Hanging by a Thread at Both Sides of the Ocean

Once, they considered themselves friends who could share a home-cooked meal and seal a contract with a handshake. Now, they are two small-business owners separated by the Pacific Ocean and a $4,575.50 debt.

One, Jeff Gutin, runs a Venice Beach tourist shop. The other, Vio Manica, is a Bali clothing exporter. Both are trying to survive a wrenching global slowdown, the sharpest drop in decades.

In the best of times, international trade is perilous, subject to the whims of weather, government regulation and the shifting value of currencies and labor. But in recent months, making a living has become even harder for producers and consumers alike, as the world tries to cope with the stain of red ink caused by the recession in the United States.

For the former friends, success and failure are separated by several thousand sarongs. In normal times, that would be a worrisome rift, but it has turned into an unbridgeable gulf in the wake of the Sept. 11 terrorist attacks. Magnified a million times, their tale of financial distress helps explain how the events of Sept. 11 are spreading weakness around the world, trapping companies and economies in a downward spiral that promises to be felt long after the debris of the World Trade Center is cleared in Manhattan.

On a recent day, Jeff Gutin strolls over to the cash register and checks the tally for the first three hours of business at Ocean Blue, the tourist shop he and his brother, Larry, operate on the Venice boardwalk. Grand total: 43 cents.

Native New Yorkers, the Gutins, like anyone with a television set, were horrified to see the familiar twin towers collapse after being struck by the hijacked airplanes. One of their former classmates was among the thousands who died.

But it wasn’t until the nation’s airports were shut down that Larry, 38, the more pragmatic one, began thinking about the bottom line: No planes, no tourists, no business.

After two decades catering to tourists, the Gutins are veterans of the roller-coaster economy. But nothing prepared them for a plunge this swift and deep. Just when the sun starts to shine again, there’s more bad news: another anthrax victim, vague government warnings about new terrorist threats or another round of layoffs. When the skies opened up the weekend after Thanksgiving, dousing hopes for brisk post-holiday sales, Jeff called his younger brother in despair: “The gods must be angry.”

Since the terrorist attack, Los Angeles’ $13.6-billion travel economy has shrunk by at least 20%, in large part because of the loss of the big-spending international visitors who dropped millions on upscale hotels, city tours, theme park visits and T-shirts. Hardest hit are tourist attractions such as Venice Beach, where businesses like Ocean Blue report a drop in business as high as 40%.

“This is unprecedented,” said David Sheatsley, research director for the Los Angeles Convention and Visitors Bureau. “There is some relationship to the Gulf War, the recession in 1992, the Northridge earthquake. But those were local in nature. This is truly global.”

Luring more locals to Venice with sales and musical performances hasn’t worked either. “How many Venice Beach T-shirts can you own?” asked Jeff, 45. Those Angelenos strolling the boardwalk simply aren’t buying, even with his carved Indonesian mirrors and boxes selling at half price and Christmas carols blaring on the store’s stereo. “Nothing’s happening,” Jeff said. “Even the locals are afraid right now.”

The downturn in sales has meant that imported goods are piling up in warehouses. Ocean Blue’s inventory includes 7,000 hand-dyed batik sarongs imported from Indonesia. Jeff, who handles the wholesale business, already has racked up more than $30,000 in credit card debt trying to pay off his suppliers. But one guy in particular, a former friend, is making him miserable.

Vio Manica is embarrassed by the ruckus he is causing thousands of miles away: The e-mails, the late-night phone calls, the increasingly desperate cries for help. The 46-year-old Romanian, who has a clothing export business on Bali, fears Americans will think that Ocean Blue’s debt is a trivial matter, a mere blip in a multi-trillion-dollar global economy. But in Indonesia, one of Asia’s most fragile economies, four families can eat for a year on less than $5,000.

“For Bali, the future is now extremely precarious,” explained Manica, interviewed at a friend’s home in Bali, where he, his Balinese wife, Diah, and 2-year-old son, Alex, took refuge after they lost the lease on their home. “Sept. 11 is not just what it is. The whole world is just changing.”

For this small-business owner, the Internet had proved to be a powerful way of reaching customers around the globe. However, those closer ties left Manica more vulnerable to the downturn, as the bad times traveled quickly across the supply chain. With the U.S. and Japan leading the world into its current downturn, there were no pockets of prosperity to offset the losses.

Though its physical allure remains undiminished, other aspects of life on the lush, green Indonesian island have grown increasingly desperate in the last year. Even before the collapse in travel, fears of political unrest had forced many tourists to take the tropical island off their agendas. Visitor arrivals for Bali in October were down by an estimated 25% to 33% and exports are expected to decline by at least 40% by the end of the year, according to the Indonesian Freight Forwarders Assn., an industry group.

