An article Saturday incorrectly stated that Arthur A. Adler stores had filed for bankruptcy. The two Washington stores went out of business, but they did not file for bankruptcy. (Published 8/21/90)

Dart Drug Stores Inc. will give up its year-long struggle to reorganize under federal bankruptcy law protection and will close the 65 local drugstores it operates under the Fantle's name, company officials said yesterday.

More than 2,000 Fantle's workers will join the ranks of the unemployed after a liquidation sale that should begin in mid-September and take several months, said Sheldon W. Fantle, chairman of the company.

"The creditors did not agree with our plan of reorganization," Fantle said. "They wanted their money up front rather than waiting for the long-term possibility of success. ... We bowed to their wishes."

The company was saddled with a huge debt when it was purchased by some of its managers six years ago from founder Herbert Haft.

Fantle's group took on that debt and had been staving off creditors at the same time it faced growing competition from discount drug chains like F&M and grocery store pharmacy operations at Giant Food and Safeway.

The chain's demise comes amid increasing concern about the regional economy. It follows the recent bankruptcy filings of such well-known entities as Garfinckel's and Arthur Adler and the failure of the National Bank of Washington. Local economic experts said they expect more troubled businesses to disappear over the next year.

"I'm a whole lot more pessimistic today than I was two weeks ago," said Stephen S. Fuller, professor of urban and regional planning at George Washington University. "The real estate economy is in recession ... the banking industry is in disarray and retail sales are flat.

Fuller added that the possibility of 22-day furloughs for federal workers could mean a $1.5 billion loss to the local economy.

"The fundamental structure of our economy is quite strong," he said. "But there's a psychology of recession," he said. "And if people believe it long enough, there will be one."

The Fantle's move spells the end of a success story that began in 1954, when Haft opened the first Dart Drug store in the District's Adams Morgan neighborhood.

Haft built a drugstore empire of 73 stores by buying large quantities of goods at bargain prices, advertising widely and underselling his competitors.

Haft sold the chain in 1984 for $160 million to the management group, which sold the troubled chain in November 1987 to a group led by Fantle, former head of local competitor Peoples Drug Stores.

The Haft family -- whose Dart Group Corp. owns the Trak Auto and Crown Books chains -- no longer has any financial interest in the chain.

A number of local retail analysts said they were not surprised by the move to liquidate the stores.

"Fantle's had their fate sealed when the Hafts sold the company to employees for $160 million -- an unbelievable amount of money," said Lew Sosnowik at Rockville's Koonce Securities.

The purchase, which was financed largely with high-risk junk bonds, required interest payments of $26 million a year, Sosnowik said.

"The company was dug into such a deep hole that God almighty couldn't pull it out," he said.

"At the time of the buyout, we planned to build on Dart Drug's volume," said Fantle, who with a group of investors initially paid $8 million for a controlling share of the publicly held company. "I didn't realize how rapidly the company was slipping."

Fantle's idea had been to upgrade the Dart Drug stores, which were renamed Fantle's, by emphasizing customer service, upgrading merchandise and offering free delivery of prescriptions.

But that was a costly proposition. To restock the stores, spruce them up, add personnel and delivery services and change signs would have cost as much as $100 million more, some analysts said.

"The Hafts hadn't paid any attention to them for a decade," said one local retail analyst of the stores. "And I don't think Fantle had the cash to make the new concept work."

At the same time, competition from discount drug chains and food stores was increasing.

Chains such as Drug Emporium and F&M have expanded their stores in the Washington area. And Rite-Aid is also a formidable presence, as is Peoples Drug Stores, recently acquired by Melville Corp., which owns the successful CVS drugstore chain.

The toughest competition came from Giant Food, according to several analysts.

Giant uses its huge stores to stock a wide variety of drugstore products and has 103 pharmacies in its 150 stores.

"People go to the supermarket three times more often than to a drugstore," said one retailing executive. "The supermarket has a natural advantage in getting the drugstore customer."

Should a new drugstore competitor come into this market, "they'll have to lock horns with Giant Food. ...," said Sosnowik. "Who can match bucks with Giant's advertising?"

Fantle attempted to sell the chain to other drugstore operators, including Thrift Drug, Eckerd Drugs and Genovese Drugs, but found no one interested in entering such a competitive market, he said.

When that failed, he was under increasing pressure from creditors to liquidate.

Attorneys for the company have asked the bankruptcy court to approve the sale of 12 of Fantle's leases to a partnership owned by Combined Properties, the real estate operation owned by the Haft family, for $9.4 million.

Thirty of the stores' leases were assigned to Mellon Bank last year when the company was refinanced. The remaining leases are probably the company's most valuable asset.

In addition, the store's inventory will be sold to Schottenstein Stores, which will run the liquidation sale.

Its pharmaceutical supplies and prescription lists will be sold to Rite Aid for about $2.8 million, attorneys for the company confirmed.

Fantle said it would be business as usual at the stores until the Maryland bankruptcy court approves the liquidation sale. At that point, the stores will close for several days for inventory and then reopen for the final sales.

Fantle's employees will get four to five weeks of severance pay, based on seniority, as well as vacation pay, Fantle said. And the company plans to provide resume-writing assistance and job placement services, he said.

But local economy watchers said job hunting would be tough for the employees, particularly those in the District, because of the recent Garfinckel's layoffs. Most new hourly wage jobs tend to be in the outlying suburbs, they said.

Customers at Fantle's stores yesterday said they didn't realize the chain was troubled enough to close.

"I think it's a shame," said George Mallios, a customer at the Fantle's on M Street NW. "They have nice stores, and they cleaned up Dart Drug."

But, he added, "there are plenty of drugstores around. I'm sure we won't be wanting."

Staff writers Lori Silver, Joseph Kirby and Debbi Wilgoren contributed to this report.