In the business of fashion, as with fashion itself, putting the right combination together is essential. Wet Seal and Contempo Casuals have done just that, and the result is definitely ... us. We're more than just an outfit, we're an inspiration.
A nationwide specialty retailer of moderately priced apparel for women, The Wet Seal, Inc. operates two chains under the "Contempo Casuals" and the "Wet Seal" banners. During the mid-1990s, Wet Seal operated 363 retail stores in 34 states and Puerto Rico, with the majority of the company's stores located in California. After decades of unassuming growth, Wet Seal recorded explosive growth during the 1980s, but faltered during the early and mid-1990s. To restore profitability the company acquired a 237-store retail junior women's chain named Contempo Casuals, Inc. in 1995. The acquisition nearly tripled the size of Wet Seal and greatly expanded the company's geographic scope, creating a dominant national force for the late 1990s.
Wet Seal was established in late 1962 in California as a beachwear retailer, though its development into the 300-unit retail chain in operation during the mid-1990s occurred only after the company had significantly broadened its beachwear merchandise mix. During the first two decades of its existence, Wet Seal had developed into a $5-million-in-sales, 17-store chain, with all retail units located in California. Size, however, was not the chain's problem. Although Wet Seal's diminutive stature left it lost among the larger apparel retailers in California, its profitability stood out as its most glaring handicap. The company was awash in debt. The sweeping changes that transformed the company into one of the darlings of the California retail apparel industry during the 1980s occurred midway through the decade when the struggling chain gained new management and a new owner. In 1984, a Canadian retail store chain named Suzy Shier acquired Wet Seal, paying $2 million for the struggling and little-known business. The purchase marked the beginning of years of robust growth and Wet Seal's ascendancy to prominence in the fiercely competitive California retail market.
The chief architect of Wet Seal's prolific rise was Ken Chilvers, head of Suzy Shier's operations. When Suzy Shier acquired Wet Seal in 1984, Chilvers left Toronto and moved to California to steward the fortunes of money-losing Wet Seal. For assistance in arresting the chain's financial slide, Chilvers turned to Kathy Peckham, a former Jordan Marsh merchandising executive. Peckham's changes were pervasive, essentially abolishing the strategy that had guided Wet Seal's existence during the 1960s and 1970s. She put together a merchandising mix designed to attract a much larger customer base, adding junior sportswear apparel items that quickly drew flocks of customers through the stores' doors. Flowered denim, mini-skirts, colorful Aztec prints, and psychedelic bikinis graced Wet Seal's racks and shelves from the mid-1980s forward, drawing teenage girls in packs. Surprisingly, their mothers came as well, unafraid to don the youthful fashion trends of the day.
The metamorphosis worked, bringing in teenage customers and women in their late 40s. During the exponential growth that ensued, Chilvers was granted autonomy from his silent partners at Suzy Shier, gaining full control over all Wet Seal operations. Peckham, meanwhile, ascended to Wet Seal's executive vice-president and general merchandising manager posts, earning recognition for sparking growth that dazzled industry analysts. While describing the chain's meteoric rise, one member of the business press who cited Joseph Magnin and Contempo Casuals as the retail success stories of the 1960s and 1970s, respectively, hailed Wet Seal as the "retail phenom" of the 1980s, a distinction that few could discount given what the company had achieved during the latter half of the 1980s. Between 1985 and 1989, annual sales mushroomed more than 900 percent, approaching the $100 million plateau; the number of stores jumped from 17 to 78; and sales per square foot rose from $150 to $420. Most important, the company's profitability was restored, underscoring the importance of Chilvers' and Peckham's work.
By the end of the 1980s, Wet Seal's stature within the California retail industry had grown dramatically and Chilvers was intent on keeping the momentum. He invested heavily in increasing the size of each store, raising the average square footage of a Wet Seal unit from 2,500 to 4,000. Inside the stores, considerable capital had been invested as well. The enlarged units contained wide center aisles flanked by walls with merchandise stacked to the ceiling. Behind the central cash registers, massive computer-driven video walls played the latest rock music videos, accentuating the trendy appeal of Wet Seal merchandise.
By all accounts a successful formula had been created, but it was a formula that had yet be tested outside of California. That changed in 1989 when Wet Seal established its first stores outside of California, opening stores in Las Vegas and Phoenix that registered success commensurate with the company's California stores. Not stopping there, Chilvers looked to expand elsewhere and signed a lease in the summer of 1989 for a store in Hawaii, announcing concurrently that he planned to establish at least five stores in Hawaii by the following year. Ambitious plans were slated for Florida as well, where Chilvers anticipated establishing a minimum of 30 stores. For Chilvers, the success achieved during his first five years as Wet Seal's leader prompted him to map out ambitious plans for the company's future. But for those industry pundits alarmed by the chain's rapid expansion, Chilvers had an answer. "We are taking a cautious approach," Chilvers explained to a Women's Wear Daily reporter in 1989. "We will do 25 to 30 new stores next year and, let's face it, there were a lot of people who came before us that went from 65 stores to 100 and then were dinosaurs at 300."
