Crabtree & Evelyn files Chapter 11 bankruptcy to clean up its act

One would think that people would always need soap, but maybe not the hoity-toity scented soaps and lotions – as soap and lotion seller Crabtree & Evelyn has filed for bankruptcy protection. Crabtree & Evelyn is owned by Kuala Lumpur Kepong (KLK), which is a publicly traded Malaysian firm. However, Crabtree & Evelyn Holdings is a British company. The company was founded in 1973.

The retailer has seen sales drop during the past 10 months, mainly due to fewer customers shopping at malls, which is where many of Crabtree & Evelyn's stores are located (including Copley Place in Boston, Watertower Place in Chicago, and Embarcadero Center in San Francisco).

Unfortunately for Crabtree & Evelyn, it joins a growing list of failed retailers that includes Steve & Barry's, Eddie Bauer, Filene's Basement, Linens 'N Things, Mervyns, and Circuit City. In the company's court filing, Crabtree & Evelyn reported $46.2 million in debt with just $31.7 million in assets as of March 31. It is reportedly, asking permission to seek a $40 million loan from KLK to help in its restructuring.
Retail sales made up 56% of Crabtree & Evelyn's $107.5 million in revenue in the last fiscal year according to the court papers. Projecting ahead, the compay believes it will lose $13.3 million in the current year. The firm forecast a 24.4% drop in retail sales for fiscal 2009 compared to 2008. It does expect online sales to increase by 10%, but wholesale sales are forecast to fall 30%, according to a Wall Street Journal report.

Along with filing for bankruptcy protection, Crabtree & Evelyn plans on closing some of its under-performing stores. The company's change in management, which resulted in a number of "strategy shifts" has absorbed a lot of the blame for the drop in sales. The main hope now is for the company to improve its operations during its time in bankruptcy. The company's acting President Stephen Bestwick said he hopes the company can continue its "tradition of English-style elegance."

That said, I believe it was this "tradition" that got Crabtree & Evelyn into trouble in the first place. It is good that the company wants to hold on to its "elegance," but doing so has forced it to ask its customers to pay exorbitant amounts of money for travel-sized packages of soap and lotion. Yes, soap is a necessity, but who wants to pay $20 for 10 ounces of Spider Lily Shower Gel? Crabtree & Evelyn performed well when people had a little less to worry about regarding their purse strings, but are we truly surprised that this upscale retailer is having trouble today?

How can Crabtree & Evelyn emerge from bankruptcy a stronger entity? First things first, charge less for the product. Second, moving away from the mall-based plan would be a good move – remember, tough economic times bring less people to the mall. Finally, offering fewer products might produce savings. Crabtree & Evelyn not only offers soaps and lotions, but it also sells Vera Bradley bags and wallets along with LaSource, India Hicks Island Living, and Naturals products – all of which carry a rather healthy price tag. If people have a hard time shelling out the cash for the soaps and lotions, I don't see them jumping to spend hundreds of dollars on wallets and the like. There are always people willing to spend that sort of money, but in this environment, many more will walk right past the store.
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