By Lorraine Blasor
Special to News is my Business
The list of once thriving companies dragged under by Puerto Rico’s long-running recession and the tightening of the bank credit spigot keeps growing longer. The recent demise of Rigual Inc., a popular wholesale/retailer of floral and party supplies based in a quiet San Juan neighborhood for 61 years, is just one more example of how the ongoing economic climate can undo decades of success and hard work by management and employees.
What happened to Rigual Inc. is no different from what countless other firms operating on the island have experienced. If this case seems noteworthy at all it is because the company was well known to islandwide consumers who flocked to its iconic green buildings to snap up supplies and decorations for all sorts of social occasions, be it weddings, parties, or wakes.
Company owner and President Rafael Rigual said he did everything he could to avert closing down but was thwarted by plummeting sales and the loss of a credit line that forced him to mortgage personal properties in order to raise money to keep afloat. To no avail.
When asked how he felt about the outcome, Rigual, who at 85 remains curious and engaged with life, simply answered: “How would you feel if you went from having millions to zero?”
The end came not with a bang but a whimper. More like someone turning off the light. Which is exactly what happened on June 2 when the Puerto Rico Electric Power Authority shut down the company’s power due to non-payment of an outstanding bill of between $30,000 to $40,000.
This action “was the blow that sent the bullet through the heart ,” said Rigual, a former head/neck specialist and plastic surgeon who spent decades in Oklahoma prior to taking over the company that his father, also named Rafael Rigual, founded in1950.
That same June day he decided to call it quits.
Right now the company is in the process of liquidation with real estate brokers Cerame & Cerame Realty Inc. handling the sale of the eight buildings on Pesante and Perez Streets, in Santurce, that served as the home base for the operation (Another building in Arecibo is also up for sale).
Rigual could not say how much he can expect to make from the sale, an amount that will go toward meeting his outstanding obligations, including $5 million owed on mortgaged properties.
“We don’t know what those properties are worth in today’s market,” he said.
Loss of credit line dealt mortal blow
If the recession sucked the lifeblood of the company by stunting its sales year by year as hard pressed consumers cut back on purchases, it was the loss in 2006 of a vital line of credit from Westernbank that dealt the company grievous damage, as Rigual explained in an exclusive interview with News Is My Business during which he was joined by Awilda Rivera, the company’s vice president of finance.
Up until that year, the company was healthy and thriving, having expanded beyond San Juan to open stores in Arecibo, Cabo Rojo, Caguas, Isabela, Ponce, and Vega Baja. At one point, there were nearly 200 employees on the payroll.
In 2004, the company reached its peak when it reported its highest gross income, “plus or minus $18 million,” said Rigual.
His formula for success was simple: good service and cheap prices, which did not endear him to competitors who felt he was merely trying to undercut them. But Rigual said he preferred growing the business through volume rather than inflated prices.
In fact, he considered his prices fair and felt the income he generated was adequate.
“I was satisfied with the revenue we made,” he said.
Other companies sold many of the same products consumers found at Rigual Inc. but, and this was probably its ace in the hole, “we had them all under the same roof,” Rivera said.
Souring economy, government measured compounded troubles
By 2005 and 2006, things started to change as the Puerto Rico economy began to sour and the government passed measures that exacerbated the situation, such as raising taxes and utility rates.
In 2006, with company sales in a decline, Rigual met with Westernbank officials to discuss ways of tackling the turndown; they recommended turning to billboard advertising, selling stores and reducing operational costs, advice which Rigual said he took to heart, setting in motion a massive scale back in the operation.
Five out of the company’s seven stores were closed and the buildings that housed some of them were sold off too, with the revenue from these sales going to repay Westernbank’s $1.5 million credit line.
Unexpectedly, and without “discussing it with us,” Westernbank decided not to renew the credit line and instead extended to Rigual a $500,000 loan.
It may not have been what he wanted but he had little choice and besides, he said, this “didn’t just happen to me but to many other businesses.”
Asked why he did not consider turning to another bank at that point, Rigual said that the cost of switching institutions would have been too onerous; in fact, changing from First Bank to Westernbank in 2004 cost him in excess of $100,000 in fees.
After the loan money from Westernbank ran out, Rigual was forced to borrow money by mortgaging his own private properties even as he continued to cut back on everything, from slashing employee salaries to making sure the air conditioning was not on too high.
By the time the power authority cut off the lights, Rigual clearly knew he had reached the end of the line.
Out of business, but not out of debt
The liquidation is not his sole headache these days. Another concern is the debt he owes on the properties mortgaged with Westernbank to keep the operation going, the outstanding $5 million. Westernbank failed on April 30, 2010 and Banco Popular subsequently acquired its deposits and some of its assets.
On Sept. 29, Banco Popular announced the sale of a portfolio of construction and commercial real estate loans with an unpaid principal balance and net book value of around $358 million and $148 million, respectively. The purchaser is a new joint venture whose majority owner is a limited liability company comprising Goldman Sachs & Co., Caribbean Property Group LLC and East Rock Capital LLC.
Rigual said he has no idea whether his loans are part of the portfolio that Banco Popular sold off.
Familiar emerald green buildings now empty
When Rafael Rigual senior set about finding a location to start his business he bought property in the cheapest part of San Juan. That same principle applied to choosing the color of paint.
“Green was the cheapest color paint available,” said Rigual who became president of the company in 1987, a year prior to his father’s death from cancer.
Although he had been living in Oklahoma until then, he came to the island regularly and was familiar with the company and all its employees. His father, he said, built the business by giving customers 100 percent satisfaction.
“If you didn’t like the product you could get a refund or get something else, without even showing a receipt,” he said, noting that that type of trust rests on making customers responsible. “Today it is different; people would take advantage.”
Looking back on his experience, Rigual is critical of the island’s business environment which hampers, rather than helps entrepreneurs: pervasive bureaucracy and excessive labor laws and business requirements are making it harder than ever for companies to survive in today’s heavily competitive marketplace, he said.
He also deplored the entrenched cronyism, the politicized environment, and the penchant by the government to paint a rosy picture when things are clearly going bad and suggested that Puerto Rico might have avoided some of the problems it is now confronting had the government implemented some of the recommendations made in the famous Tobin Report of 1975 which advised, in the face of an ongoing recession at that time, such steps as freezing government salaries, rescinding legislated employee fringe benefits, imposing additional taxes on durable consumer goods, and limiting the floating of bond issues.
While pessimistic about the island’s future, Rigual sees the need for Puerto Rico’s leading sectors to come together and begin a conversation to get the island moving again.
Perhaps, he suggested, it is time for members from the government, business and the labor sector “to sit down on a chair, take off their ties and try to come to some conclusions as to what is best for Puerto Rico.”
As for himself, had he a choice to do it again, he wouldn’t.
Firmly, and with no hesitation he said: “No, never. I would have sold everything when my father died.”