Jitters restructuring, some shops close

Grace Leong

Wednesday, Jan. 23, 2002 | 11:05 a.m.

Jitters Gourmet Coffee and Cafe Inc., which has 13 shops and one roasting plant in the Las Vegas area, said Tuesday it is restructuring after a development deal with home improvement giant HomeBase Inc. failed in March and the Sept. 11 terrorist attacks took a toll on sales.

The coffee retailer, which said it has eight company-owned coffee shops and five franchise locations in Las Vegas, said it has entered into agreements with several landlords to close non-performing cafes but didn't specify the timing, location and number of shops to be closed.

Jitters, which said it felt "strongly that without the non-performing cafes, (it) will be in a position to continue (its) growth in Las Vegas," blamed its financial problems in part on the failure of the Jitters-HomeBase deal.

HomeBase, which announced in December 2000 its plans to exit the home improvement business and reposition itself as a home furnishings retailer under the House2Home name, originally planned to have 68 stores converted to House2Home stores by November and agreed to have Jitters develop cafes in all those stores.

But Jitters' plans to have cafes in these stores were dashed after HomeBase, on March 27, announced it was closing 26 HomeBase stores and would have only 42 House2Home stores instead. Jitters had opened outlets at five of the 68 stores in Las Vegas and California, but these five locations are now closed after Jitters allegedly terminated the agreement on May 3.

HomeBase sued in May to recover from Jitters $1.52 million in allegedly unpaid license fees and unreimbursed costs to build coffee shops in its House2Home stores. This was after Jitters allegedly terminated the agreement after its attempts to negotiate a better deal following HomeBase's downsizing announcement failed.

Jitters countersued, accusing HomeBase of breaching the agreement to convert 68 HomeBase stores to the House2Home concept when it closed 26 of those stores in locations critical to Jitters' brand name development. Jitters also said its business reputation was damaged after the five House2Home stores in Las Vegas and California were closed and some $150,000 of its equipment at the stores were being "held hostage" by HomeBase.

HomeBase, which filed for Chapter 11 bankruptcy protection in its home state of California on Nov. 7, dismissed Jitters' claims as "red herrings," saying Jitters had told HomeBase of its intention to terminate the agreement before HomeBase made its downsizing announcement on March 27.

HomeBase's Assistant Vice President of Specialty Sales Robert Frey said Jitters Chairman Hong Tan and President Lamont Birmingham had initiated a meeting with HomeBase on March 22 when they allegedly indicated Jitters cafes at the House2Home stores were losing money and said Jitters would be forced to terminate its agreement if those cafes' performance didn't improve.

At least two Jitters cafes in Las Vegas are now closed, including one at 8145 W. Sahara Ave. and another at 4983 W. Flamingo Ave.

Jitters is also being sued by the landlord of the West Flamingo shop, the Lorenz Rothbucher and Thea Rothbucher Trust, over its alleged failure to pay $28,421 in rents. Jitters was allegedly evicted by the landlord on Dec. 10.

But Bradley Booke, Jitters' attorney, disputed the landlord's allegations, saying Jitters closed the West Flamingo store because of poor business there.

Meanwhile Jitters is also embroiled in litigation with Charles Giordano, a managing member of a former Jitters franchise at 8878 S. Eastern Ave. that closed in April.

Giordano sued Jitters, its former president James William and current president Birmingham on Oct. 15, alleging they deliberately "inflated the gross sales and net income of an average Jitters shop" to induce him to invest in two franchise locations, one at 9340 S. Eastern Ave. and the other at 8878 S. Eastern Ave.

Giordano said his two shops could not compete successfully and generate sufficient income to pay its bills because Jitters failed to aggressively advertise and market the Jitters concept even though it allegedly "knew of the escalating competition for coffee houses in the Las Vegas area."

Giordano, who said Jitters represented that the proximity of the two South Eastern Avenue shops would "foreclose any other competition from opening a competing store in close proximity to his shops," said the 8878 S. Eastern shop was "barely grossing $200 a day" by the summer of 2000 because of its poor location and competition from a nearby Starbucks.

But Jitters disputed Giordano's claims, saying he failed to sign franchise agreements for the two shops and allegedly owes Jitters $83,598 in royalties for use of the Jitters name.

Jitters also accused Giordano of causing the company to be sued by Pebble Commercial Center, the landlord of the 8878 S. Eastern shop at the Colonnade Square at Pebble, after Giordano allegedly abandoned the shop and improperly removed its toilets, heating, ventilation and air conditioning equipment.

Meanwhile, Philip Lucina, franchise owner of a Jitters shop at 75 South Valle Verde Drive in Green Valley for about three years, said its store isn't one of the non-performing stores. But he said business was hurt after the Sept. 11 attacks.

"October through December is typically coffee-drinking weather for us and typically our annual growth averages about 10 percent. But because of the attacks, business was down about 10 percent in November from a year ago, and down about 7 percent in December," he said.

"We've heard Jitters hired an operations manager from TGI Friday's to improve its operations. TGI Friday's has one of the best-run restaurant concepts. If Jitters could copy TGI's and its system, it could improve," he said.