Popular catalog and online gift company RedEnvelope has fallen on hard times. On Friday the company reported that it filed for Chapter 11 bankruptcy protection on April 17 with the US Bankruptcy Court for the Northern District of California, San Francisco. The company will also be sold. They have entered into an agreement with Creative Catalogs Corp. to purchase RedEnvelope's assets and assume some of the company's liabilities for $5.7 million. RedEnvelope has also gotten a $4.5 million debtor-in-possession credit facility and loan from Creative Catalogs and Granite Creek FlexCap so that the business does not have to shut down during the transition process (guess that explains why their catalog is still showing up in my mailbox). The final sale price will be will be less the outstanding amount from that loan.

The nine-year-old company was one of the few e-commerce sites with a successful catalog business but the recent tough economic climate and the bank's stricter lending policy for retailers found the company in trouble this year. The company catered mainly to the middle class and upper middle class brackets which are now cutting back on spending due to economic concerns. Order shipments had dropped 20% during the third quarter compared to last year. DM News says that in February, RedEnvelope reported a loss of $4.3 million versus a net income of $5.3 million during the same time last year. The RedEnvelope sale must be completed by May 30 and during that time RedEnvelope can accept other bids.