FOOTHILL RANCH, Calif. — Joel Waller, the new chief executive officer of teen retailer Wet Seal, seemed embarrassed about the ceremonial trappings of his office at company headquarters here, as he stepped into the adjacent boardroom to retrieve bottles of Arrowhead water from a refrigerator.
“I’m not nearly this formal,” the former Wilsons leather ceo said days after taking the helm in February.
From the mahogany-colored desk, which houses a flat-screen computer monitor, to the oversized couch, the expansive setting speaks to a period when Wet Seal was at the top, helping to dictate teen fashions. More recently, however, Wet Seal has lost cachet with customers, narrowly staved off bankruptcy and said it is the subject of an “informal” Securities and Exchange Commission inquiry. The SEC declined comment.
Wet Seal’s fall has been swift, beginning in 2002 when same-store sales slipped 5.6 percent compared with an increase of 4.7 percent in the previous year. Sales fell to $439.1 million by the end of the 2004 fiscal year from $608.5 million in 2002 .
Waller, 65, Wet Seal’s second ceo in less than two years, said the company is poised for a turnaround, with fresh financing and a new focus, including a blunt challenge to its most potent competitor. Some retail analysts and an ousted Wet Seal ceo, Kathy Bronstein, are more than a little skeptical.
“The strategy is pretty simple,” said Waller, dressed in black pants, turtleneck, shirt and black sneakers that offset a salt-and-pepper beard. “It’s 13 year olds to 23 year olds, first to market and great value.”
Asked if Wet Seal was looking to emulate the business model of hot Los Angeles-based teen retailer Forever 21, a leader in trendy, fast fashion at rock-bottom prices, Waller paused, and then answered, “Yes.”
“Forever 21 has bigger stores than we do,” he said. “But we think that, because we have smaller stores, we have the ability to be quicker than they are, more nimble.”
In November, Wet Seal got a cash infusion of $10 million in interim financing and $46 million in convertible notes that were secured from New York-based SAC Capital Associates, which owns a 4.5 percent stake in Wet Seal. The company also announced the hiring of Michael Gold, a prominent Canadian retailer, as a consultant. Gold runs Stitches, a Toronto-based privately owned low-priced juniors’ clothing chain with more than 400 locations in Canada and the U.S. With both financing and Gold in place, Waller said that Wet Seal was ready to execute the revamped business model to woo back teens.
The company slashed its prices in January, reducing items such as denim jeans to $20 from $49. The move accounted for a January comp-store increase of 8.2 percent — the first after 30 consecutive months of declines, Waller said.
“If you look at our business from December to January there was a sudden change, so what happened?” he asked. “We didn’t have time to change the merchandise, but what we really did was change the focus of who we were going after and adjusted our prices, and margins were still OK.”
Liz Pierce, an analyst with Sanders Morris Harris Group, is not convinced that the new strategy is going to resuscitate the company.
“Faster to market, lower-priced and fashion-forward is a legitimate start, but I still don’t understand what would be their competitive advantage against Forever 21,” she said. “Forever 21 is already the go-to destination for this.”
Privately held Forever 21 isn’t required to disclose information on its operations, but financial sources have estimated that its annual revenues are in the $500 million range, or slightly higher.
Forever 21 senior vice president Lawrence Meyer would not comment on Wet Seal, saying, “We compete with everybody throughout the mall. We pride ourselves on the ability to provide the latest fashion, with daily deliveries at affordable prices in an exciting store environment.”
While the two companies are now going head-to-head, Forever 21 had once considered purchasing Wet Seal. Instead, last month it reached a $33 million agreement to buy bankrupt juniors chain Gadzooks.
Pierce said there is room in the market for multiple players, but she cautioned that “your model, your formula, has to be very flexible because what the customer wants changes very rapidly.”
Waller acknowledged the need to move fast, and said Wet Seal is aiming to get goods into stores in fewer than 70 days by using an in-house design team as well as shopping at market. A turnaround in the stores should come by April, he said.“The answer is not to have a firm set of rules of where and how we acquire merchandise,” he said. “The answer is to have guidelines….I think that we will find a balance at some point, but I don’t know what that is.”
Waller’s predecessor, Peter Whitford, struggled with that balance. Whitford, former worldwide president of Disney Stores, took over in 2003 and hired designer Victor Alfaro as creative director in an effort to revive merchandise, which had begun to lose its edge at the end of the reign of his predecessor, Bronstein.
Alfaro’s designs, however, did not resonate with the trend-savvy teen customer and he left Wet Seal four weeks after his line debuted. Whitford departed last November after a little more than a year.
“Peter [Whitford] took too long to get it together,” Pierce said.
