Ocean City's Seacrets wants to grow, but is it too big for Baltimore?

OCEAN CITY — — On a Friday night this summer, Seacrets was teeming with people dancing and drinking on its patios and dance floors and at its 18 bars.

By now the 22-year-old venue has eluded easy definition. With a sprawling fiefdom that includes a radio station, several restaurants, a hotel, five stages for live music, a swim-up bar and even Seacrets-branded water bottles, it's more of a theme park, a playground where Maryland and the region vacations every year.

"I've been coming here for years because everybody else is here. A lot of times you can't even move inside," said Ned Raffett, a 26-year-old who was leaving just before midnight.

After years of trademarking the Seacrets name and plotting a franchise, chief executive Leighton Moore filed paperwork this year to franchise the brand nationally. And Baltimore could be one of the first locations. Two major Baltimore developers — Patrick Turner and C. William Struever — have met with him to discuss location.

"Right now, I feel, is the right time to move," Moore said. "The economy is down, therefore construction costs will be lower than at probably any other time. Hopefully, [the economy] will come around, and people will enjoy less of a monetary squeeze and will still be able to come to us."

Moore wants the first location by the 2012 tourist season, but the Caribbean-themed venue faces some steep obstacles before that happens. The brand name has not been tested outside Maryland, replicating a club known for its location will be difficult outside resort towns, and in Baltimore, especially, appropriate real estate is limited.

Analysts also say that while the economy may be helpful in opening new locations, consumer spending is down and the service industry in general has stagnated.

"We've become more bearish on the bar segment," said David Henkes, vice president of food service consultant Technomic. "There's the old adage that people drink when times are good and when times are bad, but they certainly don't drink as much when times are bad, or at least they don't as much away from home."

Moore opened Seacrets in 1988 on a small strip of land on Coastal Highway, far from the boardwalk. It consisted of a tiki bar, a regular bar and a seating area — all roofless — to serve about 100 people, said Gary Figgs, Seacrets' vice president and chief financial officer.

The next year, he added a restaurant, and the year after an indoor bar, and then another, so that now Seacrets covers six acres.

"We built from the success we had," Moore said. "In order to gamble the way I did, most investors would have wanted to take the money out. I put all the money back in."

In Technomic's 2010 list of the top 100 bars in the country, Seacrets came in at 11th, the only nightlife spot outside Las Vegas that high on the list. Annual revenue is estimated to be between $25 million and $35 million, according to Technomic. Moore said it's around $20 million.

During the day, the crowds are evenly mixed at Seacrets. The venue is so broad, parents and their children can pack one of the restaurants while throngs of young people sunbathe and drink on scores of inflatable multicolored doughnuts on the water.

"It's amazing what they've done with all the landscaping," said Lauren Bathgate, a 23-year-old Dundalk resident who visits the club annually with her husband and family. At night, it becomes an over-21 nightclub. "It's a party," said Joseph Bathgate, Lauren's husband. "We've been carried out at least once."

On any given weekend night, the whole spread can accommodate as many as 4,700 people, Moore said.

Ocean City police treat the area like the boardwalk or Jolly Roger Amusement Park. "There's almost nothing to compare it to in Ocean City or Delmarva," said Mike Levy, a police spokesman. Crowds have caused some problems — last year there were two instances of disorderly conduct and minors with fake IDs, Levy said — but "comparatively, we have no more issues with them than we have with any other establishment in town." In May, a woman sued the club for negligence after being raped in 2008 at a nearby parking lot. Moore maintains the incident happened outside the club's property.

Moore started seriously considering adding franchises in the mid-1990s, when the club was already a major tourist spot. By 2001, he'd trademarked the name Seacrets in places where he wanted to open locations, like Jamaica and Mexico, he said.

A man of five-year plans, he sees expansion as the next logical step for an already lucrative business. Seacrets would collect 6 percent of gross sales of all franchisees, according to the company's franchising application with the Maryland attorney general's securities division.

Moore's ambitions are wide-ranging. In the Maryland application, Moore said Seacrets intends to apply for the same license in as many as 16 states, including California, Hawaii, Pennsylvania, South and North Dakota, Wisconsin, New York and eight other states. So far, Seacrets franchises can be sold in Pennsylvania and New York. The Maryland license was approved June 21.

