Black in the Red

Everyone expected Charles Howze's Z Mart to be a model for minority-run businesses in Dade. In a sad way it was: It went bankrupt.

This isn't the way it was supposed to turn out. The vast space on NW 54th Street in Liberty City once teemed with colorful merchandise that stretched from the clothing and shoe departments on one side, through sporting goods and electronics, to housewares, toys, and health-and-beauty aids half a city block away. But barren racks and shelves are about all that's left now, metal skeletons scattered across an endless landscape of linoleum. Like a stadium after a devastating home-team loss, the life has all but gone out of Z Mart, whose owner filed for bankruptcy last November. On this cool winter afternoon during its last weekend of business, the discount store is a cavernous shell of its former self, littered with the detritus of failed commerce.

The dregs that remain are strewn along the few short aisles that are still intact. A smattering of cosmetics, a motley assortment of hardware and auto parts. Toys and cleaning solvents. Some of the merchandise is opened and damaged, elsewhere husks of empty packaging recall other goods that presumably have been pilfered. Where a staff of 75 employees once saw to customers' needs, today a few workers drag dollies loaded with salvaged inventory destined for a storage facility in Opa-locka and an uncertain future. A few doubtful shoppers who've wandered in sift through heaps of half-price odds and ends, looking for nothing. A lone cashier absently sucks at a soda; the other eight checkout counters are empty, their shiny cash registers like so many third-stringers sitting dejectedly in unsoiled uniforms.

Surely no one who attended the store's August 17, 1991, grand opening foresaw such a fate for this enterprise, which had sprung from the ambitions of three former department store managers, all of whom were black, all of whom had staked their life savings and reputations on Miami's only black-owned department store. The trio had pulled together a diverse team of private financial institutions to invest in a depressed area that long had been shunned by most big retailers and financial lenders.

Z Mart was to be an unprecedented community-oriented enterprise, one that would keep Liberty City dollars in Liberty City by employing residents, buying merchandise from local distributors, and gearing inventory toward black consumers. It was going to provide a needed boost to the ailing community and set an example for the development of black-run businesses throughout Dade.

What actually came to pass, however, was three years of lagging sales that led to major cutbacks in retail space and staff, and, finally, Chapter 11 bankruptcy protection from creditors. Charles Howze, the only founder still involved in the company, has been forced to vacate the massive retail space. Now, under the supervision of a U.S. bankruptcy court judge, he hopes to reconstitute his store elsewhere, in a significantly smaller form.

Z Mart's failures have provoked considerable self-reflection in the business community and accelerated an ongoing reassessment of the way minority businesses, specifically black-owned enterprises, are nurtured and financed in Miami. "This was the Super Bowl," says Bill Wynn, a long-time Liberty City business leader. "It's a travesty, because it had in its dream the potential to really establish in Miami a visible, high-profile model for the black merchant class, which is what we really need."

Indeed, some now wonder whether Miami will ever have a healthy black entrepreneurial class. Even John Hall, an executive vice president of the Beacon Council, a quasi-governmental organization whose purpose is to promote local businesses, is far from confident. "Think about it: How long have we had to go to get to 1995 and not have one?" Hall asks, shaking his head. "Are we going to go another ten years and still not have one?"

Visit z mart on its inaugural day was to understand the sense of hope wrapped up in the enterprise. It's not every day, after all, that mayors, commissioners, civic leaders, and business big shots -- not to mention reporters and cameramen and thousands of community residents -- turn out for the opening of a store.

Amid all the celebrants, the balloons, and the streamers, Z Mart had its biggest day of business ever, recalls 45-year-old Charles Howze, a man of medium build and a soft-spoken yet direct demeanor. In a rare sedentary moment, Howze is sitting in a small, windowless room in the rafters of the Z Mart building, recounting the laborious birth of the store he now must close. These days he has been in constant motion, hammering out the final details of his reorganization plan, meeting with creditors, attempting to sell them on his strategies for saving the corporation while dismantling the existing store. He's so busy he's had to cancel two scheduled interviews and finally, reluctantly, he has set aside a couple of hours on a Sunday, his "rest day" as he calls it. But even then, as he charts Z Mart's troubled history and unrealized promise, business phone calls interrupt constantly.

