Hydro Spa, once one of the few hot tub manufacturers to sell its products through Costco, has filed for Chapter 11 reorganization under the U.S. Bankruptcy Code.
The company’s Sept. 19 filing came just six months after Hydro Spa laid off 101 workers at its Ocala, Fla., plant, a move it characterized as “temporary.”
Attempts to contact Hydro Spa’s top-level executives, Bob and Brian Wiley, were not successful.
Currently, the St. Petersburg, Fla.-based company is in the process of selling off its assets to Infinity Spas, another hot tub manufacturer.
“We expect everything to be finalized in the first week of November if there are no delays,” said Dave Hatley, president of Infinity Spas based in Johnson City, Tenn. At this point, the purchase is only an oral arrangement, but Hatley said he is “95 percent sure” the deal will happen.
Hydro Spa has assets of $10.7 million and liabilities of $13.6 billion, according to documents filed in federal bankruptcy court in Tampa, Fla. The firm pointed to the nationwide slowdown in the housing industry as a major reason for its current situation.
Yet the biggest blow apparently came from what Hydro Spa described as its “primary customer,” Costco. The retail giant “recently cancelled a significant order,” according to bankruptcy records. Losing the Costco deal created a “significant business interruption that [Hydro Spa’s] management has been unable to address with marketplace and business remedies.”
Hydro Spa also blamed its lawsuit against Gulf Coast Spa Manufacturers Inc. of Clearwater, Fla., for its financial woes. The company sued Gulf Coast in 2005, claiming it owed Hydro Spa an amount “exceeding $2.1 million.”
“The costs of litigation and the financial impact of not collecting the account receivable from Gulf Coast have been devastating to [Hydro Spa],” the bankruptcy filing said.
Hydro Spa, which has been in business since 1975, laid off the workers at its Ocala plant at the end of March. At the time, Brian Wiley cited poor weather conditions in the previous winter for the move, adding that he hoped the company’s production shut-down would last for only two weeks.
Industry insiders said that Hydro Spa was hurt by its relationship with Costco, and by underpricing its hot tubs by as much as $3,000.
Costco generally keeps a percentage of a hot tub sale for up to a year in case a customer returns the spa. That makes an already tight profit margin for the manufacturer even tighter.
Dominick Austin, director of marketing for Miami spa manufacturer DM Industries, said he was not surprised to learn that Hydro Spa went bankrupt because “the entire industry has been struggling the last couple of years.”
Austin, whose company also does business with Costco, said “the carrot that dangles” from entering a relationship with a large retailer “is probably more attractive than the net results.”
“With all the wonderful things that come along with it — the volume, getting bills paid on time — comes the fact that it doesn’t matter how good your product is,” Austin said. “You’re at their mercy. If someone decides they don’t want your spa, they take it back.”
The list of creditors Hydro Spa seeks to protect itself from by filing for Chapter 11 number in the hundreds, including dealers and service technicians who worked on Hydro Spa tubs.