Catering to a demanding market requires an unflinching focus, and from the Nineties until 2002, Wet Seal was the barometer of teen fashion under merchant-turned-ceo Bronstein, who is largely credited with turning the brand into a must-shop destination and delivering trends such as bohemian chic.
But Bronstein’s touch failed her and 2002 same-store sales plunged 5.6 percent. She was fired by then-chairman Irv Teitelbaum.
Waller, who was ceo of Wilsons for 23 years, knows that time is not on his side. He said he is prepared to make tough decisions.
“My first day here I walked around the building and introduced myself to everyone here,” he said. “The second thing I did was answer ‘yes’ to the question of ‘will there be more layoffs?’”
In an effort to streamline operations, the company announced in December it would close 150 of its then-463 stores — Wet Seal also has 94 Arden B. shops — and shed 2,000 jobs.
Waller had been trying to turn around Wilsons, which had spiraled downward for the past several years, through a similar recipe of refinancing, store closings and job cuts. The Minneapolis-based retailer reported sales for fiscal 2004 decreased 15.3 percent to $441.1 million compared with $521 million for the same period the previous year.When the Wet Seal job beckoned, Waller said he was convinced to jump from one struggling company to the other by his daughter, Heidi Waller, director of fashion and trends at Wilsons, and six granddaughters — all of whom persuaded him that Wet Seal was a brand worth salvaging.
“I thought the fix was a fix that could be done quickly in the Wet Seal stores,” he said.
Some retail experts have raised questions about Waller’s qualifications to lead Wet Seal, such as whether more than two decades in the leather business translates effectively to the teen market. Waller said Wilsons focused on youth, and the strong relationships he has built with suppliers are critical to Wet Seal’s new model of mixing in-house design with shopping at market.
“Although people always say, ‘You were in the leather business,’ our business was always driven by juniors, by young fashion,” he said. “Although we sold leather to all age groups, Wilsons merchandised more to a lifestyle than an age group.”
Wet Seal is all about an age group — that tumultuous, awkward, exciting time when getting the right clothes seems all-important. Waller, who is comfortable delegating management tasks and by his own admission prefers to hire to his weaknesses, thinks that consultant Gold is the key to Wet Seal’s success.
“He’s the one who gets us to where we need to be,” Waller said. “He understood the market, he understood the customer, he had relationships with the suppliers and he quickly defined what the goals would be and is quickly changing the focus of the company….He could execute something in six months that would take most people 12 to 18 months [to do].”
Gold’s fiercely competitive business style and ability to soak up trends may make him the right man for the job, said Sindi Blauer, vice president of Me Jane, a popular manufacturer of kids’ and juniors’ outerwear. She previously worked for ADA, a Canadian-based manufacturer that did business with Gold.
“He was the don of garmento,” said Blauer, who described Gold as “brilliant and incredibly intimidating…He wants to find out if you’re stupid or smart. He would have his wife sit in school yards and see what the kids were wearing. He was always on top of it.”Gold declined to speak with WWD.
Former ceo Bronstein, who had worked for Wet Seal since 1985, was known for encouraging buyers to make quick decisions, and for being passionate about the business (she named Wet Seal’s Arden B. division after her daughter.)
Bronstein said last year she unsuccessfully tried to secure $50 million in financing to help Wet Seal out of its financial troubles and engineer her return as ceo. She said it is painful for her to walk into the Wet Seal stores, and that now nothing could entice her back.
“The brand is so badly damaged and the merchandise at Christmas was frightening,” she said.
Jeff Van Sinderen, an analyst with B. Riley & Co. in Los Angeles, said Wet Seal had made some “egregious errors” in firing top-level management, but that it was time to move on.
“They have to get the right product at the right price and get it in the stores,” he said. “The other thing they need to do is win back the juniors’ customer.”
Waller knows that he is facing a battle. “The biggest problem is that we carry a tainted image,” he said. He plans to attack the issue through in-store marketing, merchandise changes and teen stylizers, who were recruited during Whitford’s tenure at the company to provide critiques of Wet Seal’s fashions.
“The feedback is amazing,” Waller said. “There’s no better way to listen to the customer.”
Waller said he could not comment on the recent announcement of an SEC investigation related to the sale of 3.1 million shares of Wet Seal stock by Canadian retailer La Senza Corp. and its chairman and ceo, Teitelbaum, former chairman of Wet Seal. The stock closed at $2.99, up 2.4 percent, Tuesday in Nasdaq trading.
“It does have an effect on the company,” Waller said of the inquiry.
Waller, who was readying himself for retirement before taking the Wet Seal job, said, “I’ve given myself a three-year time frame to get the business refocused, a leader in the industry and the right people in place — including my replacement.”
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