Kathy Bronstein might be Wet Seal Inc.’s biggest cheerleader—despite walking away from the teen retailer’s board just a few weeks ago.
Bronstein—who spent 18 years at the Foothill Ranch-based fashion retailer—11 of those as chief executive—came back as a director in 2012 after an activist investor stirred a dust-up that led to the firing of Chief Executive Susan McGalla and a reconstituted board.
Bronstein’s expertise and close ties to the company’s teen-focused Wet Seal chain and smaller, contemporary Arden B division were welcomed by the 532-store retailer, which has seen six chief executives in the past 11 years and numerous false starts on a turnaround.
But it takes a very “involved” response, Bronstein says, to answer the question of why she left as the company made yet another strategic shift in its yearslong bid to right the business. Wet Seal did not comment for this story.
The latest shift started when Wet Seal announced a $27 million private placement in March, saying it sees “significant opportunities” to grow its e-commerce and plus-size businesses, as well as “transform our real estate portfolio.”
The transformation began in earnest when the company said last week that it will convert its 54 Arden B stores to Wet Seal and Wet Seal Plus stores, eventually shutting down the smaller division (see related Addendum item, page 16).
Those moves followed a fiscal year that ended Feb. 1 with net sales down nearly 8.7% to $530.1 million, while same-store sales were off 4.1%. The company had an adjusted loss of $27 million compared with $17.8 million a year earlier.
Current Chief Executive John Goodman joined the company at the start of 2013 focused on social media and fast fashion—getting trends right and to store shelves quickly—as strategic imperatives.
A study of same-store sales showed he managed to stem some of the bleeding that resulted from the strategy rolled out under McGalla, which focused on restoring brand equity by reducing heavy discounting, but it resulted in sticker shock for some Wet Seal customers.
The chain, under Goodman, saw a pickup, with a smaller quarterly decline on same-store sales to start his tenure, followed by two periods of modest increases.
The trend didn’t hold during last year’s holiday season, as discounts swept the apparel sector and lackluster traffic hit retailers in general. Wet Seal posted a 16.5% decline in same-store sales.
Bronstein said she was part of a consensus among board members who were generally supportive of management.
The situation changed in January, when Mindy Meads resigned as a director to head up New York-based resort clothing and accessories chain Calypso St. Barth.
A decision was made to replace Meads and add two board seats, expanding the body to nine. The new additions—Deena Varshavskaya, Nancy Lublin and Adam Rothstein—all brought various backgrounds in social media and e-commerce.
Weeks later, Wet Seal said it was shrinking the size of the board by two seats as part of a cost-cutting campaign.
Bronstein and Dorrit Bern, a former head of plus-size retailer Charming Shoppes, stepped down.
“I think the consensus was that the two merchants on the board probably were not as valuable as some new members that had backgrounds in e-commerce and social media,” Bronstein says. “That’s not to say that I don’t understand or don’t value the importance of it. I do—I think it’s huge. That’s to say that somebody on the board mentioned on a conference call that we should shrink the board based on what the consensus [of members] thought was [valuable] and not [valuable experience], and I decided to resign, as did [Bern].”
Wet Seal isn’t alone in the hurdles it faces, operating in one of the toughest segments in retail, not only because of the finicky nature of its target audience but also because of the rise of fast-fashion retailers. It’s a business that has changed rapidly over the years as many specialty juniors chains sought to emulate fast-fashion concepts such as Forever 21, Charlotte Russe and others that have since joined the fray.
“It’s really hard to compete. I think what happens with retailers (is) many times they think they’re different, but the customer is not perceiving the difference,” Bronstein says. “I’m sure Wet Seal has brand equity with a lot of consumers—if they have their attention. So, will the brand continue to build the equity? I don’t know. I’m not of that generation. I’m of a generation of retailers that understands certain fundamentals about building certain brands, and that’s through a level of consistency and moderate evolution so that customers don’t walk away from” what you have.
Wet Seal has now set out on a four-pronged approach focused on its core namesake; online business; changes in the real estate portfolio; and new offers for plus-size customers. The company believes the juniors-plus category could eventually support 40 to 50 of its own stores.
Wet Seal stores also will see more higher-margin product that’s “less subject to fashion volatility,” with less denim in the mix. And there is a high-low price strategy set to be rolled out that the company hopes will push up its price-per-item average, Goodman told analysts last month.
E-commerce will be “vital to them turning around the company,” according to Dougherty & Co. Vice President and Senior Research Analyst Jeremy Hamblin.
Hamblin said it’s likely too early to assess whether the company is on the right track.
“I think that the company is experiencing serious challenges,” Hamblin said. “I’ll just focus on the public companies in the fast-fashion and teen sector, including Abercrombie, Aeropostale, Buckle, Tilly’s, Body Central, BB, Express. That’s a pretty significant list of companies. All of those companies are seeing same-store sales declines to varying degrees, and so that tells me that there is clearly a traffic problem that is not just inherent to Wet Seal.”
Bronstein, who has dived back into consulting work, said she remains supportive of Wet Seal management despite the circumstances of her recent departure.
“I believe in the company, and I believe in the fact that they’re moving forward with a strategy that they’re all supporting,” she said.
Whether Wet Seal can round the bend on its turnaround remains to be seen.
Bronstein says its longevity—it turned 50 two years ago—speaks well of the brand’s chances.
“You have to have some brand collateral to be able to last that long,” Bronstein said.
