Wet Seal Inc. became the latest clothing retailer to seek bankruptcy protection as mall-based stores lose business to big-box chains and online merchants.
E-commerce and retailers bogged down by real estate obligations have contributed to the wave of bankruptcy filings, including Delia's and Body Central. For more, see Retailers Reconsider Real Estate.
Wet Seal, based in Foothill Ranch, California, has lost more than $150 million over the past two years and defaulted on $27 million in senior convertible notes in December.
The company said today it has a reorganization plan under which B. Riley Financial Inc. will acquire 80 percent of its stock exchange for a $20 million loan to fund operations during bankruptcy. Riley is the parent of liquidator Great American Group LLC.
The retailer joins Deb Stores Holding LLC, Loehmann’s Inc. and Coldwater Creek Inc. in filing for bankruptcy. A slowdown in mall traffic has sent sales tumbling. Wet Seal’s comparable- store sales, a key retail benchmark, declined 15 percent in the third of quarter of 2014, according to company filings.
“The continuing fundamental shift in consumer behavior away from traditional mall shopping toward online-only stores and increased competition throughout the specialty retail fashion industry have created a difficult operating environment,” Thomas Hillebrandt, Wet Seal’s chief financial officer, said in the company’s Chapter 11 filing in U.S. Bankruptcy Court in Wilmington, Delaware.
In its December bankruptcy filing, Deb Stores said a shortage of capital left it with “old, tired stores.” Loehmann’s began its bankruptcy in December 2013, while Coldwater Creek sought creditor protection in April with plans to liquidate. Dots LLC filed in January 2014 and Ashley Stewart filed in March as sales declined and losses mounted.
Wet Seal operates 173 stores in 42 states and Puerto Rico, as well as a website. It closed 338 stores around Jan. 7, Hillebrandt said in the filing. Third-quarter net sales totaled $104.3 million, compared with $114.9 million in the same period the year before.
Ed Thomas, the company’s chief executive officer, said today in a statement that directors “unanimously concluded” that filing was the “appropriate course of action.”
The retailer listed assets as of Nov. 1 of $93 million and debt of $103 million in the Chapter 11 documents. Wet Seal said it has about $250 million in tax losses it will try to preserve while in bankruptcy.
The company and creditor Hudson Bay Master Fund Ltd. entered a forbearance agreement on Dec. 29 that ended Jan. 12, according to a regulatory filing. The total amount due is equal to $28.8 million plus the costs of collection, attorneys’ fees and disbursements, Wet Seal said in the filing.
The case is In re Wet Seal Inc., 15-10081, U.S. Bankruptcy Court, District of Delaware (Wilmington).