Wet Seal — The Teen-Mall Chain Outrun by Faster, Cheaper Fashion

Summary

Wet Seal was the teen and junior fast-fashion chain that dressed a generation of mall-going girls in cheap, trend-chasing clothes — and on January 27, 2017, it closed all of its remaining stores and terminated its staff, ending in liquidation. The company traces to 1962, when Lorne Huycke opened a Newport Beach, California shop called "Lorne's"; it was incorporated and renamed Wet Seal in 1990, the name reportedly drawn from a comment that a model in a swimsuit looked like a wet seal. At its 2014 peak it ran roughly 540 stores — about 478 Wet Seal locations and 54 of its more upscale Arden B brand — across the country, a fixture of the teen-apparel wing of the American mall.

What killed Wet Seal was the fast-fashion arms race it could not win. Forever 21, H&M, and Zara turned the trend cycle from seasons into weeks, moving new looks from runway to rack faster and cheaper than Wet Seal's slower inventory cadence allowed, while online fast fashion took the rest. The chain lost more than $150 million in the two years before its first collapse and defaulted on its debt. It filed for Chapter 11 in January 2015 — but not before an abrupt round of store closures and mass layoffs that became a case study in how not to shut stores.

That January 2015 closure was the chain's ugliest chapter. On January 7, 2015, Wet Seal discontinued operations at 338 stores and terminated roughly 3,695 employees, many of them with little warning; workers posted handwritten signs in store windows recounting how the closures had been communicated, and a class-action lawsuit accused the company of violating the WARN Act by keeping staff in the dark until the doors shut. Private-equity firm Versa Capital Management bought the surviving operations out of bankruptcy in April 2015 for about $7.5 million.

The reprieve was brief. Under Versa, Wet Seal kept losing ground, and on February 2, 2017 it filed for bankruptcy a second time, having already shuttered its remaining stores the prior week. There was no third act: the stores were gone, headquarters staff were laid off, and the assets were sold, with the brand name later acquired by Gordon Brothers and continued online. The fate word is Liquidated because the second filing ended in the closure of every store and the sale of the company's assets, not a reorganization.

Timeline

The Mall Wet Seal Owned

For decades, Wet Seal occupied a specific and lucrative slot in the American mall: the store a teenage girl walked into for an inexpensive, on-trend outfit she could wear that weekend. Born as a single Newport Beach shop in 1962 and rebuilt as Wet Seal in 1990, the chain grew through the 1990s and 2000s into a national presence, bolstered by the 1995 acquisition of 237 Contempo Casuals stores and, from 1998, the more grown-up Arden B brand. By 2014 it ran roughly 540 stores across 48 states and Puerto Rico, dressing the junior shopper in disposable, trend-led clothing at prices built for an allowance.

The model worked when Wet Seal's competition was other mall chains operating on the same rhythm — design for a season, order, ship, sell, mark down. Its merchandise turned reasonably fast, its locations sat in the teen-apparel corridors where its customers already congregated, and its brand carried the casual cool that mattered to a fourteen-year-old. But the entire proposition rested on two assumptions that the 2000s quietly demolished: that teenagers would keep coming to the mall, and that "fast fashion" meant a seasonal cadence. Both turned out to be wrong, and the chains that proved them wrong were already building stores down the corridor.

Outrun on Speed and Price

Fast fashion as Wet Seal practiced it was about to be redefined by competitors who ran it at a velocity it could not match. Forever 21 — a direct rival for the same teenage shopper — along with H&M and Zara compressed the cycle from runway to rack from months into weeks, reading demand in real time and replenishing trends before they cooled. They were also, crucially, cheaper, and frequently larger and better-merchandised, turning the trip to the mall into a visit to their stores rather than Wet Seal's. A junior shopper standing between a Forever 21 and a Wet Seal increasingly chose the one with newer looks at lower prices, and Wet Seal's slower inventory cadence and higher pricing meant it was usually a step behind on both.

Then the floor moved a second time. The same teenage customer began buying trend clothing online, where the selection was infinite and the trip unnecessary, and mall traffic — the lifeblood of a chain that lived in the teen corridor — entered a structural decline. Wet Seal was squeezed from two directions at once: faster, cheaper fast-fashion specialists on one side, and the migration of teen spending to e-commerce on the other. The financial consequence was brutal and quick. In the two years before its first bankruptcy the chain lost more than $150 million, and it defaulted on $27 million of senior convertible notes. By the start of 2015, Wet Seal was a fast-fashion company that had been outrun at fast fashion, with the balance sheet to prove it.

The Five Factors

Aftermath

The human toll fell hardest in January 2015, when roughly 3,695 store employees — overwhelmingly young, part-time, and low-wage — were terminated in an abrupt closure that left many learning of their job loss with almost no notice, and that generated a WARN Act class action on their behalf. The 2017 liquidation added the layoff of about 148 headquarters staff in Irvine and the closure of the last stores. For the workers, Wet Seal's death was not a wry boardroom parable; it was a sudden loss of income handled, by the company's own employees' accounts, badly. The empty stores reverted to landlords already coping with the broader teen-retail collapse that took dELiA*s, Charlotte Russe, and others in the same window.

The brand's afterlife is the now-standard online ghost: Gordon Brothers bought the Wet Seal name for about $3 million and runs it as an e-commerce label, a logo trading on the memory of the mall store rather than the store itself. The lasting mark is twofold. Strategically, Wet Seal is a clean illustration that being early to fast fashion is no protection when better-capitalized specialists run the same playbook faster and cheaper while the mall empties beneath you. And as a matter of conduct, its 2015 closure stands as a cautionary example of how the mechanics of shutting stores — the notice given, the way workers are treated — can compound a failure into something worse.

Lessons

References

• Versa Capital Finalizes Acquisition of The Wet Seal Retail Operations Business Wire (company announcement)
• UPDATE: Wet Seal files for second bankruptcy in 25 months Retail Dive
• Mall stores that don't exist anymore CBS News
• Wet Seal Wikipedia