Wet Seal Inc. took a beating on Wall Street and social media Monday.
It’s the latest in the struggling teen retailer’s quest to find a white knight in the form of a buyer or capital infusion that could help it avoid a potential bankruptcy and effect a turnaround now several years in the making.
The Foothill Ranch, Calif.-based company’s stock closed down 16 percent Monday to a market value of $5.03 million.
A few of the company’s former store employees are now taking to social media to air grievances related to store closures. That includes a photo posted on Reddit of a Seattle location in which a list of complaints was written out on signage hung in the shop window. The list included an alleged one-day notice of the store’s closure and no payout of unused vacation time. The signage included the hashtags #BoycottWetSeal and #ForgetWetSeal. Danella Mabrey, who claimed to be a former employee, also aired her complaints about various store closures, among other things, in a Facebook post on Friday.
A spokeswoman reached late Monday said Wet Seal is not commenting on the matter and declined to confirm or deny the allegations made on social media.
The online backlash followed a disclosure in a filing with the Securities and Exchange Commission on Friday that Wet Seal signed a forbearance agreement to delay payment of obligations on a $27 million senior convertible note held by Hudson Bay Master Fund Ltd. until Jan. 12.
Wet Seal operates in a rugged corner of the specialty retail market that saw Chapter 11 bankruptcy filings last month from Deb Shops and Delia’s Inc. Wet Seal itself raised the possibility of its own bankruptcy filing if it did not succeed in talks to raise additional capital. It hired Houlihan Lokey and FTI Consulting in November to help it review strategic and financial alternatives.
The likelihood of a strategic buyer stepping in is slim, said David Tawil, president of hedge fund Maglan Capital.
“There’s always a price for everything,” Tawil said. “There is always a sale to be done at a price. That said, we’re dealing in an environment that is extremely difficult for specialty retailers, especially in that [juniors] segment…. I don’t know at what price someone would be interested in buying it.”
The company’s November quarter did little to impress.
Its net loss widened to $35.9 million, compared with $14.9 million in the year-ago period. Net sales for the quarter were off 9.2 percent to $104.3 million. Meantime, same-store sales slumped 14.5 percent for the chain, which had 528 stores as of Nov. 1.
Wet Seal said at the time it planned on letting leases expire on some 60 stores in the current quarter.
How a retailer that teen girls had once sent to the top of the pack is now being shunned by that same customer is a case study in brand equity, some say.
“There was a time when Wet Seal was the leader of junior specialty retail in the United States, and I think this is a good lesson for retailers everywhere, on two fronts,” said Kathy Bronstein, the veteran chief executive officer who led Wet Seal for an 11-year run that ended in 2003. “Number one is, reactionary retail doesn’t work. When you see your competitors are doing things that you think are propelling them and you’re copying them, it doesn’t mean your business is going to be good. The other side of that equation is you need to continue to evolve your brand.”
Bronstein, who currently consults for Brighton Collectibles, was brought back to the company as a board member in 2012 but stepped down when the strategic direction of the company shifted to a focus on e-commerce and social media under then-ceo John Goodman. Goodman, who is no longer with the company, was one of three ceo’s in about as many years for the retailer, which is now being led by Ed Thomas.
Bronstein, who said the company is in capable hands with Thomas, called Wet Seal’s current struggles “heartbreaking.”
She had considered making a run at purchasing Wet Seal about four years ago, but it wasn’t up for sale at the time. Bronstein is now no longer interested, in large part due to the challenging macro environment for all retailers and particularly those catering to teens. It’s a landscape she described as overpopulated with choices.
“Every morning I wake up,” Bronstein said, “I thank God that I’m not in juniors.”