Soft Surroundings Files for Chapter 11 Bankruptcy
Soft Surroundings filed for Chapter 11 bankruptcy on Sunday to restructure and streamline with a store-less, online-only model.
In a document filed with a Texas federal bankruptcy court, chief restructuring officer Curt Kroll said the employer of 646 has battled financial problems for the past several years. It reports roughly $50,000 in assets, and $50 million to $100 million liabilities.
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According to Kroll, Soft Surroundings deployed a cost saving and turnaround strategy last year before contacting 300 parties when it searched for a buyer, new financing or equity this summer. Interest emerged for the company’s online and catalog business, but not the stores, he pointed out in the court filing.
Soft Surroundings entered into a Restructuring Support Agreement with an affiliate of Coldwater Creek. Soft Surroundings’ lenders and private equity firm Brentwood Associates, the equity sponsor, supports the restructuring deal. According to the restructuring terms, Coldwater Creek is acquiring Soft Surroundings’ desirable assets while the stores will shut down.
Newtimes Group, a Hong Kong sourcing firm, acquired Coldwater Creek in September 2020 for $12.2 million. The women’s apparel and accessories brand was owned by Sycamore Partners before it shut down in July 2020.
Kroll noted that Soft Surroundings usually gets 30 percent of its annual revenue from the holiday season. “It is vitally important to the Debtors go-forward business that this transaction is consummated prior to this important sales season in order to hit targets,” he said in the court document. The current plan gives stakeholders “guaranteed recovery,” which a court auction is unlikely to produce, he added.
Soft Surroundings expects the court will confirm the restructuring plan around Nov. 3.
Soft Surroundings was founded in 1999 as a catalog retailer and opened its first store in 2005 before Brentwood acquired it in August 2012. For the year ended in December, online sales from SoftSurroundings.com and SoftSurroundingsOutlet.com reached $141.6 million, or 65.4 percent of the company’s total. Stores did far less business. The 44 brick-and-mortar locations it runs in 24 states produced just $74.8 million in sales, or 34.6 percent of the total. The company closed 25 retail doors in the second half of 2022.
According to Kroll, Soft Surroundings caters to upper middle-class 60-something women. It gets about 70 percent of sales from repeat customers. Ninety percent of what it sells is in the apparel and accessories categories, with home goods making up the rest and beauty at less than 1 percent. The company sends 10 catalogs each year, and circulated 48.9 million altogether circulated in 2022.
Soft Surroundings sources most of its products from suppliers in China, Vietnam and India, although it sources a small volume from domestic vendors. Orders need 25 weeks from placement to their arrival on the sales floor, Kroll stated in the court filing. “The life cycle of the company’s merchandise begins with the design phase, 53 weeks prior to actual to goods arriving on the sales floor,” he said.
As of the petition date, more than 450 employees work at Soft Surroundings stores, with 140 at company headquarters in St. Louis, Mo., and 15 at a call center. The rest work at a former distribution center in Mexico, Mo.
Soft Surroundings’ affiliate Shu-Shi (Shanghai Trading) Co. Ltd., which is incorporated in the People’s Republic of China and provides consulting services on raw materials and performs quality control checks before goods leave China, isn’t part of the bankruptcy.
The company has an estimated 49 creditors, and no funds to pay unsecured creditors after factoring in administrative expenses.
The company’s largest unsecured creditor is Jiaxing Mengdi Import & Export, in Jiaxing Zhejiang, China, which is owed $3.4 million. Of the top 35 creditors listed in the petition, most are Chinese vendors, although a few are suppliers located in India.
