Lofty expansion goals and high debt over the years contributed to the demise of Kitson, the Los Angeles-based boutique known for catering to celebrities such as Paris Hilton and Rachel Zoe, sources said.
The pop-culture, lifestyle and fashion retailer said Thursday that it would shutter all operations — 17 stores and its online site — and began liquidation sales the same day. It wasn’t immediately clear whether the company would still need to file a Chapter 11 petition. James Wong, Kitson’s chief restructuring officer, said the company was in talks with potential buyers of the brand. Most of the stores are in California, but some are in Oregon and Nevada.
Fraser Ross founded the retailer in 2000. Kitson has helped many local designers by giving them a store to sell their products. Brands such as True Religion and Hudson Jeans were launched at Kitson before being picked up by Barneys New York and Nordstrom. If the brand had good sell-throughs, Kitson would push for greater exclusivity of the merchandise for its stores. That in turn contributed to the “go to” factor for celebrities seeking fashion that couldn’t be bought anywhere else.
Around 2013, the company decided that because its model was “proven,” it was the right time to strategically expand the business, according to then-chief executive officer Christopher Lee, who spoke at the Next Great Consumer Brands Conference co-presented by boutique investment banking firm Consensus Advisors and The Nasdaq OMX Group, held in March 2013 at Nasdaq’s MarketSite location in Times Square. The conference brings brands together with potential investors who attend the conference.
Lee told attendees, “We need capital to grow exponentially.” He also said then that the goal of the company was to “go public or be taken over by a public firm.” Lee, who recently left the company, could not be reached for comment.
The last public disclosure of the company’s financials was at the Consensus presentation, in which Lee said the company had annual volume of $30 million. The stores range in size from 2,000 square feet to 7,300 square feet. Sales average about $1,000 a square foot.
While Kitson locked in a new $15 million senior-secured credit facility from Salus Capital Partners in May 2013, it never was able to secure the investors it wanted to help it grow the business.
Sources said high rents likely contributed to the retailer’s debt. Another area that likely hurt Kitson has been the pullback on tourism in the U.S., whether to the stores located in the City of Angels or for those stopping over at LAX.
In 2013, Kitson expanded to a second site at LAX in Terminal 7, one of United Airlines’ terminals at the airport. That was part of a $1.9 billion piece of a $4.1 billion improvement program at the airport. The retail assortment comprised of a mix of national, international and local names, catering to the tourist known for being cash-rich but time poor. Chinese tourists in particular used to take nonstop flights to LAX, but have since pulled back from heading to the U.S. They have since preferred to go to Europe to take advantage of the weaker Euro as the U.S. dollar has gotten stronger.
In June, Kitson was able to obtain additional financing from BHK Investments LLC, an affiliate of Spencer Spirit Holdings, the operator of Spencer Gifts. With an immediate payment due to Salus, it was considered a last-ditch effort that allowed Kitson to stave off a liquidation at the time.