Just a few years ago, Manica’s company, Parrington Ltd., had a thriving business exporting Indonesian handicrafts and clothing to Mexico, Australia, Eastern Europe and the U.S. One of its specialties was the hand-dyed batik fabric used in the wraparound sarongs and resort clothing popular in Bali. Manica and his wife fantasized about taking their clothing line, ValiDia, to Paris and Milan.

Supporting Artisans Across the Pacific

Their company supported a loose-knit collective of 50 Indonesian craftspeople, who transferred Manica’s designs onto imported Chinese rayon through a time-consuming batik process. A copper stamp is used to apply hot wax to the material, and the fabric is dyed and then boiled. The wax dissolves, leaving the batik design.

Several years ago, Manica met Jeff Gutin and his wife when they were on a buying trip. He invited them home for dinner, and Gutin, who had been buying from Indonesia for years, decided to test Manica’s capabilities by placing a small order for 250 pieces. The shipment arrived on time, and the designs and quality were good.

Like small-business owners everywhere, the Gutins, who have stores in Venice and Westwood Village, operate close to the edge. During the busy summer and Christmas seasons, they make enough money to pay a year’s worth of bills. In the fall, they funnel their profit back into inventory for the next tourist season, traveling to China or Indonesia searching for the next summer’s hot find.

With the sarong business growing increasingly competitive in the U.S., Jeff Gutin wanted to get into the wholesale market early. In February, he placed an order with Manica for 12,063 batik sarongs, which he said were promised for delivery in May. The full sarongs, which sold for $10 to $15 depending on the design, cost $1.20 to $1.65 apiece before quota charges and shipping. Manica said he bid low, clearing just 10 cents’ profit on each sarong, with the hope of bigger orders in the future.

Gutin paid $4,000 upfront and another $4,000 a few months later, when the Bali businessman called with a frantic request for more money to complete the order. Months passed, and the first shipment didn’t arrive until early June, long after most wholesale buyers had filled their orders, according to Gutin.

By that time, the Gutins could see the recession eat into their profit like acid. Their imported Indonesian woodcarvings, silver jewelry and scented candles weren’t moving even when the boardwalk was packed with bikini-clad skaters and musclemen. After May, sales worsened every month. When the rest of Manica’s sarongs arrived by sea in early August, the lackluster summer season was nearly over.

“The quality was good, but we can’t sell them; they arrived too late,” Gutin complained.

Across the Pacific, Manica was in trouble. As the U.S. recession spread, customers from around the globe began reporting a drop in demand for the exotic beachwear and handicrafts. Large orders he had expected from Florida, California and Chile didn’t materialize, and deals he was negotiating with customers from Canada and Mexico were placed on hold.

Small Debt Becomes a Major Crisis

Manica said Gutin’s order was delayed because of last-minute design changes requested by the buyer. Even if he had shipped the sarongs by air, shaving weeks off the delivery, there were no customers at the other end. Without a steady flow of orders, the Bali businessman didn’t have money to purchase the raw materials needed to make samples so he could attract more business. His global web was quickly unraveling and he had no safety net.

Gutin began receiving appeals from Manica asking for prompt payment on the remainder of his $17,775.50 bill. “WE APPEAL TO ANYBODY AT OCEAN BLUE IMPORTS TO REALIZE OUR DESPERATE AND DISTRESSED SITUATION,” read a fax sent Nov. 8. By borrowing money, Gutin managed to scrape together an additional $5,000, though that meant shortchanging other suppliers owed money. Larry urged him not to pay the last $4,575.50 until the sarongs were sold, arguing that the late delivery represented a breach of contract. But Jeff promised to pay Manica when the bank approved the refinancing of his home. “I just want to finish paying him and that’s it,” he said. “Life is too short.”

After several years of hands-off management, the Gutins are back behind the counter because, as Larry explained, “you’re your own best employee.”

Both brothers have canceled buying trips to Asia in recent weeks, in part to save money. Eventually, the Gutins expect they will get back on an airplane. Not just for the money, but because they enjoy the adventure.

When Jeff first went into the sarong business a decade ago, he insisted on being flown to the village on Java where the batik was created so he could confirm the products were handmade. “In Indonesia, the little villages specialize. One village does masks; another does mirrors. It’s a beautiful world, though right now, it’s not the safest place to be.”

Manica said his life has been “utterly and completely destroyed,” but he also acknowledges that “a number of unrelated circumstances” have turned a relatively small debt into a major crisis. One angry shipper--who is owed $3,300--claimed the Manicas’ Toyota four-wheel drive as collateral and has issued veiled threats to the frightened family. Pointing to his bare finger, Manica said he and his wife recently sold their wedding rings for $200 to buy food and powdered milk for their son. “We’re not giving up because we have faith and we’re a family,” he said. “But we think, next week, what are we going to do?”

On both sides of the Pacific, there is a sense of regret and recognition that this story might have ended quite differently in another time or place.

“I think if Vio and I had known each other longer, it would’ve been better,” Jeff said. “And if things weren’t so desperate.”

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Times staff writer Mark Magnier contributed to this report from Bali, Indonesia.