After Proxy Fight, Wet Seal Must Find Path to Recovery
A proxy battle ended at The Wet Seal Inc., but now the hard work begins, analysts say.
The Foothill Ranch, Calif.–based juniors retailer made national headlines after activist hedge fund Clinton Group started a proxy battle to change the direction of the beleaguered juniors retailer. On Oct. 5, four members of the board resigned. Clinton Group’s slate of four nominees joined the board, and on Oct. 10, new board member Lynda J. Davey was named chairman.
The pace of change was quick, but retail consultant Howard Davidowitz, chairman of New York–based Davidowitz & Associates Inc. consultants and investment bank, said the retailer, which has a fleet of 544 stores, is still struggling with some basic questions.
“They have no CEO,” Davidowitz said. “Who is running the show? The bottom line is the customer continues to flee the stores.”
Wet Seal has been officially searching for a new chief executive since July, when the last CEO, Susan McGalla, was ousted.Since then, the retailer has been directed by an “office of a chairman,” led by Hal Kahn, who resigned from the board on Oct. 5. He continues to serve the company as a consultant to ensure an orderly transition. In his capacity as leading the office of a chairman, he was assisted by Ken Seipel, the company’s president and chief operating officer, and Steve Benrubi, Wet Seal’s chief financial officer.
Wet Seal also is searching for a new chief merchandising officer.On Oct. 5, Harriet Sustaric, Wet Seal’s CMO, resigned, and it was announced that she is joining True Religion Apparel Inc. as its general merchandise manager later in the month. Wet Seal merchandisers Kim Bajrech and Debbie Shinn are assuming Sustarsic’s duties on an interim basis.
Until Wet Seal can set a clear direction with its merchandising and the identity of its brand, sales will continue to decline, Davidowitz said, and it will not be an attractive property to sell, which is said to be Clinton Group’s eventual goal for the juniors retailer.
B.Riley & Co. analyst Jeff Van Sinderen agreed that it will take a new chief executive to restore the company’s fortunes. However, the company will quickly find itself on the road to recovery once strong new leadership confirms and directs a new path.
Wet Seal has turned its fortunes around in the past. More than seven years ago, when the company was reporting flagging sales, Michael Gold, a retail executive and consultant, was hired to place Wet Seal on a fast-fashion-like merchandising plan. The company’s same- store sales increased 44 percent in the 2005 fiscal year compared with the previous fiscal year.
Change can come quick, but don’t expect miracles. “It won’t happen for holiday,” Van Sinderen forecast regarding an increase in Wet Seal fortunes.“But it can improve. It will be a process. … At lot will depend on who they put in as a new CEO.”
A new Wet Seal chief executive probably will be getting a lot of direction.The new board is filled with retail executives.Along with new board chairman Davey, the new board members are Dorrit M. Bern, Mindy C. Meads and John S. Mills, as well as Kathy Bronstein and John Goodman, who were named to the board Sept. 20.Kenneth Reiss is the sole holdover from the pre–Sept. 20 board. He worked as an auditor for Ernst & Young LLP.
Bern served as chairman of the board, chief executive officer and president of Charming Shoppes Inc. from 1995 to 2008. Meads held the position of Aeropostale Inc. president and co-chief executive officer from 2007 to 2010. Mills is president of SDE, a retail-consulting firm specializing in store operations and growth strategies.Bronstein worked at Wet Seal from 1992 to 2005 and ended her service there as vice chair and president.Goodman was the chief executive officer of Charlotte Russe from 2008 to 2009.Davey has a strong background in finance. She served as chairman and chief executive officer of boutique investment group Avalon Group Ltd. Prior to Avalon Group, she was president of merchant bank Tribeca Corp., and she also worked at Salomon Brothers Inc. She was a founding member of the advisory board of the Fashion Institute of Technology’s Center for Design Innovation.
In a prepared statement, Davey said this board has the right stuff to restore Wet Seal’s leading place in the mall. “Wet Seal has a strong heritage in the juniors and young contemporary retail spaces, with a significant opportunity to achieve strong sales and earnings growth over the long term with the right leadership in place,” she said. “With the inclusion of new members, the board of directors possesses extensive backgrounds in the apparel retail industry, including in the areas of operations, finance and merchandising, as well as experience in turnaround situations. I strongly believe that, collectively, we have the qualifications necessary to put Wet Seal on the path to recovery.”
Wet Seal operates 473 stores under the Wet Seal nameplate and 81 stores under the nameplate for contemporary store Arden B. —Andrew Asch
