Wet Seal Rising: Ambitious Expansion Planned
By JENNIFER BELLANTONIO
Bucking the toughest retail market in a decade, apparel retailer Wet Seal Inc. said it plans to open 90 to 100 stores across its three divisions next year, as well as revamp some older stores and weed out unprofitable ones.
The Wet Seal division, which focuses on juniors, is set to see the biggest boost with at least 50 new stores, followed by Arden B, which carries contemporary women’s fashions, and Zutopia, a pre-teen retailer the company acquired last year from Gymboree Corp.
The aggressive expansion plan comes on the heels of Foothill Ranch-based Wet Seal reporting a 4.4% increase in same-store sales for the third quarter and a 70% gain in net income to $6.8 million vs. a year ago. November same-store sales came in at a 1.3% increase.
The company, which operates 581 stores, saw its fifth consecutive quarter of earnings growth in a tough retail environment, said Kathy Bronstein, Wet Seal’s vice chairwoman and chief executive.
“I don’t want to call it success, because I’m not happy with where we are,” Bronstein said. “But I’m never happy with where we are.”
The Wet Seal veteran has spent the past 18 months breathing new life into the retailer, which took a beating in 1999 when it unsuccessfully took a stab at khakis and polo shirts.
Bronstein, with support from chairman and 20% owner Irving Teitelbaum, has overhauled the company’s management team.
Edmund Thomas, left the president’s post in October 2000, and his replacement resigned after just a few months on the job. The former chief financial officer, Ann Cadier-Kim, left in the summer, just after the chief information officer resigned.
“They went for the right reasons, really,” Bronstein said. “It was just time for them to seek new opportunities and us to seek new input in those areas of the business.”
The company now has several new executives, including: Walter Parks, the new executive vice president and chief financial officer; Steven Strickland, senior vice president of marketing and creative (a new position); Mike Relich, chief information officer; and Greg Scott, president of the Arden B. division, which also has a new design director.
Wet Seal won’t have another corporate president, but Bronstein said she is looking for a president for the Wet Seal and Zutopia units.
“I’ve been here for 17 years, and I think that in many ways limits what I know. It’s been a very rewarding experience to add people that know about a whole variety of things that are not my area of expertise, but they think the way I think,” Bronstein said. “They’re proactive, they’re aggressive and they’re not afraid to spend money to make money.
“That’s been something that in the past we’ve been a little conservative about,” Bronstein said. “If you look at our balance sheet, with in excess of $100 million in cash, we can afford to invest in ourselves and our future.”
Liz Pierce, senior vice president of investment firm Wedbush Morgan in Los Angeles, credits Bronstein for “building an infrastructure for each division before she sets on a rapid expansion.”
That was something that wasn’t done in the past and came back to bite Wet Seal.
Two years ago, the company hit some hard times mainly because the management team was spread too thin, according to Pierce.
“It was a two-person show, between Kathy and Ed, for years. And if you think of the size of the company, they really lacked some of the management depth to run a several-hundred-store, multi-concept chain,” Pierce said. “(The new team) has taken a lot of pressure off of Kathy.”
Wet Seal also tried to use one merchandising team to run all of its properties: Limbo Lounge, the unisex, urban line that flopped, Arden B., and the Wet Seal and Contempo Casual lines for juniors.
The result?
“You get a very diluted message and you perhaps miss subtle changes in fashion that can have a significant impact on your bottom line,” Pierce said. “It’s a pretty astute management team. I wouldn’t expect them to make the same mistakes.”
The new management has been building on the Wet Seal brand by phasing out more than 200 Contempo Casuals and 26 Limbo Lounge stores, turning them into Wet Seals. The process is more than halfway through. The company also plans to re-launch the Wet Seal catalog this summer.
“We made a strategic blunder and we changed the name to Blue Asphalt, which is our private label brand,” Bronstein said. “It really did not do well.”
People have kept asking for the Wet Seal catalog, and the company decided to bring it back to support its e-commerce business.
“It gives us the opportunity to approach the customer in the more remote markets where we might not be able to support a store,” Bronstein said.
Wet Seal has come up with new prototypes for Wet Seal and Arden B. stores, and has modified Zutopia’s concept. The look is brighter, with high ceilings and splashy in-store displays and logos.
The company also is using its in-house marketing team to create advertising campaigns for the Wet Seal and Arden B. divisions.
The moves are expected to give Wet Seal an “immediate pop in sales,” according to Pierce.
“They already have turned the corner,” she said.
But Pierce warned that Wet Seal must be careful to grow with discipline, and stay on top of fashions in the teen market, which is extremely competitive.
“One of the reasons they’ve been able to do it is they’re domestically sourced. They don’t have long lead times,” she said. “They’re very flexible.”
But Bronstein concedes that business is not “smooth sailing” and requires constant fine-tuning, particularly in tight times.
“Being a fashion leader is the only thing that will help us weather the economy. And even that is questionable,” Bronstein said. “I do believe the company will be able to maintain at least flat comps into the next year. It depends on how the economy unwinds.”
Bronstein, who describes herself as a “very hands-on” leader, no doubt will keep close tabs on the company’s performance. But she said one day she hopes the new management team will give her more mobility to “conceptualize.”
“It’s a weaning process,” said Bronstein, who began her career as a buyer.
But she said “it’s exciting to be able to take a step back and let other people have a voice and manage parts of the business I’m not good at.
“It frees me up to do what I like to do, which is play with the clothes.”
