Usually, when a retail chain files for bankruptcy, customers see it coming.
In the case of public companies like Bed Bath & Beyond and Party City, the drama plays itself out in quarterly filings where the data paint an ugly picture.
Even when the chain does not explicitly warn that it may run out of cash, people who know how to read a balance sheet can see it coming. When a company isn't public, however, it's harder to get a clear picture of the chain's finances.
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Sometimes, customers can tell based on store shelves. In the days before its bankruptcy, J.C. Penney's stores had a lot of empty shelves and many items available only in limited sizes.
Vendors tend to not ship merchandise when they're not getting paid, which creates a sort of self-fulfilling prophecy. When a company can't fill its store with items that customers might buy, it has no chance to generate cash to pay its debts.
That leads to a Chapter 11 bankruptcy filing, which enables the retailer to negotiate with vendors, find new funding, and sometimes even have some debt forgiven.
In most cases, a Chapter 11 filing takes some time to play out, with some companies — like Party City and David's Bridal — surviving while others (Bed Bath & Beyond, Tuesday Morning, and Christmas Tree Shops) moving to Chapter 7 liquidation.
Women's-clothing retailer Soft Surroundings has filed Chapter 11 bankruptcy, but it's not taking a traditional path.
Image source: Getty Images
Soft Surroundings stores will close
While it's not a national brand, Soft Surroundings, based in St. Louis, has a large following for its 44 brick-and-mortar locations and its e-commerce operations. The retailer described its business on its website.
"Soft Surroundings is a thoughtfully curated retailer of women's apparel, home, shoe, and accessories merchandise. Releasing its first catalog in 1999, Soft Surroundings has since been dedicated to empowering women to look and feel their best," the company says.
Now, the company has filed for Chapter 11 bankruptcy and it will close all its stores. The brand won't be going away, however, as it's selling its digital business to rival Coldwater Creek, which will continue to operate its website and other direct-to-consumer offerings.
The chain had physical locations in 24 states. At its height, before the covid pandemic, it had 80 physical locations.
What's next for Coldwater Creek and Soft Surroundings?
While Soft Surroundings will cease as a brick-and-mortar brand, Coldwater Creek will continue the company as a digital and direct-to-consumer operation. The company has secured $18 million in debtor-in-possession financing from Gordon Brothers, which will enable it to pay vendors and employees during the transition period.
Coldwater Creek will keep the company's popular catalogs and try to grow its e-commerce sales. The new owner has not committed to carrying the brand in any of its physical stores.
And while the bankruptcy may surprise customers, the company had been working for months to ensure that the Soft Surroundings brand survived.
"Our commitment to our stakeholders has never wavered as we meticulously evaluated the best path forward and are welcoming this next step to financially secure a bright future for Soft Surroundings," the company's executive chairman, Bridgit Lombard, said in a news release.
"This will allow us to adapt, restructure, and emerge more resilient, ensuring the longevity of the beloved Soft Surroundings brand for our customers and partners."
The deal with Coldwater Creek is pending court approval.
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