Wet Seal filed for Chapter 11 protection Thursday morning, adding to a growing list of struggling retailers turning to insolvency amid a decline in mall traffic and an overall downturn in the industry.
The Foothill Ranch, Calif.-based teen girl's fashion retailer plans to close all of its stores by Feb. 28 and began conducting going-out-of-business sales at its 142 locations in 37 states including in New York, Washington and Texas on Jan. 23. It also plans to shut down its e-commerce business and sell its intellectual property, according to court papers.
"After attempts to develop going-concern restructuring options proved unsuccessful, the debtors determined, upon consultation with their key constituents, that commencing going-out-of-business sales through the debtors' retail locations and e-commerce website and the subsequent Chapter 11 cases provided the best opportunity to maximize value for the debtors' estates, creditors and all interested parties," Wet Seal said in court filings.
On its website, the primarily mall-based Wet Seal is selling its dresses, jeans, accessories and more at 40% and 50% discounts.
It is no secret that mall traffic has been dwindling for some time and is only getting worse. Mall-based retailers including Macy's (M) - Get Report saw a 2.1% slip in comparable store sales in November and December while Sears (SHLD) has seen a 12% decline in same-store sales.
And Wet Seal's entry into bankruptcy is not its first. Only a little over a year ago the retailer emerged from its previous Chapter 11 case.
In November of 2015, Wet Seal received confirmation on its liquidation plan, which gave way for the company to exit bankruptcy with 173 stores, compared to the 511 locations it operated prior to filing for Chapter 11.
Wet Seal's latest filing also comes on the heels of similar retailers such as Limited Stores which petitioned for Chapter 11 relief on Jan. 17 after shuttering all of its 250 women's clothing stores. Wet Seal's case appears to be mirroring that of American Apparel's, which commenced its second insolvency case on Nov. 14, selling its IP and leaving its stores to liquidate and shutter.
Just like American Apparel, it appears "this is the end of the road for" Wet Seal, Jessica Steinhagen, distressed debt legal analyst at Reorg First Day, told The Street on Thursday.
"Wet Seal attributes its operational losses to onerous lease obligations, underperforming retail locations and increased competition in the teen fashion industry," Steinhagen said. "The company says that the growth of online competitors coupled with the decline in mall traffic has 'consistently challenged' Wet Seal's ability to right-size its balance sheet and operate profitably."
Wet Seal was founded in 1962 by Lorne Huycke in Newport Beach, Calif., and primarily sells clothing and accessories geared toward teen girls.
Wet Seal, which was bought by private equity firm Versa Capital Management for $7.5 million in 2015, and its affiliates including The Wet Seal Gift Card petitioned in the U.S. Bankruptcy Court for the District of Delaware in Wilmington, listing $10 million to $50 million in assets and $50 million to $100 million in liabilities.