Wet Seal – considering bankruptcy yet again?

After failing to turn around the business, Wet Seal’s owner is considering to bid farewell to the teen apparel retailer. Versa Capital Management is said to be exploring either taking the company bankrupt or sell it.

Wet Seal LLC is exploring liquidation or a sale, according to news reports cited by the ‘Orange County Business Journal’. Sources familiar with the ongoing situation at the retailer told ‘The Wall Street Journal’. Versa is “considering a number of options for the retailer,” including a “sale for either the retailer as a whole or just its online presence,”

The firm is considering solely operating as an online retailer

“The firm is also considering liquidating all of its stores and solely operating as an online retailer,” the same sources added.

The final decision about the mall retailer’s future is said to be decided in the coming days, as the private fund is keen on to selling the retailer as it keeps struggling; even after the first bankruptcy. Sources close to the matter quoted by Reuters point out that the company would prefer an out-of-court deal.

It’s worth recalling that if Wet Seal decides on a bankruptcy over a sale, it would be the second in two years for the chain. The Irvine-based women’s apparel retailer closed 338 under performing locations and laid off 3,695 full- and part-time employees in January 2015, just before filing for Chapter 11 bankruptcy.

Months later, the fashion chain emerged under the ownership of Philadelphia-based private equity firm Versa Capital Management LLC, with a pared-down lineup of 171 stores in 41 states.After Versa took over, Melanie Cox was named chief executive, and Judd Tirnauer last year assumed the role of chief financial officer.

A bankruptcy would mark the second in two years for Wet Seal, and in its previous filing, it had sold assets to Versa in an agreement that also gave the firm 7.5 million dollars in cash. As reported by ‘PYMNTS.com’, that deal was struck after Versa’s Mador Lending gave Wet Seal 20 million dollars in replacement bankruptcy funding and assumed a number of liabilities.

Trump’s tax on intern

On a related note, the border adjustment tax, a key element in Trump’s plan for tax reform, could mean more bad news for apparel retailers. Although the proposal would cut the corporate tax rate and let multinational firms repatriate foreign profits, the “border-adjusted” clause would tax imported goods substantially higher than they are now.

Brian McGough, an analyst at Hedgeye Risk Management LLC, said in a recent report that speciality apparel makers are “most at risk” given their reliance on imported merchandise. Under the tax plan, apparel prices could rise as much as 15 percent. “Many of these retailers are hanging on by a thread and any tax that increases the cost of their imported goods or materials will make them even less competitive and attractive to consumers, reducing already pressured revenues and making debt repayment even more difficult,” says Rosenthal.

Any tax that would increase retailers’ cost will be bad news for an industry that has already seen a number of bankruptcies and closings, concurred bankruptcy lawyer Michael A. Rosenthal, informs the ‘WSJ’.

Image:Wet Seal