because they didn't have the money," she recalls. "We were all
sitting on pins and needles."
One February day, Ms. Guarino had to call the relative whom she'd promised to repay in 90 days, to say she didn't
have the money.
Mr. Bidwell put his house up for sale. He also stopped paying the mortgage in an effort to renegotiate the loan, a
move that would have unanticipated consequences.
His family and friends who had loaned Hulme $500,000 the year before stopped getting interest payments. "One
month, we got a letter instead of our check," says Cinnamon Bidwell, Mr. Bidwell's daughter. She and her husband
had invested $20,000, two-thirds of their savings.
In May, the Hulme owners went back to Mr. Kassim. "If we don't have the money, we'll have to close the business
down," Mr. Kassim recalls Mr. Bidwell saying.
"I'm thinking, 'Oh my God, what do I do?'" Mr. Kassim says. Still, he didn't commit more lending.
In the car outside, Ms. Guarino says she broke down and cried.
Later, back in the office, Mr. Bidwell said he still felt "optimistic" that Maple Bank would help them. Ms. Guarino
disagreed: "Chuck, in case you didn't realize it, that's a 'no' we heard," she told him.
As a key September catalog-mailing deadline approached, Hulme's printer, John Roberts Co. of Minneapolis,
demanded upfront payment because Hulme had fallen behind.
For Hulme, the printer's ultimatum was potentially catastrophic. Ms. Guarino and Mr. Bidwell had to get catalogs into
shoppers' hands. They went back to St. Stephen, which advanced them $75,000 on a new $210,000 SBA loan.
Days later, the SBA denied the loan, citing Mr. Bidwell's late mortgage payments. Mr. Bidwell says he didn't think his
mortgage would affect his ability to get a business loan.
Mr. Bidwell hit up friends and family again. This time, his daughter told him, "Sorry."
In September, Messrs. Bidwell and Kassim managed to hammer out another $125,000 loan, but only because Mr.
Bidwell lined up some friends to put up bank CDs as collateral.
Catalogs went out more than a month late. Hulme wound up mailing 175,000 catalogs last year, versus 600,000 the
year before.
Sales figures provided by Mr. Bidwell suggest demand for Hulme's products remains strong. Sales per catalog mailed

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were up 24% through November, but total sales were down 20% because fewer catalogs went out.
Mr. Bidwell is now trying to sell five of his seven Depression-era Buicks, including the jewel, a 1932 Buick Town Car
that could be worth well over a half-million dollars.
J.W. Hulme's business woes led to strains in Mr. Bidwell's marriage. He and his wife, Julie, were high-school
sweethearts back in the 1960s but didn't reunite until a few years ago. They married in May 2007.
Ms. Bidwell says she voluntarily invested all her own savings, more than $50,000, in J.W. Hulme. "There were times
when I said to him, 'Get out of this company, just let it go,' but he's not ready to do that," she said in a phone interview
from her home in Manly, a Sydney suburb, where she moved in April. The couple's divorce is nearly final.
Late last year, Hulme renegotiated its payments to suppliers with an agreement that, for now, will keep it out of
bankruptcy.
Mr. Bidwell draws a simple lesson from the mess. "If we'd had the proper financing in place and been able to mail our
catalogs on time," he says, "we would have had a very successful year."
Credit: By Julie Jargon

Indexing (document details)

Subjects:

Entrepreneurs, Debt management, Commercial credit, Small business

Classification Codes

9190, 9520, 3100

Companies:

J W Hulme (NAICS: 316991 )

Author(s):

Julie Jargon

Document types:

News

Publication title:

Wall Street Journal. (Eastern edition). New York, N.Y.: Jan 9, 2009. pg. A.1

Source type:

Newspaper

ISSN:

00999660

ProQuest document ID: 1623747131

Text Word Count

1956

Document URL:

http://proquest.umi.com/pqdweb?did=1623747131&sid=1&Fmt=3&cl
ientId=4638&RQT=309&VName=PQD

Copyright 2009 ProQuest LLC. All rights reserved. Terms and Conditions
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