Document Type

Article

Publication Date

Spring 2010

Abstract

Crabtree and Evelyn (“C&E”) started in 1972 as an outlet of fine soaps from all over the globe. The name was derived from the crabapple tree and John Evelyn who was a Renaissance Englishman who had works on the conservation of forests and timber. Over the almost forty years since then it has expanded what it has to offer from fine soaps to a variety of other products including “personal care products and related accessories, fragrances, comestibles (i.e., food products including cookies, teas and jams), products for the home and gift arrangements.”

It also “manufactures and distributes more than twenty-five product lines, including LaSource®, Gardeners, India Hicks Island Living® and Naturals and its products have been frequently mentioned in numerous magazines, including Vogue, Glamour, and Lucky.” Since opening its first retail store in 1977, C&E has expanded to 126 stores (at petition date) and has added a manufacturing and distributing facility. In 1996, 100 percent of its equity was purchased by Kuala Lumpur Kepong Berhad (“KLK”), a “Malaysian public limited liability company, the stock of which is publicly traded on the Kuala Lumpur stock exchange.”

C&E sells its products through multiple channels, including its retail stores (56%), wholesale business (12%), export business (5%), affiliate sales (21%), and the internet (6%). Among them, firstly, as previously mentioned, C&E operates 126 stores in 34 states some of which were full-price merchandise and outlet stores. The outlet stores sell “larger quantity …, discontinued … and slow moving product[s].” Secondly, C&E sells its products through “gift shops, home specialty stores and country stores” including Hallmark. C&E also uses affiliates to distribute its products. These affiliates rely on C&E to supply them with the goods for purchase. Most of these goods are already finished; however, there are some that need to be packaged by the affiliates. There are over 130 C&E retail stores outside of the United States that are operated by C&E affiliates. C&E also exports its products to various gift stores in Mexico, Panama, Japan, and Taiwan. Finally, C&E’s customers are able to obtain its products on its website, www.crabtree-evelyn.com. C&E is able to track its customers using the information from a database. The website “offers internet-only promotions, provides customers with the opportunity to sign up to obtain exclusive email-only offers, obtain internet-only promotions, and provides information about the Debtor’s product lines and retail store locations.”

At the petition date C&E employed approximately 797 non-unionized employees. It enjoys a good relationship with them and “has not experienced a work stoppage.” The company’s primary assets include inventory, contract rights, intellectual property rights, and accounts receivable for goods sold. C&E also owns its headquarters, manufacturing facility, distribution center and warehouse in Woodstock, Connecticut. In addition, C&E leases a significant number of retail stores located in 34 states.

There were three major events that led C&E into filing a petition for Chapter 11 bankruptcy: bad market conditions, operational issues, and the inability to negotiate prepetition leases. With the bad housing and credit markets, consumers reduced their discretionary spending. This has led to a significant decrease in sales, especially in the retail sectors and wholesale.

In addition, changes in its senior management led to shifts in C&E’s strategy which impacted their roles, especially in the wholesale division. With the decline in consumer spending there were fewer customers in the malls where most C&E stores are located.

Finally, although KPMG Corporate Finance LLC was hired as a “special real estate advisor”, their efforts at renegotiating prepetition leases to a level that was required for C&E to continue operations were unsuccessful. Many of the landlords were unable to accept the terms offered by KPMG. They also tried to terminate the leases of underperforming stores but, although they were able to terminate some, some landlords were not willing “to entertain the termination of leases on the terms suggested by C&E.”

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