Chapter 11 Business Reorganization May Give Sbarro a Fresh Start

Over the past several years, shopping malls have seen a decline in traffic that has severely hurt mall-based businesses. Sbarro, a familiar pizza restaurant in mall food courts around the country, is one of those businesses. Due to a decline in mall customers compared to the previous volume, Sbarro has filed for Chapter 11 business reorganization for the second time in just three years.

Chapter 11 bankruptcy is also known as business reorganization bankruptcy because it gives businesses a chance to get a handle on their business debt, while at the same time reorganizing their business structure to maximize cash flow.

A spokesman for Sbarro said that in its first Chapter 11 bankruptcy filing in 2011, it was able to reduce debt and receive a cash infusion, but that wasn’t enough. The company estimates that the current bankruptcy will reduce its business debt by 80 percent and improve its overall profitability. This time, the reorganization strategy has included closing more than 155 mall stores nationwide. The company also realizes that the trend in reduced mall traffic is pervasive, and is responding to the trend by opening new stores outside of malls which are based on a “build-your-own-pizza” concept. One of these new stores will be opening in Cincinnati, Ohio, this summer.

As illustrated by the process that Sbarro has been going through over the past several years, Chapter 11 business reorganization bankruptcy can be an extremely useful tool to help struggling businesses get a fresh start. Sbarro has had to go through the process twice in just a short period of time. However, in this case at least, it seems that the process may be working the way it is meant to, and that the company could emerge stronger for having gone through it.

Source: Associated Press, “Sbarro files for bankruptcy protection again,” March 10, 2014