In New Rochelle, jewelry designer and small-business owner Georgiana Koulianos is feeling twice burned. The failed fortunes of Fortunoff, the jewelry and home furnishings company that was to be liquidated starting last week, has twice been the cause of her company”™s financial misfortune in the last year.
GK Designs, the jewelry company Koulianos runs from a Manhattan office and her condominium loft in New Rochelle, is among the unsecured creditors that expect to go unpaid for merchandise shipped to Fortunoff this winter since Fortunoff Holdings L.L.C., an affiliate of Purchase-based National Realty and Development Corp. (NRDC) Equity Partners L.L.C., filed for bankruptcy in early February. Koulianos said she is out $46,000 for jewelry she shipped in December.
“There”™s like 30 to 40 of us trying to figure out collectively what we can do,” she said last week. Attorneys have indicated there may be little or no legal recourse for those vendors to collect payment. For many suppliers including Koulianos, the 45-day period from receipt of shipment in which they can reclaim their goods from a bankrupt company has passed.
The Westchester designer, whose largest retail client is Bloomingdale”™s, saw opportunity in plans by the new owners to launch Fortunoff jewelry boutiques in Lord & Taylor stores in January. That plan first was announced a year ago this month by NRDC CEO Robert C. Baker, when he and his son, NRDC Equity Partners CEO and Chairman Richard A. Baker, and their two joint-venture partners paid $110 million to buy Fortunoff out of bankruptcy.
“They told me I would be going into all 47 Lord & Taylor stores,” Koulianos said of Fortunoff buyers who placed their order with her late last summer.Instead her dealings with the Long Island-based retailer became a bad case of déjà vu.
In February 2008, Fortunoff”™s previous owners filed for Chapter 11 protection in U.S. Bankruptcy Court. Koulianos was among the unsecured creditors. Her attempt to reclaim her jewelry was denied. She and other suppliers went unpaid when NRDC acquired the company and the bankruptcy case was dismissed.
“Last year they burned me for about $70,000,” she said. “Again, I”™m a very small business” with two full-time employees. “I”™m not a multimillion-dollar company.”
Before the company”™s latest bankruptcy filing, Fortunoff bounced a check to GK Designs for $1,100.
“That”™s when I started calling and nobody was picking up the phone,” Koulianos said. “It was like déjà vu from last year. ”¦ Two years in a row ”“ this isn”™t right.”
”˜Billionaire”™s chess game”™
Scarsdale resident Todd Wolleman, president of Leo Wolleman Inc., an 85-year-old jewelry company in Manhattan started by his grandfather, said his company”™s Color Craft division also shipped in December, seeing “an opportunity to get in on the ground floor” with the Fortunoff boutique openings in Lord & Taylor stores. “We thought we were actually selling to Lord & Taylor,” he said.
With the recent bankruptcy, his company has not been paid for $50,000 in merchandise. The 45-day reclamation period has expired. Wolleman said his family company also lost $50,000 when Fortunoff declared bankruptcy last year.
“It”™s not as though this was a surprise to anybody,” Wolleman said of the latest court action. “It”™s just that the way this was handled is not the way things are done in the jewelry industry. It”™s the way things are done in the venture capitalist industry. It”™s legal but wrong.”
Color Craft this winter had refused further shipments to Fortunoff until it was paid. Still, “We were in negotiations with them to ship more product even up until the day they closed,” Wolleman said.
Wolleman said he does not think Fortunoff buyers at that time were aware the owner had “an exit strategy” from its year-old money-draining acquisition. “They were just pawns in the scheme,” he said. “That”™s the feeling in the jewelry community, that we were just pawns in a billionaire”™s chess game.”
An attorney for Fortunoff”™s unpaid vendors, in a filing opposing court approval of debtor-in-possession financing for the owner, said the company was engaged in “a damaging pattern of sacrificing their unsecured creditors to mollify their bank lenders.”
”˜Supplier beware”™
Retail analyst Howard Davidowitz, chairman of Davidowitz & Associates Inc., a retail consulting and investment firm in Manhattan, said the Fortunoff liquidation is one in a string of losing retail acquisitions and investments for NRDC CEO Richard Baker. Linens ”˜N Things, for which NRDC Equity Partners paid $1.2 billion, is liquidating, as has the Peter Som fashion design office in Manhattan that NRDC had funded, Davidowitz said. The Lord & Taylor department store chain, for which NRDC paid about $1.1 billion in 2006, and Hudson”™s Bay Co., Canada”™s largest retailer, acquired by NRDC for a reported $1.1 billion, also are losing money and are all that remain of the Purchase company”™s retail holdings, he said.
“The sheriff has caught up with him,” Davidowitz said of Baker. “He had to put $60 million more in to keep the (Fortunoff) company going a month ago.” The company in its bankruptcy filing reported a $42.2 million loss in the second and third quarters of 2008.
“The guy is in a very tough retail segment and he bought a falling knife when he bought Fortunoff because it continued to go down,” Davidowitz said. “Jewelry and home are the two worst categories in retailing.”
For retail suppliers, “It”™s supplier beware,” the analyst said. With 2,000 jewelry stores closing in the last year, “I don”™t think you have to be a genius if you”™re a supplier to understand the situation. If you”™re in a weak segment, you”™re going to get taken down by the segment. You”™ve got a decision to make. Do you ship and pray that you get paid or do you not ship?”
A spokesperson for Fortunoff”™s owner did not return calls last week for comment on the company”™s reported liquidation and scheduled store closings. Fortunoff in February notified the state Labor Department of more than 500 impending layoffs and plans to close its stores in White Plains, Westbury and Garden City. The retailer”™s Web site last week said Fortunoff will honor customer gift cards and merchandise credits through March 8.