Howze says he hatched the idea of owning his own store while scaling the corporate ladder. As an undergraduate at Miles College in Birmingham, Alabama, he'd been recruited in 1972 to join the Zayre department store chain. Hiring on as a manager trainee, Howze rose through the ranks; in his last position for the corporation, he managed 24 stores in Dade, Broward, and Monroe counties. When the department store division was sold to the Ames chain in 1988, Howze retained essentially the same job. Two years later, Ames filed for bankruptcy under Chapter 11 and closed 82 of its Florida stores.

The company invited Howze to transfer to Baltimore, but rather than uproot his wife and two kids and move again, Howze and two of his store managers, John Kilby and Joan Donaldson, joined forces to open their own store. To the partners, there was no question as to the site: Zayre, and later Ames, had maintained a store at 1100 NW 54th St. in Liberty City, and all three had worked as managers at that location. (Howze says the Liberty City Zayre was particularly successful, turning a profit of about one million dollars per year at its peak.) But when Ames pulled out, the neighborhood lost 100 jobs and for the first time in eleven years was without a large retail discount store.

Set on eight acres of parking next to a large indoor flea market, the new store was to provide a commercial and aesthetic boost to a shoddy corridor. Howze envisioned a thriving mall that in addition to Z Mart as an anchor tenant would include a grocery store and smaller retail shops.

Howze, Donaldson, and Kilby pooled about $500,000 in cash, deferred salaries, and property in order to raise collateral for a loan. (Howze, Z Mart's president, says his contribution was $300,000.) They agreed to forgo vacations and incomes until the store was up and running, which meant radical changes in lifestyles: Howze's wife, an accountant, returned to work after several years away. Kilby's son, at that time a 24-year-old assistant manager for Phar-Mor, became his family's sole source of income. "We worked every day for a year without a salary, six or seven days a week," recalls Donaldson. "I couldn't afford to do anything else A no going out."

For help in closing the deal, the three called on Roderick Petrey, a partner in the legal firm of Holland & Knight, who a decade earlier had helped form Tacolcy Economic Development Corporation in Liberty City. (Founded by Otis Pitts, who is now deputy assistant secretary of the U.S. Department of Housing and Urban Development, Tacolcy has won national praise for its efforts in housing and commercial revitalization.) Having leased the space on NW 54th Street, the group began approaching local financial institutions, hoping to raise sufficient capital to open for business by year's end.

But the reception wasn't particularly warm. "We'd get commitments, then the commitments would fall through," Howze remembers. "Then they'd renege on other commitments."

The partners pushed back their target date, first to February 1991, and later to May. Both dates had to be rescheduled. Finally, at the end of June, they signed a $1.38 million loan agreement with eight lenders, and hired 75 people, most of whom were Liberty City residents. "There was a sense of pride, being part of a startup operation like this," says Howze, contrasting the experience with his prior stints at Zayre and Ames. "It is a lot easier to feel part of an organization when it's all in one location. It creates a close-knit organization, more than if you're working for a corporation somewhere else."

Business realities soon superseded the communal optimism. In its first year, Z Mart pulled in about $3.5 million in sales, Howze says, well below the owners' original projection of $5.4 million. In July 1992 they sought additional funding from the City of Miami, which had provided $325,000 of the original loan. Howze scaled back the staff to 60 and reduced the retail space from 54,000 to 40,000 square feet. As sales continued to flag, the store subleased space to a hair salon, a pharmacy, and an insurance business in an effort to draw more customers. Z Mart also expanded its niche marketing, opening an African boutique and augmenting its selection of clothing and paraphernalia decorated with insignias of black colleges, sororities, and fraternities. (That same year, John Kilby left the business. While Kilby, now a store manager for Office Max, refused to comment for this story, Howze says his former partner was hard hit by Hurricane Andrew and left Z Mart to take care of personal matters.)

