NEW YORK — The situation is erupting at Bebe Stores.

This story first appeared in the November 14, 2003 issue of WWD. Subscribe Today.

A messy contract dispute has left Bebe in the hole for a chief merchant and Gregory S. Gemette without a job. Gemette’s former employer, American Eagle Outfitters, successfully blocked his move to Bebe on grounds he was violating his contract, as reported exclusively in WWD on Nov. 13.

But sources said there could soon be bigger management developments at Bebe — at the presidential level and even higher.

Reportedly, Bebe, based in Brisbane, Calif., has been interviewing candidates from West Coast retailers, including Greg Scott, president of the Arden B. contemporary division of Foothill Ranch, Calif.-based Wet Seal Inc. Scott previously worked at Laundry by Shelli Segal as president of merchandising for a brief period and before that was head merchant at Bebe. Currently, there is no president at Bebe.

Other possible candidates include Susan O’Toole, chief merchandising officer of the Wet Seal division of Wet Seal Inc.; Kathy Bronstein, the former chief executive officer of Wet Seal Inc., and Harriet Sustarsic, former president and chief merchandising officer of Charlotte Russe.

“Someone from a California competitor will soon be announced as president of Bebe,” said one source.

It’s unclear if expected management changes will affect Manny Mashouf, chairman, founder and ceo of Bebe. Last month John Kyees, Bebe’s chief financial officer, left to become cfo of Urban Outfitters.

On Thursday, just two business days before Gemette’s intended start date as Bebe’s senior vice president and chief merchandising officer, Mashouf announced that Gemette wasn’t joining the company after all. Gemette was vice president and general merchandise manager of women’s at American Eagle.

“While I am disappointed that Greg will not be joining us, I respect his prior employer/employee relationship and would not want to interfere with any contractual commitments,” Mashouf said in a statement. “In the interim, Tom Curtis, general merchandising manager of Bebe Sport, will continue to oversee the responsibility of the merchandising department until a replacement is found.”

American Eagle’s legal maneuvers undoubtedly affected Bebe’s decision not to employ Gemette. It’s also possible that by reportedly pursuing a president, it became less necessary for Bebe to have Gemette on staff, as well. By enforcing Gemette’s contract, American Eagle sends a warning to its other executives not to jump ship prematurely.

Executive search firm Korn/Ferry International placed Gemette at Bebe. Sources speculated that Gemette could seek recourse. He couldn’t be reached for comment on his plans. Korn/Ferry had no comment.

Although Bebe showed improvement in its last quarter, net earnings for the year ended June 30 decreased 27.2 percent to $19.3 million, compared with $26.5 million for the prior year. Sales were up 2.2 percent to $323.5 million, but down 6.8 percent on a comparable-store basis. Bebe Stores Inc. designs, develops and produces contemporary women’s apparel and accessories, which it markets under the Bebe and Bebe Sport brand names. There are 173 Bebe stores and 12 Bebe Sport stores in the U.S. and Canada.

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