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Ex-Concept Store, Bike Spring, Files Chapter

Published October 16, 2007

BY MEGAN TOMPKINS

SAN JOSE, CA—Bike Spring Bicycle Shop, a Specialized concept store, has filed for bankruptcy so that the owner can reorganize his operations.

Paul Wassem, the store’s owner, said a dispute with Specialized over $622,000 in debt, followed by the termination of his dealer agreement spurred his voluntary petition for Chapter 11 protection.

Wassem opened Bike Spring in July 2006 as a 5,300-square-foot Specialized concept store, using a $50,000 loan from Specialized to build it.

“I chose to open Bike Spring as a Specialized concept store because Specialized has great products and a shared vision for premium bicycle retailing, “ he said.

“Also, they invested resources in helping me with business planning, store design and start-up inventory,”
Wassem added.

Specialized canceled its dealer agreement in May after a disagreement over the terms under which Wassem was to repay outstanding invoices.

John Thompson, national sales manager for Specialized, said, “Starting in January of this year we began working with the dealer to get paid on a large receivable. We received numerous promises of payment over the course of several months, which were not fulfilled.

“We had no choice but to file suit. The owner then filed for bankruptcy, and we will likely not be able to collect for product previously sold. I should have acted much sooner,” he added.

Wassem said Bike Spring offered terms to address the alleged default but Specialized chose not to accept them.

“The only dispute involves accounts payable to Specialized. No other contractual obligations are in question,” Wassem said.

“Bike Spring believed the terms of its agreement with Specialized included a dispute resolution provision and a period of time to cure any default, but Specialized disagreed.”

The court subsequently granted a motion by Specialized to repossess inventory from Bike Spring. Wassem said the motion triggered his June 27 decision to file for Chapter 11.

Bike Spring has debts totaling approximately $1 million divided among 18 creditors. Specialized is its largest creditor. At the time of its filing, Bike Spring’s debt to Specialized was approximately $622,000.

Wassem said Bike Spring has continued to make payments to reduce the balance.

The majority of the amount Bike Spring owes Specialized is for inventory. A smaller portion of the debt is a note for the $50,000 building loan.

“The cash loan was to be forgiven by Specialized if our account remained current. Since they claimed we defaulted on our debt, Specialized is requiring Bike Spring to repay the cash loan as well,” Wassem said.

Bike Spring’s reorganization plan involves continuing to sell its remaining Specialized inventory. Its Chapter 11 petition placed a stay on Specialized’s claim to repossess its inventory.

“Our view is that we must be able to sell the remaining Specialized inventory to succeed in our reorganization, and we have been making payments on terms agreed to by Specialized and approved by the court,” Wassem said.

Bike Spring also intends to bring on new shareholders. Securing new investment and settling its debts will signal the company’s successful emergence from Chapter 11.

“Our proposed plan involves adding new investors to Bike Spring LLC, and continuing to operate as Bike Spring Bicycle Shop,” said Wassem, who currently owns 80 percent of its shares. Private investors who helped fund the start-up make up the other 20 percent.

According to Wassem, Bike Spring and its potential investors were negotiating to remain a Specialized concept store. Specialized ended those discussions.

“I made a very large mistake with Bike Spring. The owner was eager to work with us and seemed motivated to make the store a success,” Thompson said.

“However, once the store was opened we quickly received poor service reports and found the owner was absent from the store. In our simple perspective, for any store to be a success there needs to be ownership intimacy. I personally visited the store on a number of weekends to find he was not present to lead the Bike Spring operation. We spoke with the owner multiple times about this issue and he assured the team he would be present and lead the store; he did not.”

Thompson said the demise of Specialized’s relationship with Bike Spring is not a reflection on the concept store model.

“The Specialized brand is very strong and in the right hands a concept store is the premier vehicle for selling Specialized products,” Thompson said.

“In our view, the owner rarely came to the store, broke multiple promises, sold the Specialized inventory and did not pay; we had no choice but to terminate the dealership. We expect to wrap up the court cases shortly,” he added.

Bike Spring will continue to operate under Wassem’s management. To properly serve its current and growing customer base, Bike Spring has ordered inventory from additional suppliers to help fill missing merchandise slots and diversify its supplier base.

“Bike Spring has several other suppliers and the store is well stocked. We are doing what is needed to keep consumers happy as we continue to grow the Bike Spring name in our community,” Wassem said.

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