Wet Seal Inc., the clothing chain that has said there is doubt it can continue operating, is closing about two-thirds of its stores and cutting almost 3,700 jobs after failing to win concessions from landlords.
The news comes as Mergers & Acquisitions predicts more retailers are going to face distress related to their cumbersome real estate portfolios in 2015. For additional information, see More Retailers Will Face Real Estate Distress and Retailers Reconsider Real Estate.
The 338 stores that are shutting represented about 48 percent of its sales in the nine months ended Nov. 1, Foothill Ranch, California-based Wet Seal said today in a statement. The company said it expects to operate about 173 stores, along with its online business, after the closings are completed. The shares surged on optimism that the cost cuts may help the company get through its recent deterioration.
Wet Seal is among several mall-based clothing sellers that are suffering as shoppers turn to online retailers and households spend less on apparel. Delia’s Inc. and Deb Stores Holding LLC filed for bankruptcy last month, and Delia’s has announced it will shut down.
“There’s going to be a rationalization of store counts, and I think there’s probably a pretty serious re-evaluation of the business models for these companies,” Jeremy Hamblin, an analyst at Dougherty & Co. in Minneapolis, said of the sector overall.
Wet Seal, which focuses on young women, has been trying to trim costs after losing more than $150 million during the past two years.
“They’ve managed the business to preserve liquidity,” Hamblin said.
The closings announced today will result in about $5.4 million to $6.4 million in pretax charges to write off inventory, impair assets and eliminate employees, Wet Seal said. The estimate doesn’t include claims landlords of the shuttered locations may make, the company said.
Wet Seal more than doubled to about 13 cents at the close in New York. The shares tumbled 98 percent last year.
--Additional reporting by Allison Collins.