Without Lehman, nightclubs lose shirts

Blaming the loss of the bank's sugar daddies, a strip joint and a posh club near the old Lehman Bros. HQ file for Chapter 11.

By InvestorPlace Mar 1, 2010 12:44PM

It's a sad day for some in New York when you will no longer be able to enjoy all-you-can-eat sushi served on half-naked women.

And unfortunately, that could be the case now that an upscale strip club on Times Square have gone bust. Located near the former headquarters of Lehman Brothers, iconic New York gents' club Cheetah’s -- as well as the posh China Club nightclub -- have both filed for Chapter 11 bankruptcy protection.

Though conventional wisdom holds that "sin stocks" tend to be profitable in hard times, the fall of these New York hot spots are a good example of how even simple pleasures are getting cut out of budgets in these tough times.

The China Club, located on West 47th Street just a few blocks from the fallen investment bank, opened in 1986 and was a well-known night spot. The strip joint, Cheetah's, doesn't have quite the history since it opened up shop less than three years ago. However, the aforementioned grub-on-girl sushi gimmick certainly made a splash in a short period of time. Assets and liabilities for both businesses are listed between $1 million and $10 million.

Both clubs blame the fall of Lehman Brothers for their downfall, since many of the male investment bankers would stroll in with their wallets full of ones during the boom times. But thanks to the financial crisis and subsequent collapse of Lehman Brothers, both the China Club and Cheetah's have seen a steady decline in patrons and revenue.

So what can investors learn from the fall of these NYC joints? Well, the message could be that while everyone needs an escape from the harsh realities of the economy, that escape has a ceiling on its price.

For instance, an extra six-pack or cupcake is fine, but a night out at the bar or an expensive gourmet restaurant winds up being more of a headache once the bill comes. That means cheaper do-it-yourself alternatives for consumers who still want a good time. Think stronger sales for brewer AmBev (ABV) or consumer staples giant Conagra Foods (CAG) instead of bar and restaurant operator Darden's (DRI). Or more on topic, think Victoria’s Secret operator Limited Brands (LTD) instead of gentleman’s club operator Rick's Cabaret (RICK).



Who knows, maybe the recession will spawn a whole new cottage industry: The do-it-yourself strip-club.


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