The economic downturn that has slammed clothing makers and retailers has taken a toll on Orange County’s two mall chains as they try to resolve fashion missteps and falling sales.
Anaheim-based Pacific Sunwear of California Inc. and Wet Seal Inc. of Foothill Ranch have been restructuring their businesses for more than a year now. But the weak retail market and Wall Street’s turmoil haven’t made turnarounds easy to come by.
Pacific Sunwear, which runs some 940 mall stores and outlets, has seen its stock fall about 90% for the year. It’s the worst drop among similar retailers. The company had a market value of about $110 million as of last week.
Pacific Sunwear’s slump even prompted a long shot buyout bid last month from small retailer Adrenalina of Miami, which offered to pay $329 million in cash and stock for the company.
Pacific Sunwear rejected the offer.
Wet Seal, which runs 408 Wet Seal stores for teen girls and 91 Arden B. stores for young women, also has seen its shares tumble in recent months. But the company seems to be better than Pacific Sunwear.
Despite a recent drop, Wet Seal’s stock still is up about 22% for the year as of last week with a market value of $255 million.
The company’s better showing on Wall Street has a lot to do with its Chief Executive Edmond Thomas, who’s leading Wet Seal through its second turnaround this decade.
He took the reins from former chief executive Joel Waller, who spent more than two and a half years reworking the company by trimming losses and spurring sales in the earlier part of the decade.
Waller left last year as gains from earlier in his tenure faded.
Thomas has helped Wet Seal cut costs and re-emerge as a “fast fashion” retailer by appealing to trend savvy consumers looking for value.
The company’s niche in the fast fashion category, where cheap, chic retailers such as Los Angeles-based Forever 21 Inc. and Sweden’s H & M; Hennes & Mauritz AB’s H & M; thrive, could be giving it a leg up over Pacific Sunwear.
In an October report, PiperJaffray & Co. analyst Jeffrey Klinefelter said Wet Seal is a “solid house” in a “great neighborhood.”
The fast fashion category makes up 24% of the retailers that females prefer to shop at, according to Piper Jaffray’s most recent “Taking Stock with Teens Survey.”
Wet Seal came in at No. 3 in the survey after Forever 21 and San Diego’s Charlotte Russe Holding Inc.
“Wet Seal is well-positioned in this economic environment as we enter the important holiday selling season,” Thomas said on a conference call.
That’s not to say the company hasn’t had problems.
October was a difficult month for retailers across the board.
Wet Seal saw same-store sales fall 6.2%, better than the 8.6% analysts had expected.
Wet Seal’s smaller Arden B. chain, which has been a drag on the company for more than a year, drove the decline with a 27% drop.
Earlier this year, some analysts have suggested that Wet Seal could look to sell Arden B.
The company is “rigorously” managing expenses associated with its Arden B. chain, Thomas said.
The “current volatility in the retail environment,” is pushing Wet Seal to carefully manage the amount of clothes it keeps on hand at its stores and the number of sales it puts on, Thomas said in a conference call.
Wet Seal also has cut prices at Arden B. so that it’s in a “better position” to enter the holiday season and weather the “difficult economy,” he said.
Things seem to be going worse at Pacific Sunwear.
The company saw a steeper-than-expected fall in October sales and warned of a quarterly loss.
Pacific Sunwear saw sales at stores open at least a year fall 11%, far exceeding the 6.6% decline that analysts predicted.
It now expects to lose $4.6 million to $5.3 million, including $3.9 million in onetime charges, when it reports for the three months ended Oct. 31.
Wall Street had been expecting the company to breakeven for the quarter.
“Sales came in worse than we expected,” MKM Partners LLC analyst Linda Tsai said in a recent report.
Pacific Sunwear, which sells surf-inspired clothing, most from OC companies, could struggle to win customers as the economy pushes consumers to look for value over brand names, Tsai said last week.
“A lot of what (Pacific Sunwear) carries is branded. In other times that could be a benefit, but in this economic environment, people aren’t concerned with brands and that could be hurting them a little bit,” Tsai said.
Having a broader collection of affordable, generic clothes could make it easier for teens to spend money at Pacific Sunwear, Tsai said.
The bleak holiday shopping season poses hurdles for Pacific Sunwear and Wet Seal.
Many Americans plan to spend less and shop differently during this year’s holiday season, according to Deloitte & Touche USA LLP’s annual Holiday Survey of retail spending trends.
The survey found that 59% of those surveyed expected to reduce their spending this holiday season as they deal with the slumping economy.
Retailers will have to manage their costs and cloths on hand better by having just the right amount of products on hand at their stores, according to John Belli, managing partner of Ernst & Young LLP’s Irvine office.
“Most of these retailers are very aware of the challenges out there and they’ve been closely looking at closing underperforming stores and reducing inventory levels,” Belli said. “They see it’s going to be a difficult holiday season.” n