Sales continued to fall. Second-year revenues dropped to about $2.5 million, while third-year earnings hit $1.5 million. By the third anniversary, the staff had been cut back to twenty and the retail space to about 25,000 square feet. Howze's proposals to create a mall were rejected by the lenders and development groups he approached. This past June, Donaldson, too, left the company because, she says, "We couldn't afford to have both of us on salary." (She is now a store manager for Marshall's.) Finally, on November 15, Z Mart filed for reorganization under Chapter 11, citing debts of $1.9 million and assets of $135,499.

The news shook the black business community. Under the headline "Z Mart failure is ours too," the Miami Times published an editorial lamenting "the painful process" of the store's existence. "This Christmas season, as for any other, our community will be spending millions of dollars. Z Mart should get some of those dollars," the editorial urged. "Mr. Howze and Z Mart should be given every support. For the failure of Z Mart will be the failure of all of us black people in Miami."

Howze and his creditors sift through the remains of Z Mart, there emerges a primary -- and unsurprising -- reason for the failure: The store never had enough money. Howze points out that it took nine months longer than he had anticipated to finalize a loan, during which time he paid rent and utilities on an empty space.

A shortage of money meant shelves couldn't be adequately stocked. Howze admits Z Mart was too big when it opened; 20,000 square feet was probably all that was needed from the start. "We intended to have roughly $1.3 million worth of inventory, but we actually opened with $700,000," notes the owner. "We could never build up the inventory across the board."

This shortcoming may have contributed a deleterious psychological side effect, says Elaine Black, executive director of Tools for Change, a Liberty City-based organization that provides technical assistance to fledgling businesses in predominantly black Dade neighborhoods. "People like to see well-stocked shelves," Black asserts. "You feel good about it, even if you're only going to buy one ink pen. People want to walk into a department store and think they can get everything they want."

Money wasn't the only factor. A full year elapsed between the time Ames closed and Z Mart opened. Some, Howze included, conjecture that the delay eroded much of the loyal customer base Z Mart had hoped to capitalize on. Simultaneously, a powerful commercial force was sucking customers away from stores like Z Mart: a boom in giant discount and wholesale stores, including Wal-Mart and Kmart. Competing against these megacorporations, particularly in the realms of advertising and inventory, was virtually impossible for a relatively minuscule operation.

That said, Howze doesn't fault the neighborhood for not supporting the effort. "Everybody wants to blame the consumers," he says. "If you can convince the world that the community won't support its own organization, what better excuse is there for banks and other investors not to invest in the community? The reason black businesses don't survive in Liberty City is that we don't have enough resources to compete."

The Z Mart president faults the various lenders and community-based organizations for refusing to commit more money in the beginning, then failing to support his revised business plans. "They talked about doing this shopping center, there was a lot of lip service. But they never came through," Howze grumbles, adding that Z Mart never should have opened without a grocery store alongside it.

The fact that the store opened at all says a great deal about how emotion dominated logic when it came to financing Z Mart. Many observers and some participants say the desire to open Miami's only black-owned department store prevailed over the meticulous strategizing necessary to open a financially healthy black-owned department store.

While reliable statistics are hard to come by, business leaders generally agree that blacks own disproportionately few businesses in Dade. According to the U.S. Census Minority Business Enterprise Survey of 1987, the most recent available, blacks accounted for twenty percent of the county's population, whereas less than six percent of Dade businesses were black-owned. Of those firms, less than fifteen percent (981) had employees. The average black business employed between two and three people, far below the county average, which fell between seven and eight. (Leaders in the black community say the numbers probably haven't changed drastically since 1987.)

"This was a chance you don't see too often among African-American entrepreneurs," observes Roderick Petrey, the Holland & Knight attorney who helped put together Z Mart. "They came forward with this plan and banks thought it would be a good thing to be involved with. It became a self-reinforcing thing. And it had symbolic importance way beyond its economic importance."

Adds Tools for Change's Elaine Black: "I think a lot of people realized going into it that there wasn't enough money. But do you kill the business because you don't have enough money? Everybody wanted it so much. We did a lot of soul-searching and we decided to take the leap of faith."

