First City, Texas-Houston is owed $12.4 million by Garfinckel's. The amount owed and the name of the bank were incorrect in yesterday's Business section. (Published 7/25/90)
In May, Debbie Piland shifted into overdrive to meet a rush order from Garfinckel's.
Her simple knitwear at moderate retail prices had been selling so well that Garfinckel's buyers told Piland they wanted more for the fall season. But after she and three of her contract employees rose to the challenge -- delivering 500 pieces of women's clothing in a record four weeks -- Garfinckel's filed for bankruptcy protection before paying her the $10,000 she was owed.
So there she stood at Garfinckel's downtown store a few weeks ago, staring at the sale signs plastered all over the clothing creations of her small Herndon-based firm, Dex-Tex Inc. Struggling to make ends meet after not being paid for her work, Piland had to restrain herself.
"I felt like gathering up my things and pushing right through the front door of the store like a quarterback," said the 41-year-old Piland, a petite, well-dressed woman who is soft-spoken almost to the point of shyness. "It was emotionally very upsetting that there was my merchandise and Garfinckel's had not paid for any of it, but the stuff did not belong to me. It was a heartbreaker."
While much of the attention is focused on the bigger creditors, such as First City National Bank of Houston with $28 million owed, there are many more smaller, "unsecured" creditors like Piland. She and the others have no collateral from Garfinckel's and are facing the prospect of getting nothing in return for the goods they provided. They are at the end of a list of people and their lawyers chasing too small an amount of money, and they are caught in the web of complex laws governing the Garfinckel's bankruptcy process.
Bigger businesses likely will be able to handle the unpaid bills without a major impact on operations. But for tiny companies, the economic blow can be devastating.
Piland, who has taught marketing and fashion merchandising in local schools and colleges, started doing business with Garfinckel's a decade ago when the store was under different ownership. At the time, she ran a small importing firm. She was later dropped as a Garfinckel's supplier when the store underwent its roller coaster of changes in management and style during the 1980s.
Earlier this year, she had managed to re-interest Garfinckel's in clothing from her new firm, founded four years ago. The store, under the veteran and well-respected George P. Kelly, was headed back to its traditional roots and Piland was excited about firming up a long-term relationship. The account was a big one for Dex-Tex, which grosses $150,000 a year doing business with close to 40 mostly small specialty stores on the East Coast.
Piland contracted with production workers in Northeast Washington and was involved in every aspect of the important spring order from Garfinckel's, right down to the ironing before delivery. "Doing business with Garfinckel's was prestigious," said Piland. "And it was a turning-point customer of real volume."
She did not worry about rumors of Garfinckel's financial troubles. "I thought they would be late-paying with bills, but I did not mind since this was such an important account," she said. "I certainly trusted a store like Garfinckel's, so I had no inkling that it would be this bad."
It was, as Piland soon found out the morning of the bankruptcy filing, as she became sucked into the sinking of a D.C. retail legend. The liquidation sales began almost immediately, and Piland watched as the teams of lawyers descended on the chaos.
Her company got placed on the creditors committee, run mostly by the bigger creditors, but Piland has been active in monitoring the proceedings as the case works its way through the bankruptcy court.
As it now stands, First City, a "secured creditor," has legal liens on all Garfinckel's merchandise and accounts receivable, the money owed to the store from customers' credit cards. The only valuable assets left are the store's potentially lucrative leases. But even those are subject to legal tussles.
"I think what everyone is going to get back hinges on the value of Garfinckel's leases, unless, of course, they are subject to liens by the secured creditors like First City," said Steven Leach, the lawyer who is handling the bankruptcy for Garfinckel's. "But right now, it's the most likely source for some kind of relief for creditors."
Piland, who typically plows profits back into her business because of a tight cash flow and lack of dependable credit, will have to cut back while hoping she can scrape up enough money to pay for goods she needs to put out her line of clothing.
In the future, Piland wants to do most of her business with retailers on a cash basis.
"These retailers can't continue to operate with all these loans and you don't have to be a PhD in economics to realize it," said Piland. "And it has this domino effect that affects us all, and mostly the smaller people get hurt badly."
But it's more than money, really, for Piland.
"I have a small company and something like this makes it seem like it's mentally and emotionally hard to compete with these big companies and do business with them," she said. "It's demoralizing and you wonder about the system that they can do this under the law."