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Strouds to vendors: check's in the mail

Andrea Lillo -- Home Textiles Today, February 17, 2003

Strouds today was scheduled to begin a payout of past due trade debt after meeting the recapitalization demands of its chief investor and secured lender, opening the door to a $5 million cash infusion.

Among others, those demands required the specialty retailer to wrest significant repayment concessions from a sizable portion of its vendor base. In written and e-mailed communications to its vendors last week, Strouds reported that it had achieved a 90 percent acceptance rate from its suppliers — 5 percent more than the required minimum — following a one-week extension of the original deadline.

In addition to beginning the payout to vendors this week, Strouds said the cash would immediately be used to replenish sagging inventory levels.

"We are pleased and gratified to report that we have received signed consent forms representing more than 90 percent of the claims as outlined in our communications with you last month," stated the Feb. 10 letter, which was signed by "The Strouds Team."

The letter continued: "With your support we have made great strides in the past few weeks to strengthen Strouds. Not only has the balance sheet been improved with more than $3 million in vendor discounts and $5 million of new capital, but the streamlining program — to ensure that we have an appropriate expense structure for our business — will produce more than $4.5 million in annual savings."

Company president Rob Valone declined comment on the letter, although he did confirm that one store had closed. He said the Blossom Hill full-line store in San Jose was shuttered last month because its lease ended. Valone also stated there were no further staff reductions planned. Yet, there was no indication, either, of from where else the cost savings might be derived.

Strouds currently operates 29 full-line stores and 20 outlets.

The recapitalization and payout follow an initial statement to vendors in January, in which the company notified suppliers that it had stopped trade payments "due to losses and a significant decline in sales during the fourth quarter of 2002."

Strouds then presented its suppliers with something of a Hobson's choice: Select from two repayment options that would settle claims for between $0.40 and $0.70 on the dollar, or a possible bankruptcy filing resulting in no repayment or as little as 5 percent.

The 70 percent solution will pay out that portion of the old trade bills over time; shipments of new inventory will be billed on 60-day terms and paid at a rate of 110 percent, the company stated in the original proposal. Alternatively, vendors could have opted for four monthly payments of 10 percent each toward payment of their claims, the original proposal stated.

Strouds' current difficulties came as the company was continuing a struggle to reinvent itself, rising from the ashes of a near-liquidation following a 2000 bankruptcy filing. Strouds Acquisition Corp., which included dot-com venture capitalist Walter Cruttenden, who put up financing for an 80 percent stake in the new company, breathed new life into the retailer with the buyout of $39.5 million worth of only the most viable assets.

The new company pared expenses and invested in infrastructure. Management also promised to differentiate its two formats — full-line and outlets — from the big box competition, establish its branding and improve margins.

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