California Apparel News

Retail giant Gadzooks Inc. filed for Chapter 11 bankruptcy on Feb. 3, leaving few California suppliers surprised at the latest turn of events for the Carrollton, Texas–based retailer of trendy juniors apparel.

“They’ve been in trouble for a while,” said Mike Martin, a national sales manager with Carlsbad, Calif.–based surfwear company Rip Curl. “Business really dropped off when they got out of selling men’s clothing.”

Rip Curl’s business with Gadzooks ebbed to a low point in July 2003, when Gadzooks made a strategic decision to stop selling clothes for teenage boys and sell only juniors clothing at its stores.

Carol Greer, Gadzooks’ interim president and chief merchandising officer, said the company will continue its new course despite the rough weather.

“We are excited about the progress of our concept,” Greer said in a prepared statement. “We expect good results through our Spring season as we focus on our core destination apparel business and swimwear, appealing to the fashion-conscious junior customer.”

Gadzooks, which currently has 410 stores in 41 states, will shutter 156 stores and eliminate 65 corporate positions as part of the bankruptcy, said Gadzooks Chief Executive Officer Jerry Szczepanski. Another part of the bankruptcy reorganization includes the replacement of President and Chief Merchandising Officer Paula Masters. Greer, who serves on Gadzooks’ board of directors, has temporarily assumed Masters’ duties. Szczepanski and Jim Motley, Gadzooks’ chief financial officer, declined further comment.

Since its opening in 1983, Gadzooks has forged a reputation for experimenting with bold new retail concepts. It was one of the first chain stores to retail men’s and women’s fashions under the same roof. It was also one of the first to experiment with neon and video deacute;cor.

However, the Gadzooks’ decision this summer to sell only juniors apparel set the company on a confusing path, said retail analyst Jeffery Van Sinderen of Los Angeles–based B. Riley & Co.

“We all scratched our heads when they went to juniors-only,” Van Sinderen recalled. “They did it during a tough time [for the] juniors segment, and it was tough to figure out how they were going to morph into that successfully.”

After the transition, Gadzooks continued to carry California lines, including Los Angeles–based Von Dutch, Hot Kiss, Quiksilver and Billabong.

Gadzooks’ bankruptcy papers noted the company owes Von Dutch $1 million. In September, Gadzooks announced an exclusivity agreement with Von Dutch that gave the retailer the license to carry Von Dutch apparel, swimwear, shoes and accessories exclusively for a term of 18 months.

Von Dutch spokeswoman Caroline Rothwell declined to comment on her company’s future with Gadzooks.

“I don’t know how active we are with them,” she said. “There’s a lot of money we need to get collected.”

Calls to several Gadzooks stores confirmed the retailer also carries Candies jeans as well as Hurley International and Roxy. Gadzooks owes Quiksilver $840,107, according to the bankruptcy papers.

Bob Hurley, chief executive officer of Hurley International, expressed sorrow and support for Gadzooks.

“It’s tough for everybody,” said Hurley, who has been doing business with Gadzooks for more than a decade. “In my experience with other retailers, when they have a good team and a good idea, they go on to success. They have a great team over there.”

Gadzooks’ idea to change to juniors in July did not turn the tide during the retailer’s already troubled year. The company reported total sales of $245.4 million for the first 48 weeks of fiscal 2003, a 20.5 percent decrease from the $308.6 million earned during the same period of fiscal 2002.

Sales did not improve in December. Gadzooks reported sales of $40.5 million that month, a 27.7 percent decrease from the $56 million the company earned in December 2002.

In late January, Gadzooks organized a restructuring committee to guide the retailer through its transition. Greer, the interim president and chief merchandising officer, is part of that committee.

Van Sinderen of B. Riley & Co. said others will benefit from Gadzooks’ bankruptcy. “In the long term, it means closing stores, which will help competitors in the juniors space, from Pacific Sunwear to Charlotte Russe and Bebe Sport.”

Martin of Rip Curl said he still sees a bright future for Gadzooks.

“They have a lot of doors in Texas, Oklahoma [and] spread throughout the East Coast,” he said. “As a sales manager, [I can say that] if they can pay their bills and they have a lot of doors, they’re still on target.”