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Teenage Wasteland: Can Wet Seal Be Saved?

At Wet Seal, new money, new leadership, old problems. Here's what chief executive Melanie Cox is doing about it.
Wet Seal | Source: Wet Seal
  • Bloomberg

FOOTHILL RANCH, United States — When Melanie Cox gave the staff of fashion retailer Wet Seal her rah-rah spiel in August, she knew they had heard it all before. Here before them was the company's fourth chief executive in as many years, with yet another plan to recharge sales.

"If I could've been inside a lot of their heads, I think it'd be like, O.K., here we go again," she said.

Cox has inherited a retailer reeling from more than a decade of tumult. Once a staple for teen mall-goers, Wet Seal, based in Foothill Ranch, California, shriveled in the mid-2000s as it faced rising competition and slowing mall traffic and couldn't nail the trends. Now, with Wet Seal fresh out of bankruptcy court, Cox is already under pressure to show she can make it work.

Her plan is to go back to the Cali cool vibe that made Wet Seal, a $600 million company in its heyday, successful in the first place. Cox aims to win over shoppers with the allure of a laid-back, West Coast lifestyle. In fashion, that means a relaxed, slouchy look championed by such labels as Reformation and Wildfox. Think floaty dresses, cozy oversize tops, and plenty of denim. It's the kind of style young women can wear while plodding around on weekend errands but can tweak to serve as going-out garb. While bigger stores, like H&M and Forever 21, appeal to all kinds of tastes with a variety of styles, Wet Seal will put its chips on that older teen and college kid.

"We are absolutely going to be aggressively fashion-forward, but in a lane that is California casual," said Cox in her first wide-ranging interview since taking over at Wet Seal. "Think of her and what she wears during the week, a senior in high school or a college girl, and what she wears when she's on the schlumpy Saturday circuit to the coffee shop in sweats and pajama bottoms. Understand that lifestyle, then tailor the mix and voice to that."

That doesn't entirely satisfy Judith Russell, an apparel analyst at the Robin Report, who said the competition that helped bring Wet Seal down is only getting more intense. With H&M and Forever 21 continuing to expand and the recent entry of Primark in the U.S. market, it's even harder to stand out and win over young shoppers.

"They haven’t cemented a relationship with the consumer," Russell said. "They can change their product line as much as they want, but how are they gonna get her into the store?"

Teen fashion has experienced something of a retail cataclysm. Competition for teens' cash has stiffened as kids spend more money on smartphones and video games. Many retailers, including Abercrombie & Fitch, have had identity crises, unable to pin down what their young consumers want. Numerous stores once popular among America's high school and college flocks have been brought to the brink of collapse. Delia's, Deb Shops, and Cache have each filed for bankruptcy protection from creditors in the past year. The most recent victim was American Apparel, which filed last month, after failing to turn a profit since 2009.

Cox's predecessors at Wet Seal tried all kinds of things to spark sales. First they tried cycling through styles every six weeks. That didn't work. Then they tried to go for a younger teen while selling more big-ticket items. That didn't work. Then they went back to a slightly older shopper, with a fast-paced, trend-chasing model. That didn't work.

Cox is targeting the 18- to-24-year-old demographic. She's altering the mix of merchandise, opting for a combination of basics and "core fashion" items, iterations of the trendiest looks of the season, to drive sales. Eye-catching, riskier clothes will serve as the "icing on the cake." Previously, she said, "we were all icing."

Key to this effort is getting young women back into its stores. Wet Seal shops will soon undergo a design revamp, though Cox declined to share details, saying only that there will be a new aesthetic, from the in-store signage to the visual presentation at the front. Her marketing team is evaluating what music to play.

"You pay the big rents in the mall because it provides the customer," Cox said. "But the consumer walks by your storefront and they have three to five seconds to determine whether or not they're going to walk in. We have to do a better job of presenting a compelling story that inspires them to at least come in and take a look."

The company's crisis came in January, when Wet Seal abruptly closed 338 stores, about two-thirds of its fleet, and slashed almost 3,700 jobs. Store employees said the news came as a shock, with no warnings of the mass layoff. Furious managers posted signs in store windows slamming their soon-to-be-former employer. Shortly after that, Wet Seal filed for Chapter 11.

Formerly publicly traded, Wet Seal emerged from bankruptcy court under Versa Capital, a private equity firm with more than $1.4 billion in assets under management. Versa has bet on foundering products and services ranging from parking facilities to anti-bomb equipment. In apparel, it has stakes in plus-size retailer Avenue, family store Bob's, fabric maker Polartec, and a pair of sportswear sellers.

Cox, 55 according to various reports, is a seasoned retail executive who worked for Versa. She returns to Wet Seal after a decades-long hiatus and in a much bigger role. Before it became the well-known teen mall brand of the '90s, she worked there as a buyer, helping start the product development department. She went on to senior roles at such brands as Contempo Casual, Scoop, and Gymboree.

Wet Seal now has 171 stores and doesn't plan to change that over the next six to eight months, Cox said. She expects long- term opportunities to expand the fleet, eventually. The company's workforce remains at around 2,500. Before the store closings, Wet Seal hauled in $530 million in annual sales in 2014. It declined to share current revenue figures or say whether it's profitable.

Though it took a few meetings for Cox to get her new team revved up for yet another attempted turnaround, about 35 percent of the items at Wet Seal this holiday season will represent changes under her regime — quite a feat for an apparel retailer of its size — and she's working to crank up that number as fast as possible.

"When Wet Seal was at its peak, in the mid to late 90s, I think what they were doing was very similar to what we are doing now," Cox said. "At a certain point they sort of morphed into a more clubby look, and that is not the essence of the brand."

That's where Russell, the analyst, agrees.

"The brand, right now," she said, "it doesn't really mean anything."

By Kim Bhasin; editor: Peter Jeffrey.

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