On July 6, 2010, Trade Secrets, Inc., and its affiliates (the “Debtors”), filed for bankruptcy in the United States Bankruptcy Court for the District of Delaware.  A copy of the Debtors’ bankruptcy petition is available here.  According to Debtors’ Declaration in Support of Chapter 11 Petitions (the “Declaration“),  Debtors operate 612 retail and hair salon locations in the United States and Puerto Rico.  Debtors operate the majority of their stores in malls, while approximately 20% of its stores are operated in outdoor shopping centers.  Stores focus on the sale of hair care products and offer hair salon services.

Debtors’ Business

Debtors operate four different types of stores:  Trade Secret, Beauty Express, PureBeauty and BeautyFirst.  As stated in the company’s Declaration, Debtors operate 484 stores as “Trade Secret”, 53 stores as “Beauty Express” and 31 stores as “BeautyFirst.”  The Trade Secret and Beauty Express stores focus primarily on retail sales, while PureBeauty and BeautyFirst focus on salon services.  Debtors coordinate distribution of product for all stores through their headquarters in Ontario, Canada.

Events Leading to Bankruptcy

Approximately 80 of Debtors stores are “losing money at an unsalvageable rate.”  See Declaration at *12.  In response, Debtors intend to either reject the leases of the unprofitable stores or seek rent reductions from landlords.   The company has been operating with negative earnings for several months which it attributes to poor market conditions and a resulting drop in sales.  Debtors contend that many of their store leases have either above-market rent prices or “inappropriate store locations.”  Id. at *13.


By filing for bankruptcy, Debtors hope to implement a “large scale restructuring that will eliminate unprofitable locations and result in a viable entity going forward …”  Declaration at *15. To achieve their objective, Debtors will seek court approval of auction procedures that will allow Debtors to sell off assets soon.  Debtors are motivated to exit bankruptcy for various reasons, one of which is to control the loss of employees to competitors.  Id. at 17.

This bankruptcy proceeding is before the Honorable Kevin Gross of the United States Bankruptcy Court for the District of Delaware.  Debtors are represented by Young Conaway Stargatt & Taylor, LLP.