Some feel the store was doomed the minute shrewd business judgment took a back seat to passion. "It's not true business assistance, it's charity," argues George Knox, a black lawyer who is a member of the board of directors of Barnett Bank, one of the institutions that loaned money to Z Mart. "The concept has to be changed from charity to sensible investment."

T. Willard Fair, president and CEO of the Urban League of Greater Miami, believes too much of Z Mart's hope depended on the hollow assumption that blacks would shop at the store simply because it was black-owned. "Anybody who gave an impression to the Z Mart owners that they could make this project work were doing a disservice," Fair says. "I think politicians, especially, got caught up with being part of the announcement rather than the understanding."

The result, Fair warns, is that Z Mart's collapse may do more harm than good to ongoing efforts to develop black businesses in Miami: "It was destructive to the participants and destructive to the image-building we have to do in the black community. We can ill-afford to continue not to be successful."

While money alone might not have been the answer, it may have given Howze some time to redirect the business when it began to fizzle. Unfortunately, there isn't much flexible working capital in the black community. "For a long time, African Americans have been locked out of traditional sources of financing," observes Gregory Hobbs, president of the BAC Funding Corporation, another entity that loaned Z Mart money. "And we don't have 'rich uncles' -- wealthy individual private investors, venture capitalists."

The fact that banks always have been loath to invest in black businesses and black neighborhoods is what prompted the federal Community Reinvestment Act (CRA) of 1977, which requires banks to make loans in all communities where they accept deposits. Still, South Florida banks have an abysmal record in this realm. Citing federal data, Kenneth Thomas, a local banking consultant, says Miami's CRA record is third-worst in the nation, behind only Los Angeles and Chicago.

Largely in response to pressure from the Clinton administration, some of South Florida's biggest financial institutions have made gestures to close the lending gap. This past year, for example, a group of banks tried to develop the so-called Overtown Community Banking Center, a branch office in which several banks would provide basic services at the same location. (Despite a population of about 14,000, the impoverished downtown Miami neighborhood doesn't have a single bank.) While boosters argued that the plan would allow participants to survey the market before committing to a full-service branch, critics called the move a cowardly effort by powerful institutions that have the ability to do a lot more. The plans were shelved this past fall, when the project was deemed too cumbersome to operate. Since then, two local banks have announced their intentions to open branches in inner-city neighborhoods.

Without banks, minority entrepreneurs must rely on community-based programs such as the Beacon Council, Miami Capital (a lending arm of the City of Miami), and the BAC. Once these organizations agree to loan money to a venture, the thinking goes, banks are confident enough to sign on, too. The trouble is, the community organizations themselves don't have all that much money, and what they do have isn't always conveniently available. The Beacon Council, for instance, received $1.5 million in posthurricane aid through We Will Rebuild, but although those funds were earmarked for black businesses, they were restricted to projects in South Dade.

Financial limitations have forced the BAC, too, to restrict its program, according to president Gregory Hobbs. A nonprofit development organization established with private contributions after the McDuffie riots of 1980, the BAC is now almost exclusively devoting its resources to financing investments associated with minority set-aside governmental contracts. (Hobbs says the organization changed its name from Business Assistance Center to BAC "because we're trying to stay away from 'assistance'.")

John Copeland, staff director of Miami Partners for Progress, argues that Miami needs a large-scale equity fund for black entrepreneurs. He envisions contributions from a variety of private sources, all of which would have a limited partnership in the venture, and thus a stake in its investments. "The idea is that all the folks would be sitting around the same table, literally," notes Copeland, whose organization was established to help implement the "economic blueprint" that emerged from the black tourism boycott that ushered in the 1990s in Miami.

The Beacon Council is trying to develop such a fund, using the $1.5 million of hurricane money as a cornerstone to attract limited partners from the private sector. The council's goal: $25 million. "We want banks to be able to leverage our deals and loan money to the companies we invest in," explains Beacon Council vice president John Hall. Still, the venture is crippled by its utter lack of a track record.

Barnett Bank board member George Knox cautions against viewing a venture capital fund as a substitute for bank financing. It's more likely individual investors will step forward to participate in a business investment once a bank has declared its interest in the project, rather than vice versa, Knox argues: "A bank's level of scrutiny is necessary to give confidence not only to potential investors but to the community at large that this is a worthwhile project."

