Red Envelope fate may be sealed

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Red Envelope Inc. appears to be the latest multichannel retail casualty of 2008.

In a filing with the Securities and Exchange Commission on March 31, Red Envelope said it was informed days earlier by Wells Fargo Retail Finance LLC that it would no longer provide the multichannel merchant with the ability to draw on its credit line. As a result, the 9-year-old gifts cataloger said in the filing that is has insufficient funds to continue operations as a going concern and is currently engaged in discussions with two potential acquirers. Red Envelope also reported in the filing that its chairman and CEO John Pound had resigned.

Reports from a Silicon Valley blog today indicate that the situation at Red Envelope has gone from bad to worse. According to Valleywag, Red Envelope laid off a substantial number of employees Monday and will shut down its Web site on Friday.

Frank Buettner, Red Envelope's president and COO declined to comment on the layoffs or if the catalog and Web businesses were continuing to operate “until I know more about what is going on,” he said.

As one of the only successful pureplay e-commerce sites to launch and maintain a catalog business, Red Envelope was a multichannel retail success story. However, like for Lillian Vernon, which was sold to Taylor Corp. last week at an auction , and a host of other retailers which have announced significant cutbacks this year, 2008 is not shaping up to be a good year. In February, Red Envelope reported a loss of $4.3 million, compared with a net income of $5.3 million for the same period last year. Order shipments during the third quarter dropped about 20% compared with last year.

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