Local partnership boosts Price Busters

Eight months after rescuing Price Busters from bankruptcy, two kamaaina real estate firms have invested $2 million to stabilize operations and refocus efforts on the core business of discounted party supplies, seasonal goods, gifts and food items.

The MacNaughton Group and Kobayashi Group, whose partnership — Retail Partners Hawaii — bought the assets of ERT Sales of Hawaii Inc. in bankruptcy from founder Beth Tom in December, said they have stemmed declining sales and are considering expansion when opportunities arise.

The company operates eight Price Busters and Let’s Party stores on Oahu and expects to exceed $20 million in sales this year, up from just under that amount in 2010.

"We’re doing OK, but we’re still not out of the woods," said Jeff Arce, a principal at MacNaughton. "Turnarounds are always somewhat risky. We’re a $20 million company doing our best — at least we were able to stem declining sales."

While the company’s rebound is still in progress, it has so far survived the poor economy, unlike several large national retailers — including Circuit City, CompUSA and most recently Borders — that weren’t able to withstand cost pressures in recent years or successfully emerge from bankruptcy.

Customer traffic is up slightly from last year, and spending per purchase has risen about 5 percent on average during the same time period.

"We haven’t set any aggressive goals; we expect to grow organically," Arce said.

For the most part, Retail Partners hasn’t made any large-scale changes in strategy or to the business model, but has refocused on Price Busters’ core product line, reducing ancillary items such as pet and garden supplies, as well as automotive items and tools.

"If there’s been any change, it is to pull back on that to make sure we’re doing the best we can for the categories customers know us most for," said Dan Marshall, chief operating officer.

The company also has abandoned a previous seasonal store concept, which sold specialty merchandise at malls and other locations during the holidays. It also is no longer focused on a full party store concept. The business is, however, considering pop-up stores, in which a company leases space temporarily during holiday seasons. It is spending three times as much on advertising compared with last year, Arce said.

ERT filed Chapter 11 reorganization in January 2010 after a costly expansion that included leasing a large distribution warehouse and two store openings in the prior two years amid an economic downturn. Despite closing a downtown store last year, the company continued to lose money and eventually ran out of cash.

"We no longer have that warehouse and overhead and substantially reduced operational costs outside of the stores," Marshall said. "We have a very small warehouse space. Now 95 percent of the product coming in is going directly into the stores."

The nearly 20-year-old, locally owned retail chain would have had to liquidate if the real estate partners didn’t step in, he said.

"The company as it existed wasn’t going to be able to exit bankruptcy," Marshall said.

Price Busters has eight stores and about 230 employees, which will increase to 300 during the holiday season.

The partners said they are focusing on reducing costs where possible to offset rising business expenses.

"Every single day we’re battling rising costs, whether it’s oil freight prices, utility prices or taxes getting passed along — it’s harder and harder for small-business owners to run a business here," Arce said. "If we can’t raise prices to cover costs, it gets squeezed somewhere. It is all about driving revenue. More and more of these days it’s about managing your costs."

Price Busters opened in 1992 and at its peak in 2008 operated 11 stores, including seasonal shops, and generated nearly $30 million in annual sales.