The "Store of Hawai'i" — kama'aina retailer Hilo Hattie — said the big decline in tourism and other economic factors forced it to file for bankruptcy yesterday, just three months after California investors bought the 45-year-old company from its founder.

"It's sad, but I'm not surprised," said local retail industry analyst Stephany Sofos, who predicts that a worsening Hawai'i economy will force other retailers with shaky finances to seek bankruptcy protection.

The Chapter 11 filing allows Hilo Hattie to continue operating its seven stores in Hawai'i and two in California without interruption. None of the 256 employees will lose their jobs.

Also, the retailer said it still hopes to open a new flagship store in Waikiki at Royal Hawaiian Center, though the projected opening has been delayed by nearly a year to next summer.

To reassure suppliers, Hilo Hattie has arranged a $5 million line of credit the company may use if necessary.

However, the retailer will seek to erase some significant outstanding debt it said is between $10 million and $15 million.

Among some of its largest unsecured creditors are Maui Divers of Hawai'i, which is owed about $1.3 million; aloha wear manufacturer Royal Hawaiian Creations, $793,434; Roberts Hawai'i Tours, $173,190; and Hamakua Macadamia Nut Co., $107,329.

Hilo Hattie also owes money to several present or former executives in the form of promissory notes totaling at least $1.5 million issued before the sale of the company in July. The notes include $723,141 to Paul deVille, former president and CEO of Hilo Hattie's parent Pomare Ltd.

"While this is an extremely difficult step to take, we're confident that this reorganization will provide the fresh start we need to rebuild and strengthen the company, and to lead Hilo Hattie into an exciting new era," Hilo Hattie CEO Ted Nelson said in a statement.

"The rapidly deteriorating economy, historic oil price levels, and the weakening of Hawai'i's tourist-driven economy has hit all local companies — including Hilo Hattie — hard," said Nelson, who took over in July.

Before the sale, Hilo Hattie had been struggling financially, and Nelson said his team had made good progress improving finances in part because of a shift to higher-quality merchandise.

"We're starting to see some real traction as we bring in different products," Nelson said.

But big declines in the number of visitors to Hawai'i and a worsening economic downturn left the retailer unable to cover some of its obligations.

IT ALL BEGAN IN 1963

The restructuring is expected to get Hilo Hattie, which was visited by 2 million tourists in Hawai'i last year, through a bad patch in what has been a long and sometimes bumpy history for one of the largest local retailers of Hawai'i fashions and gifts.

The storied company was established in 1963 on Kaua'i by Jim Romig, who began operating the business as Kaluna Hawaii Sportswear out of a little grass shack between Lihu'e and Kapa'a that became a stop for tour operators.

Romig's company a few years later expanded with an O'ahu factory outlet and became known for the "$3.95 aloha shirt."

The retailer didn't adopt the Hilo Hattie name until 1979 when Romig bought the rights to the stage moniker of famous comic hula dancer Clara Haili as part of the acquisition of a Hilo manufacturer and retailer.

Romig over several decades gradually added Hilo Hattie stores statewide, and in the past decade opened big Hilo Hattie stores on the Mainland in a strategy to diversify outside Hawai'i's sometimes volatile tourism market.

That move more than doubled annual sales from roughly $30 million to $70 million in five years through 2000. But ultimately, the expansion into cities such as Nashville, Tenn., Tempe, Ariz., and Orlando, Fla., didn't work because of mismatched demographics, and all but two of seven stores were closed under direction of a new management team appointed in early 2001.

Hilo Hattie, however, soon faced new struggles, suffering lasting blows during tourism declines triggered by the Sept. 11 terrorist attacks and by SARS.

SERIOUS CHALLENGES

Though the retailer bounced back somewhat, Nelson said, the company had endured serious challenges in the past year or so.

The planned flagship store at Royal Hawaiian Center was envisioned to significantly boost revenue while eliminating the cost of busing visitors to the Nimitz store. But the Waikiki store's opening previously scheduled for next month had been delayed in part by the retailer's troubles.

In May, a deal was reached to sell Hilo Hattie to an investor group led by Nelson, who through another company owns franchise rights to Fantastic Sams salons in Hawai'i and California.

The purchase was completed in July, and Nelson said new owners and new leaders had made some headway at turning the company around until dramatic visitor declines in the past couple of months and other increased pressures.

Nelson said he is hopeful that terms will be reached to open the Waikiki store, which could open next summer if a deal with the center is reached. As part of the plan to open the Waikiki store, Hilo Hattie would close its Nimitz store and sell the property.

"It's a brilliant idea," he said. "We're hopeful it will come to fruition, and we think it will."