Regardless, he continues, banks must radically change the way they invest in black businesses and low-income communities. As it stands, many loans are made simply to comply with federal guidelines, with no hope of return. "I think it's a recipe for disaster," Knox complains. "It's just play money; no one is really committed. The attitude here is, 'What can we do in order to comply? How can we keep federal regulators off of our backs?' There's no heartfelt equity on the part of the investors. The banks satisfy their minority-lending commitments and write it off as a business loss."

Knox believes that if change is to occur, banks must become partners in their investments, financially and psychologically: "They can be more proactive. They can help put packages together rather than waiting for the package to come to them. They have to step forward and become team members. They've got to have a stake in the outcome. They have to go into it with a reasonable expectation that there's a return and that their investment is big enough to inspire them to get involved."

For his part, Charles Howze welcomes any movement of parties taking a stock in their investments. "If you're serious about economic development, you're going to get that dealing with people who are interested in taking dollars and getting a return on that investment," he notes. "You're not going to get that dealing with [impersonal] organizations."

In recent weeks, the debate about boosting black business development has been informed by two lists that appeared in the South Florida Business Journal. One list shows the 25 largest Hispanic-owned businesses in South Florida. With 1993 revenues of $236,520,000, Sedano's Supermarkets of Hialeah is the top-ranked firm. Personnel One Inc., a temp agency that ranked 25th, showed revenues of $36,890,000.

The second list ranked South Florida's largest black-owned businesses. Toyota of Homestead topped the rankings with projected 1994 revenues of $35 million, lower than the 25th-place Hispanic firm.

"By and large I think it's a function of the lack of wealth in the black community," concludes John Copeland of Miami Partners for Progress, adding that the charts illustrate how difficult it is for blacks to compete for minority-designated funds.

Observes Knox: "Those lists are the most visible expression of truth I've ever seen about the state of the economy among the ethnic communities in Dade County."

Charles howze wasn't trying to save the world, not even a small slice of it. And he doesn't need all the newspaper articles and editorials and communal fretting and boardroom theorizing and Monday-morning quarterbacking that he and his enterprise have been subjected to.

"I didn't really want the burden of having to be held up as a business that the development of the rest of Liberty City rides on. It was an unexpected burden heaped on us right from the beginning," he grumbles. "I guess in a way I was naive. I guess I was sheltered by corporate life; I perceived this as a business venture to do something that's being done everywhere else. It's just a business, quite frankly. This is not a big project. It's no big deal.

"Somebody asked me, 'Well, what if the business isn't going to survive?' And I said, 'So what if it don't? Don't I have a right to fail?'"

Howze knows his failure might have a chilling effect on loans to other businesses, particularly black-owned businesses, that wish to locate in predominantly black neighborhoods. In fact, when he was applying for funding, at least one bank used the collapse of another black-owned business venture -- Long's Office Supply Company -- as a justification for not participating in the Z Mart project. (Long's was acquired by a local black businessman in the early 1980s with the support of several financial institutions, but filed for bankruptcy and liquidated a couple of years later.) "This bank said to me, 'We don't want to get into a deal like that because this might be another Long's,'" Howze remembers. "I said, 'What does that have to do with me?' It's amazing how big Miami is and how small people think when it comes to black business and, in general, business in Liberty City."

Howze's observation notwithstanding, some people are trying to think big. "In the private sector, we have an awful lot of failure. So one in Liberty City shouldn't scare anyone off," says attorney Roderick Petrey, who is also the executive director of Miami Partners for Progress. "It's going to, I'm afraid, but it shouldn't. It's too easy not to make investments in this field. We need 100 more experiments like Z Mart."

Petrey and others hope that along with Z Mart's endeavor, projects such as the hotels planned for Miami Beach and Overtown

signal a trend toward more ambitious black-owned developments -- "projects of scale" in business-speak. But they want even more. The Beacon Council's John Hall has a goal of a dozen in the next year, with the Beacon Council financing more than $50,000 per project.