As the company entered the 1990s, it appeared the only hazard on the horizon was Chilvers' fear of expanding too rapidly. Store sales continued to climb, the company's merchandise was widely popular, and its march across California's borders was meeting with encouraging, uninterrupted success. As Chilvers perceived it, the greatest danger of excessively rapid expansion was sacrificing the quality and "look" of Wet Seal stores in order to save money to finance the establishment of additional stores. To combat this potential problem Chilvers refused to cut corners while expanding. He invested roughly twice the industry average for each store opening and continued to create hip havens for his customers. To fuel expansion, Chilvers took the company public in July 1990, raising $37 million from an initial public offering that was used to trim debt and finance the establishment of additional stores. By the end of the year, 20 new stores had been added to the chain, giving Wet Seal a total of 93 stores scattered across five states.
One year after moving out of California--where the company had been confined for 27 years--Wet Seal operated in Arizona, Nevada, Hawaii, and Florida. The 20 stores opened in 1990 helped lift sales over $100 million for the first time and the company's net income reached a record $7.1 million, providing tangible evidence that the prodigious expansion completed during the year had not negatively affected Wet Seal's performance. The company's financial performance, in fact, was particularly remarkable considering the state of the national economy during the early 1990s, as the first stirrings of a national recession signalled the beginning of hard times for retailers across the country. By 1991, the severity of the recession was intensifying, but unlike many of its competitors Wet Seal was moving forward, unchecked. Time magazine featured the company as one of the few retailers able to buck the trend spreading across the country that left many retailers pulling at their wrists as store sales plummeted and profits sagged. By constantly turning over its merchandise, which Wet Seal executives dubbed "multigenerational," and by awarding weekly bonuses to employees for inventory turnover, Wet Seal was exhibiting a financial vibrancy that distinguished it from rivals and lent credence to the statement that the company might be the "retail phenom" of the 1990s as well.
By the end of 1991 there were 112 stores composing the Wet Seal chain. Sales were up from the $107 million generated in 1990, climbing to $120 million, and although profits slipped to $4.2 million the company's financial health was sound. As the company continued with its expansion plans in 1992, adding 13 stores during the year, industry observers were surprised by the announcement of Chilvers' departure in March. Forty-five years old at the time, Chilvers had opted to take early retirement, explaining that his reasons for leaving were "private and personal, relating to my health and my family, and do not bear upon my relationship with Wet Seal or its directors, which had always been excellent." Chilvers exit paved the way for Kathy Peckham, now Kathy Bronstein.
Financial Woes During the 1990s
With Bronstein in charge, Wet Seal pressed on with expansion for the remainder of 1992, but by the end of the year, when the company reported its second consecutive decline in annual profit totals, signs of trouble were evident. Sales for the year reached $150 million--an all-time high--but Wet Seal's net income slipped from $4.2 million to $3.6 million. Following this disheartening news, the company expanded only modestly in 1993, adding four stores as sales throughout the chain began to dip. By the end of the year, alarms were blaring loudly at the company's headquarters. Annual sales dropped to $140 million and, most disconcerting, the company's net income slipped into the red. Wet Seal lost $2.4 million in 1993 and another $1 million in 1994, as the years of explosive growth shuddered to a stop.
"It was a huge shock to be that hot and then turn sour," Bronstein reflected to a reporter from Women's Wear Daily. "It taught that even when you're doing well," she went on to explain, "there's only a limited time you have before you have to change. You've got to know when to pull the plug." During the two-year financial malaise, Bronstein and other Wet Seal executives searched for a solution, a way to restore the company's former luster. While expansion had continued, bringing the company's store count total up to 133 by the end of 1994, consumers had lost interest in junior apparel, sending a shock wave throughout the industry. Fashion tastes had changed and Wet Seal had not foreseen the shift, a mistake that thrust the company into a precarious position as it entered the mid-1990s.
In early 1995, the company discovered what it perceived as a solution to its financial woes, a solution Bronstein described as an "unbelievable break." In April, Chestnut Hill, Massachusetts-based Neiman Marcus Group agreed to sell its floundering Contempo Casuals chain to Wet Seal. Wet Seal, as its 1995 annual report declared, "went shopping for just the right fit" and Contempo Casuals, a specialty women's retail chain that had flourished during the 1970s, was selected. With 237 stores scattered throughout 34 states and Puerto Rico, Contempo Casuals represented a significant addition to Wet Seal's operations, nearly tripling the company's size and immediately transforming it into a genuine national retailer. Expected to be completed by the end of May, the deal was concluded in July for stock valued at $1 million.
Although some industry analysts questioned the benefits of combining Contempo Casuals, which lost $37 million on $303 million in sales in 1994, and Wet Seal, a money loser itself, Bronstein was confident the right move had been made, noting in Women's Wear Daily, "We saw that without adding significant overhead we could make ourselves instantly profitable." On the heels of the Contempo Casuals acquisition, the company continued to tinker with its business approach, testing a new concept store during late 1995 called "The Girl's Room," which featured apparel and accessories such as novelty toys, cosmetics, candles, and books. Positive early results prompted the company to push forward with the concept and make plans to incorporate "The Girl's Room" into 160 stores nationwide. Other plans for the late 1990s included the establishment of as many as ten new stores in 1996, but the primary focus after the Contempo Casuals acquisition was on improving sales and profitability. With this as its chief objective, Wet Seal entered the late 1990s intent on wielding its new-found national power to become a dominant force in the U.S. retail industry.
Principal Subsidiaries: Contempo Casuals, Inc.
Comment about this article, ask questions, or add new information about this topic: