California Apparel News

Teen retailer Wet Seal Inc., which has had a hard time turning around drooping sales over the last few years, announced on Friday it is shuttering its contemporary nameplate Arden B and concentrating on its fast-fashion teen business.

Some 31 of the mall-based stores will be converted to Wet Seal+ stores and the rest should be converted to Wet Seal stores. All 54 Arden B stores will eventually be closed as leases terminate or provisions are made to exit leases.

Executives said there would be a non-cash assessment impairment charge of up to approximately $3 million in the first quarter of fiscal 2014.

"This was a difficult decision that followed a comprehensive review of the business and market dynamics," said Chief Executive John D. Goodman in a press release.

Arden B had $60.4 million in sales, which represented 11 percent of the company's revenues in fiscal 2013.

The announcement was made just weeks after Wet Seal executives said they would be banking on a new customer, the plus-size woman, to pull it out of its economic slump.

Last fall, Wet Seal opened up its first plus-size-only store in central California at the Clovis Crossing Regional Shopping Center, and two new plus-size store openings are planned for Visalia, Calif., and South Gate, Calif., in 2014. The company’s goal is eventually to have 40 to 50 Wet Seal + stores, measuring around 2,000 square feet, in its retail lineup. Meanwhile, 37 Wet Seal stores have a plus-size shop-in-shop, and plus-size fashion now is sold on the company’s e-commerce site.

“Going forward, we think this could be a sizable part of our business over the next few years,” Goodman said, speaking during a March 21 conference call about the company’s fourth quarter and fiscal 2013 results. “It’s just the beginning stages, but we feel like the investment is not that significant in terms of what we need to do to drive the performance of junior plus.”

Goodman, hired last year to give the retailer a new lease on retail life, took over the company when it was hemorrhaging money and on a rocky course.

In fiscal 2012, Wet Seal had a net loss of $113.2 million on revenues of $580.4 million. In fiscal 2013, Wet Seal had a net loss of $38.4 million on revenues of $530.1 million.

Since 2009, the company has had 14 quarters of negative same-store sales. Most recently, in the fourth quarter of 2013, same-store sales plummeted 16.5 percent as bad weather affected all retailers and put a damper on mall traffic.

The rest of Goodman’s turnaround strategy is concentrated on improving online sales, moving them from 6 percent of total sales in 2013 to 10 percent this year. New Demandware software was implemented in November to make it easier to buy items using mobile apps and tablets. In addition, three new tech-savvy members were added to the company’s board of directors last month.

When it comes to real estate, company executives are weighing the pros and cons of keeping stores in traditional malls. As of April 25, the retailer had 478 Wet Seal stores and 54 Arden B stores. Over the past two years, 20 percent of the company’s stores have had negative sales.

Sales at the stores have been less than spectacular. In 2013, Wet Seal’s annual sales per square foot were $236, and for Arden B they were $284, which doesn’t even come close to Guess or Urban Outfitters, where sales top more than $500 per square foot.

To cope with poor-performing stores, the retail chain will shutter some Wet Seal stores as their leases expire in traditional malls and open more stores in outlet malls and off-mall locations.

“In 2014, we plan to close approximately 17 Wet Seal stores and open 10 new locations, [including] six outlet stores, two off-mall and two Wet Seal Plus stores,” Goodman said.

In addition, the company is working to improve its merchandise offerings, making sure key items and trends are in stores and well displayed while shrinking the stores’ denim selection and moving it to the back of the box.

Plus-size risk

While Wet Seal executives noted that the plus-size business in the United States is expected to reach $10 billion by 2017, industry analysts say it is hard to make a profit right away on plus-size-only stores. Sometimes it is better to confine those plus-size sales to existing stores. That is the model Forever 21 has followed, and even Hot Topic continues to stock plus-size clothes in its stores even though it has a separate plus-size retail chain called Torrid.

“It is a very tough space to be successful in—even for those who are doing plus sizes,” said Jeffrey Van Sinderen, a B. Riley & Co. senior analyst who follows Wet Seal and its stock, which is trading at around $1.16, near its 52-week low and far from its 52-week high of $5.20. “I am skeptical that [plus sizes] are going to be the great success that saves the company. … The plus-size stores that are out there took a long time to get the formula honed, and there have been struggles along the way.”

Van Sinderen believes the plus-size push may be too late to move the company into profitable territory. In a report, he recommended that investors sell their Wet Seal stock.

More optimistic was Liz Pierce, a senior research analyst for Ascendiant Capital Markets, who also follows Wet Seal’s financials and stock. “I have long been of the belief that the plus-size market is vastly underserved, especially on the teen side,” she said, noting that every time she visits MAGIC Market Week, the biannual apparel trade show in Las Vegas, she sees more manufacturers catering to the plus-size customer.

“In certain ethnicities, being plus size is not the stigma it might have been years ago,” Pierce noted. ‘Why should there be discrimination? Before, the argument was that it was not economical to manufacture plus sizes because people do gain weight differently. It is not where you can make something for everyone. It is hard to come up with a prototype and sizes. But technology has helped with that.”

In her report, she recommended investors buy Wet Seal stock.

While the success of the plus-size venture is still undetermined, analysts applaud Wet Seal’s push to improve its e-commerce platform, which can only grow as that core teen shopper spends more time on her smartphone.