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you need to kill *all* raiders in the *whole* area. They can hide everywhere in the vicinity of Harmondale. They can be in everywhere the Castle. They can be in the village.
Therefore, cast Wizard Eye and cleanse the Castle carefully. Then cast Fly, cruise the map and send to hell every "red dot" you will see. Then wait about a week and the shops will open again. And if you meet some Mr. Malwick again in the future then turn him back and kick his a** so that he will fly across whole Emerald Island. Or better, shoot a few arrows into the pack of dragonflies nearby and then run (with dragonflies behind your back) around him ... 
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