Pinched by creditors, David Nygaard jewelers closes

Just after the winter holidays, David Nygaard looked at the sales of his seven Hampton Roads stores and realized he couldn't pay off several lines of credit that were due.

He confessed to his Wachovia banker, who told Nygaard the bank would continue to work with him and valued him as a client, Nygaard recalled this week. In April, though, the bank told him it had reclassified his loan as a higher risk and asked him to make good on everything he owed, he said.

Between his working capital and fixed lines of credit, Nygaard's total debt is about $1.6 million. David Nygaard Fine Jewelers held liquidation sales last month but earned nowhere near enough to cover his loans, the owner said.

Wachovia officials then came to the stores on June 24 to collect his remaining inventory as collateral. The bankers locked the jewelry in Nygaard's safe and took the key, he said.

On Saturday, Nygaard closed his Newport News and Williamsburg stores. On Monday, he shuttered remaining locations at Red Mill Commons, Town Center and Hilltop in Virginia Beach, the Greenbrier area of Chesapeake and downtown Norfolk. The closings put about 25 people out of work.

"I shut down and we're done," Nygaard said. "There's nothing to reopen. There's no jewelry."

Wachovia officials declined to discuss Nygaard's situation, citing customer privacy laws.

"Wachovia is committed to helping our customers during tough economic times, and we continue to actively lend to customers," wrote Christine Shaw, a spokeswoman at the bank's headquarters in Charlotte, N.C., in an e-mail. "However, as always, we must manage risk appropriately."

Because of the slowing economy, banks have become much more sensitive to credit risks, and many continue to tighten their lending standards. In an April survey of banks' lending practices, the Federal Reserve Board of Governors reported that 50 percent of participating banks said they had tightened their standards for loans to small businesses.

Wachovia, in particular, has come under pressure because of heavy losses on less traditional home loans and on mortgage-backed securities that turned sour. In June, the company's board ousted its longtime chief executive officer, Ken Thompson.

As David Nygaard Fine Jewelers struggled with its finances this year, two national jewelry chains tumbled into bankruptcy. Friedman's Jewelers has been in bankruptcy since January and, last week, Whitehall Jewelers filed for Chapter 11 protection from its creditors.

In April, Whitehall bought some of the Friedman's chain, which has been liquidating its stores, including two in Chesapeake and one in Virginia Beach. Whitehall has one in Newport News and one in Virginia Beach.

The jewelry business has suffered from two recent trends, said Ken Gassman, a national jewelry industry consultant and president of the Jewelry Industry Research Institute in Richmond. Many mall-based retailers depend on customers who buy on credit plans for about half of their sales, and credit has dried up considerably for consumers, Gassman said.

Even in good times, he continued, jewelers must borrow money to finance much of their inventory and sell through that inventory about once a year - compared with a department store that typically turns its inventory three times a year. "They need a lot of capital, they borrow heavily and when the inventory doesn't sell, the bank says, 'Whoa, we want our money back,' " Gassman said.

Banks that used to work out payment plans with independent retailers during times of slow sales have become more impatient, he added. "They are cutting their losses."

Nygaard took over his mother's jewelry store and launched the first David Nygaard Fine Jewelers 10 years ago. By 2005, he had six locations and added the seventh in downtown Norfolk in November.

If jewelers can weather the current economic downturn, credit crunch and dip in consumer confidence, they should have a healthy future in terms of sales, Gassman said. "If you look at the long-term prospects for the jewelry industry, they're really pretty bright."

Nygaard said he would try to return within the next week any jewelry still "on the bench" for repairs. He had few pending orders but had some deposits for merchandise among his assets, which are now in the bank's possession, he said. He said he will gladly refund that money to customers if Wachovia will allow him to.

Staff writer Tom Shean contributed to this report.

Carolyn Shapiro, (757) 446-2270, carolyn.shapiro@pilotonline.com In an April survey of banks' lending practices, the Federal Reserve Board of Governors reported that 50 percent of participating banks said they had tightened their standards for loans to small businesses.