Retailer Wet Seal Trying to Fashion Return to Vogue

By JENNIFER BELLANTONIO
Orange County Business Journal

Most retailers are counting down to the holidays. But Wet Seal Inc. isn't expecting any magic from Santa.

The struggling teen clothing retailer has made a series of changes in a bid to stem declining sales. The biggest move: replacing longtime chief Kathy Bronstein with Peter Whitford, former head of Walt Disney Co.'s retail store chain.

The retailer also has added a new division president and creative director for its flagship Wet Seal unit and tweaked its clothing lineup.

Some of the changes are set to surface in time for Thanksgiving weekend, though Allan Haims, named president of the Wet Seal division in September, said the Foothill Ranch-based retailer isn't "considering Christmas to be a barometer" of whether changes are working or not.

"That's too early too judge," Haims said. "We've done some things for holiday, but that's different than saying we can fix this in 60 days."

Wet Seal is looking well into next year to see the fruits of its efforts, he said.

"We're seeing traction, if you will, because we've realigned some of our merchandising areas and are working with our new design team," Haims said. "We wouldn't expect to see great improvement until the back-to-school period next year."

Retail analysts are watching and waiting.

"I don't think they've resolved a lot of their problems," said Elizabeth Pierce, analyst at investment firm Sanders Morris Harris in Los Angeles. "But it's not because they don't know what to do. It's more because they're taking a strategic long-term approach to running the business."

Wet Seal has been wading through hard times, underscored by a third-quarter net loss of $7.5 million, compared with a loss of $2.5 million for the like period a year ago. Sales fell 5.8 percent, to $136.1 million. In reporting those results last week, the company also announced that Chief Financial Officer William Langsdorf had resigned and that the company expected to lose money in the fourth quarter.

The company, which posted a 10 percent drop in same-store sales for the five weeks ended Oct. 4, has been discounting clothes to make room for holiday gear, including sweaters and skirts. Also being played up are personalized clothes with initials and colorful, soft sweaters made with angora and other fabrics.

But the clock is running. Wet Seal had $18.5 million in cash and equivalents on Aug. 2, versus $22 million in February and $34.2 million in early 2002. It has little in the way of long-term debt. One analyst's report raised concerns about the company running out of cash.

Haims countered that Wet Seal "is in a healthy cash position, as well as in line of credit. That's not our issue today, which is the good news."

He acknowledged that "we've had some fashion misses and execution challenges. I do believe we haven't fixed this all. But we do think we have some opportunity. From an operational standpoint we've made some inroads."

Haims has been working with Victor Alfaro, its creative director and an award-winning couture designer known for ultra-pricey evening gowns and other plush duds. He had been doing special-order work and consulting before landing at Wet Seal.

"His greatest impact won't be until fall of 2004," Pierce said. "He's just building the profile of the average Wet Seal customer to see if they understand who she is and what her style is. The line will evolve from there."

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