Spa Sydell, the well-known day spa in Atlanta, filed a Chapter 11 bankruptcy petition in Atlanta on September 3, 2009.  In re Sydell, Inc., Ch. 11 Case No. 09-83407-crm (click here to download 117 page petition).  Not only is Spa Sydell in business at all locations, it has plans to open a seventh location in Roswell. 

The AJC has posted an article by Rachel Ramos and David Markiewicz

In its 117-page bankruptcy petition, the company listed $4.3 million in debts and $5 million in assets. The filing shows a decline in gross income to $16.2 million in 2008 from $19.1 million in 2007. In 2009, year-to-date sales were $9.3 million through May. Atlanta bankruptcy attorney Scott Riddle said spending on luxury items such as spa treatments has fallen in the recession...

The bankruptcy filing lists $2.25 million in unsecured debt. Of that, $743,000 is owed on leases for the six retail locations. Hundreds of unsecured creditors are listed, mostly for trade debt, from radio station and newspaper advertising to business cards, shipping and catering. The only secured creditor listed is BB&T, with a $1.8 million loan. The company also owes the Georgia Department of Revenue more than $200,000.

As I noted to Rachel, spending on "luxury" items are down in this economy as people have to tighten their belts to make house payments or rent.  A trip to the day spa could be two weeks of groceries for the family.   If we project Spa Sydell’s 2009 income (noting that the petition states the $9.3 million income is through the petition date, not May), and compare it with 2008, income is down about 24%.  That is a significant amount for a retailer, and could lead to a significant rise in debt, as reflected in the petition.

However, Chapter 11 provides the Spa with an opportunity to save a significant amount of money by rejecting, or terminating, leases that are unfavorable.  It is likely that Spy Sydell, like many other businesses, leased commercial space at a time when rates were much higher than they are today.  In some instances, the same space next door might be leasing for half of what a debtor is currently paying for its three or four year old lease.  The Bankruptcy Code allows a debtor to reject these bad leases and either move to another space, or to negotiate a much lower rate with the current landlord, who no doubt  will not want to have empty space. 

The savings on leases for a debtor with several locations could alone be enough for a debtor to successfully reorganize. 

One bright spot for Spa Sydell is that spending on personal grooming is actually rising, according to studies in the Wall Street Journal Wallet Blog:

As car sales have plummeted, shopping online has climbed 8.6% in the last 12 months. More people are spending on gym memberships (up 6.7%), bar drinks (up 5.8%) and sports and hobbies (up 4.7%). Dining at full-service restaurants is up 3.1%, and personal care — haircuts, massages and manicures — is up 2.5%.

“I think people are looking for comfort in small things,” says Melinda Crump, a spokesperson for Sageworks. “You may not be able to take a vacation in Tahiti or Hawaii, but you can join a gym.”



Scott Riddle’s practice focuses on bankruptcy and litigation. Scott has represented Chapter 7 and 11 debtors, creditors, trustees and other interested parties in bankruptcy cases and bankruptcy litigation.  For more information, click here.