Nasty Gal Melrose Avenue

Details about the state of Los Angeles-based Nasty Gal Inc. leading up to its filing for Chapter 11 continue to emerge as the company winds its way through bankruptcy proceedings.

The privately held company, while loud and outward facing on social media, has historically kept its financials and much of its inner workings close to the vest. Insights on the state of the firm’s finances in more recent times continue to trickle out, most recently in documents filed in court this week.

That includes executive shuffling in more recent months that saw the departure of chief financial officer Robert Ross in mid-September. Ross is the former finance chief at Urban Outfitters and flash sale site Ideeli Inc., who joined Nasty Gal in 2013. His departure followed the late August exit of chief operating officer and former J.C. Penney Co. Inc. chief operating officer Michael Kramer, who is now at Forever 21 as the fast-fashion retailer’s cfo.

Nasty Gal, which filed for bankruptcy this month in California Central District Court, said in court documents filed this week that gross revenue totaled $93.43 million since the start of the calendar year.

The digital fashion company and retailer also reported to the court 11 pending lawsuits it has been involved in over the past year. All of those pending matters are civil complaints, with the majority before the Division of Labor Standards Enforcement.

Nasty Gal, founded in 2006 as an eBay store selling vintage apparel by Sophia Amoruso, rose to success with a brand that managed to strike a chord with shoppers and amass a loyal following largely through the voice of its founder. That helped the e-tailer attract outside funding, with $65 million raised to date and the most recent round led by former Apple and J.C. Penney executive Ron Johnson in 2015. The Series C totaled $16 million for the company.

Amoruso retains a 55 percent stake, according to the court filings. Index Ventures Growth II and Stamos and Johnson Fund I are other major owners in the business with 18 percent and 6 percent stakes in the company, respectively.

Fast growth it couldn’t keep up with and perhaps a lack of clarity on next steps for the business appeared to be hurdles for Nasty Gal. That, paired with a generally tough operating environment for most retailers, proved a bad mix for the business.

Bringing in venture capital may have also contributed to the company’s challenges.

“Nasty Gal eventually took on venture capital investors, which are great,” said Mike Karanikolas, cofounder and co-chief executive officer of Revolve, during the WWD Digital Forum Los Angeles this month. “They add a ton of value to a business but the way in which they run a business and what they expect out of a business are very different from, say, private equity investors or other kinds of investors.”

Revolve, which has taken on private equity capital, was rumored to have looked at Nasty Gal’s books this year, something neither company has commented on.

“With VCs, they’re looking to get a couple of home runs paired with maybe a dozen strikeouts,” Karanikolas said during the forum in response to a question on Nasty Gal’s troubles. “So any time you as a business decide to take on a venture capital investor you need to understand that you could just as easily become a strikeout as [much] as a home run.”

What to do with the company’s stores and whether those leases could be exited coming out of bankruptcy is another question facing the company. Nasty Gal pushed into physical retail in late 2014 with a store on Melrose Avenue, followed by a second on the Third Street Promenade in Santa Monica. But the company has shared very little about the performance of the doors or any significant learnings about how its customer base shops them.

Executives appeared to have had long-term aspirations, however. The Melrose lease, with a monthly rent of $23,000, is good through November 2024, according to court documents. Nasty Gal’s Santa Monica store has a $106,000 monthly rent that doesn’t expire until 2026.

Johnson told WWD in May while at the Shoptalk conference that both stores have “very high sales per square foot” and indicated brick-and-mortar was still in pilot mode at the company: “We’re now testing and experimenting with stores,” he said at the time. “Once we get the model right we’ll probably add some more stores.”

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