While this will require new sources of funding, if not the opening up of traditional ones, it will also require careful planning -- or to employ another buzzword, "niche-ing." Explains BAC's Gregory Hobbs: "With limited sources of financing, it puts more pressure on the importance of technical assistance to define the niche for the black business owner, and says, 'You can survive in this niche, but you have to work this niche expertly.'"

In 1993 the Beacon Council undertook an effort to encourage black businesses by raising their public profile. The group created the Network 100, a list of the area's top 100 black-owned enterprises, ranked by revenue. "We were trying to create the aura, the personality in the black business community, that success is in and success is good," explains Hall. "We were also trying to identify candidates for either the black venture funds or other sources of funds."

The Beacon Council went even further, picking a Network 10 A ten businesses with the greatest potential to reach Black Enterprise magazine's "B.E. 100," a list of the top black-owned industrial and service companies nationwide. (Only two local companies figure in the magazine's current roster: Urban Organization Inc., a general contracting firm, and Solo Construction Corp., a general engineering construction firm, which rank 87 and 90 respectively.) Representatives from each of the Network 10 companies were enrolled in a minority-executive seminar at the University of Miami. In addition, each firm was given $10,000 worth of consulting services to design a five-year strategic plan, and assured of $250,000 in equity funding.

The money, unfortunately, only materialized for South Dade projects. And a spot on the list has been anything but a guarantee. At number fifteen on the Network 100, and included among the Network 10, was Z Mart.

Howze isn't giving up, and he says he's more frustrated than discouraged by all the talk of Z Mart's demise and its resonance in the black business community. As he sees it, there ought to be a little more action and a little less blather. "I happen not to be impressed with people who talk about black economic development, unless you put it on the line," he says. "If you take the resources that you have, and the time and talent you have, and go put it on the line in a place like Liberty City, then I believe you're interested in economic development."

But on this Saturday, the last weekend of Z Mart's tenure at 1100 NW 54th St., the nearly vacant store is anything but alive with hope. What hope exists is tucked away inside Charles Howze, who is spending the day tending to the last-minute details of relocation. Good inventory needs to go to the Opa-locka warehouse. Heap the other stuff up front for the eleventh-hour scavengers. Dismantle all the shelving and fixtures; throughout the weekend, other merchants with visions of their own success will be stopping by to cannibalize.

"It's never pleasant to go through something like this," Howze says without discernible emotion. "But one thing I've learned is that there are different stages of development you have to go through in life. And this, I guess, is one of those stages." He plants his loafered feet firmly and crosses his arms in a posture that's equal parts defiant and defensive. Above him hangs a sign that reads, "HAPPY HOLIDAYS, MERRY CHRISTMAS."

Wincing at the notion that his company has failed, he prefers to use the phrase "a difficult transition" to describe his straits. "The majority of businesses fail within the first two years, a bigger percentage drop off within three years," he points out. "We're in our fourth year now. We beat the odds in staying around as long as we have. There's no doubt the company will go on in some form."

He knows it won't be easy. Clearing out of the store by Monday is one hurdle, but the next involves persuading his creditors and the bankruptcy judge to accept his reorganization plan. He has already opened a T-shirt stand at the 163rd Street Mall and is eyeing a storefront in a strip mall in Richmond Heights for more of the same. He has also begun discussing terms with the City of Miami regarding the opening of a scaled-down Z Mart in a 2500-square-foot space at the Overtown Shopping Center. His creditors, he says, have given him "a good response" so far. (Several creditors subsequently voted against the plan during a bankruptcy hearing January 25, after which Howze was given another month to gather the support he needs to continue. "I'm worried to death," sighs former partner Joan Donaldson, who still has her house tied up in the business. "At this point in my life, I don't want to start over.")

Howze says he isn't agonizing about the state of his enterprise. "I have a firm philosophy: Once I make a decision, man, I don't look back. I made the decision to reorganize. And now I'm more convinced than ever this project is doable and can be replicated in a lot of locations. As soon as we get back on track, believe me, this thing's going to be done."

Asked how he feels, he quickly responds, "Tired." With that he turns and strides back among the remains of his enormous store, its emptiness making it look more vast than ever.

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