The problems at fancy kitchenware retailer Sur La Table had been simmering for years before they boiled over during the coronavirus pandemic, according to the chief executive who took charge 11 months before it sought bankruptcy protection Wednesday.
A 30-page declaration filed in bankruptcy court in New Jersey the next day by CEO Jason Goldberger details the 126-store chain’s “meaningful revenue decline for the past 5 years” as consumers’ cooking and shopping habits changed. But with a rotating cast of three chief executives since 2017, the company didn’t take decisive action until it was too late.
Goldberger’s account says the company began actively seeking a buyer or partner in February, contacting more than 100 prospects including financial investors as well as “specialty retailers, brand portfolio companies and specialty grocers.”
The company found that the handful of potential bidders were interested in its e-commerce operation but at most only “a portion of the Debtors’ stores.” Accordingly, it began to liquidate 51 of its locations even before filing for bankruptcy protection.
Sur La Table’s stores generated revenue of $230 million in its 2018 fiscal year, while the e-commerce operation brought in $80 million.
The cooking classes held at its stores, the fastest growing segment of the business, contributed another $35 million that year. (The Chapter 11 filing says the COVID-19 epidemic has prevented Sur La Table from completing audited financials for 2019.)
The document says Sur La Table’s “challenges have been exacerbated by declining rates of preparing meals at home and a shift in customer preferences away from physical retail stores and toward online-only stores.” Its finances were “weighed down by a store footprint that is disproportionate to market demands, and the substantial capital costs” of outfitting the commercial-quality kitchens for its classes and the infrastructure for its e-commerce side.
Goldberger says the company had $316 million in total assets and $297 million in liabilities when it sought Chapter 11 protection.
When the pandemic hit, Sur La Table had nearly 3,000 employees, and it laid off or cut back the hours of 95% during the shutdown.
The company stopped paying rent for most of its locations in April, a tactic that many retailers embraced during the unprecedented business shutdown.
“Landlords largely were initially understanding of the Debtors’ inability to pay rent,” according to Goldberger, but “as time passed … (they) began taking a more aggressive posture.” Vendors responded to non-payment in similar fashion.
In May, when some states allowed retailers to reopen, Sur La Table opened some locations and “attempted to generate revenue and appease landlords,” But it became clear only bankruptcy would prevent its landlords from pursuing evictions or “exercising self-help to terminate the Debtors’ potentially valuable leases and/or seize the Debtors’ inventory to satisfy rents due.”
The company said this past week it has a “stalking horse” bidder, an affiliate of New York-based Fortress Investment Group, whose still-undisclosed offer for as many as 70 of the stores will set the stage for a bankruptcy auction to be held in coming weeks.