After receiving a letter from Wet Seal dated January 20, 2017, the Wall Street Journal reported that the clothing store is closing all of their shops and laying off all employees. The retailer let employees know at their Irvine, California headquarters. Wet Seal has 338 stores with 171 located in the United States and almost 3,700 employees.
As all the shops are closing, both the employees and customers will be impacted, the first having to secure new jobs in a relatively short amount of time. The company decided to hald all retail activities because it couldn’t secure funding or find a strategic partner.
Wet Seal Sent a Letter Informing Employees That They’re Closing All of Their Stores
In the letter informing employees that they’re shutting down, Wet Seal’s Vice President and General Counsel Michelle Stocker explained:
“Unfortunately, the company was unable to obtain the necessary capital or identify a strategic partner, and was recently informed that it will receive no further financing for its operations.”
Wet Seal has $50 million-$100 million in liabilities and $10 million-$50 million in assets. Moreover, this is actually the second time the retailer has filed for bankruptcy, the first time being in January 2015. At the time, the company had a reorganization plan to fund operations during bankruptcy. Under the plan, B. Riley Financial Inc. would have received 80% of its stock exchange for a $20 million loan.
Shortly after the January 2015 bankruptcy filing, Versa Capital Management LLC acquired the teen retailer for $7.5 million. Versa Capital Management had promised to keep at least 140 stores open, but unfortunately, they are unable to keep the promise due to how bad their financials are.
More Background on Wet Seal’s Financial Troubles
Their location in Foothill Ranch, California had lost over $150 million over the past two years when they filed for bankruptcy in 2015. The store also defaulted on $27 million worth of senior convertible notes. Wet Seal’s sales had declined 15% in Q3, the third financial quarter, of 2014.
According to Internet Retailer, the retailer generated approximately $27.5 million in online sales in 2015, which was a 2% decrease from 2014. As revealed in court documents, Wet Seal owes the most money to FedEx Corp.,$608,977. The company has enlisted Hilco Streambank, an advisory firm, to sell their intellectual assets. Wet Seal is also currently running a 30% off everything sale online to clear out inventory.
Wet Seal isn’t the only American retailer struggling financially. Also in January 2017, Sears Holdings closed dozens of their Kmart and Sears stores. The Limited was the first retailer in 2017 to announce it would close its stores and file for bankruptcy protection. Talbots and The Loft shut down their shops at the Circle Centre Mall downtown.
Even American Apparel and Aeropostale have filed for bankruptcy over the past few years. As the spending habits of young people change, mall traffic falls, and retail competition increases, more retailers continue to struggle. In general, mall-based stores have been losing to online merchants and big box chains.
The End of Wet Seal
It looks like Wet Seal has really come to an end this time. They barely managed to escape shutting down the first time that they filed for bankruptcy in 2015. Business has not picked up for them since then, so there’s no choice but to close all of their stores and file for bankruptcy again. Wet Seal isn’t the only retailer that’s been struggling financially for years due to changing sociographic and higher competition.
Other major U.S. retailers are barely staying afloat or have had to file for bankruptcy too. Business analysts predict that clothing store will slowly be overthrown by on-line shopping giants such as Amazon that offer quality products at lower prices.
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