The application calls for an initial investment on a franchise that ranges from $1.6 million to $3 million — $14 million and $22 million if the franchise includes a hotel.

Moore would have a hand in the design of the property and its development; and his crew would regularly visit the new franchises to supervise their progress.

"I want to have a crew that can go to different franchises and smell them, taste, get a feel for them and see what's not right and what works," he said. "We can't afford to fail, and we don't want to see anybody fail with our name."

In the nearly two months since Seacrets has been allowed to meet with franchisees in Maryland, they've met with five likely partners, two from Baltimore. Figgs said they are not near making a deal yet.

More important to Moore than a partner is a location. Given Seacrets' popularity among vacationing Baltimore residents, he would like the city to have one of the first franchises. But Baltimore is proving, by his own admission, "a tough nut to crack."

Moore wants to be by the water, but there's no beach and he knows of few other places that have water access. Zoning issues and noise restrictions have made other locations, like the Inner Harbor, unfeasible.

One possible location that's been discussed is Westport, the $1.5 billion mixed-use development near Cherry Hill. The area's developer, Patrick Turner, said a Seacrets in Baltimore would be "good for the city." But in an email, he also said it's still too early to say whether it would be constructed at one of his properties.

Moore also met with Struever about Port Covington, the mostly untapped patch of land in South Baltimore that's now better known for its Walmart, but Struever was also circumspect.

There are other obstacles going forward.

Moore is jumping into the franchising game at a time of uncertainty for the service industry. And while Seacrets has few peers, several indicators suggest possible problems.

After a boom in the 1990s, the industry is now experiencing "the most prolonged period of decline" since at least the 1970s, said Bonnie Riggs, a restaurant industry analyst at market research firm NPD Group. It is expected to grow at less than one percent a year.

Three percent, or over 8,000 independently owned restaurants, have closed since spring of last year, according to NPD's most recent industry report card.

Analysts say a big part of Seacrets' success has been its location. Take it outside that location, and it would have to compete with similar, established venues and all the entertainment options tourists already have at their disposal. In an urban setting, like Baltimore, bars like the Bay Cafe in Canton and Tiki Barge by HarborView Marina show there's an audience for island-themed nightlife; but they have solid fan bases who might be hard to peel away.

The economy has made all players, from small to big, reassess the need for expansion. Nightlife businesses, which traditionally have a harder time franchising, said Henkes, are especially vulnerable.

"On balance, it makes it challenging. To be expanding like [Seacrets] is certainly unpredictable," Henkes said.

One encouraging model for Seacrets is the Greene Turtle, a sports bar that started in 1981 with one location in Ocean City and parlayed its popularity into a hefty regional footprint. Greene Turtle's expansion moved at a glacial pace. By 2001, 20 years after it opened, exactly where Seacrets is now, it had just five other locations.

The Greene Turtle's expansion since then has sped up, but it's stayed clear of potential pitfalls by expanding gradually, said Greg Carey, vice president at Columbia-based JPB Partners, which bought a majority stake in the chain in 2007.

"We've taken the posture that we'll move out in concentric circles, growing into Virginia and Delaware and expanding out from the base," Carey said.

The strategy has worked for them because in neighboring states there's an awareness of the brand, and it increases efficiency in marketing and in management. Thirty years in business, there are now 28 locations in Maryland, Virginia and Delaware.

Figgs said competition is expected, but the number of local visitors they have every year suggests they would be welcomed in Baltimore. Stepping outside a resort town could create problems, but they're bullish on Baltimore's tourism industry.

Figgs isn't worried about the economy. Seacrets hasn't seen a drop in revenue or attendance in any of the recession years, he said.

He is aware of the possible hurdles ahead. Still, his most pressing concern is the location.

"It's a challenge," Figgs said. "But it's a challenge we want to at least try."

Starting small is a strategy that resonates with Moore, and he said he's in no hurry to make a splash.

Though it had been reported the company is planning on more than 30 franchises, he said he wants three to five clubs over the next five years that can accommodate 400 people each, at most. And even that seems like an aggressive plan in his eyes.

"My goal is that I am able to start slow with quality people in good locations and help them. I don't want to grant them the franchise and walk away," Moore said.