What the Hell Happened to Wet Seal?

Justin Sullivan/Getty Images

Recently, employees of Wet Seal — a clothing retailer with a presence in malls across most of the country — were surprised with the news that they no longer had jobs. Naturally, this was met with less-than-enthusiastic reactions from the company’s workers, and news of exactly how things went down quickly started to circulate on sites like Reddit.

Here’s the gist of it: Retail store workers in locations across the country were apparently told that stock was low, or that stores were being remodeled. But in fact, the stores were closing and employees were misled about it. This led to protests from said employees, who put up signs in storefronts explaining to customers what was going on. Those signs said things like: “we lie to our employees to hide the fact that YES our store is closing and gave NO warning”; “told us NOT to look for new jobs. Said we were remodeling”; and “unused vacation and sick time unpaid.”

What we have here is a case of a struggling business that looks like it’s going under. That happens, and that’s not why people are upset. They are mad because of the way the company chose to handle it. Not only did Wet Seal mislead its employees, but it has also handed out considerable severance packages to its leadership over the past few months. Those members of the company’s brass, it appears, bailed out of a plummeting airplane with the last parachutes.

Now that things are out in the open and Wet Seal has managed to claw its way through one last busy holiday season, the guillotine is crashing down. The company announced that it will be closing 338 stores and eliminating jobs for 3,695 employees. Chief Executive Ed Thomas said that he was left with little choice.

“This was a very difficult decision to make, but after reviewing many other options since I returned to the Company in September, our financial condition leaves us no other alternative than to close these stores,” he said in a statement.

Source: Yahoo! Finance

Now that everything is out in the open, it’s fair to ask: Just what the hell happened here?

The way Wet Seal decided to handle this situation wasn’t in the company’s best interest. It’s now suffering through a considerable hit to its public image, which is the last thing a struggling retail business needs. While companies do go out of business, keeping your employees in the dark — while asking them not to look for other jobs — is also reprehensible, and people are justified in being angry about it.

But the proof was in the pudding. As you can see from the company’s stock performance over the past year, things have gotten ugly. A number of things have contributed to Wet Seal’s fall, including increased competition from other mall-based retailers like Forever 21 and H&M. Wet Seal’s inability to keep up with quickly shifting trends and keep pace with its competitors’ low prices is the most likely culprit that aided the company’s descent, but again, it didn’t happen overnight.

“The best chance of survival is to take the company private and in turn revitalize the company,” Britt Beemer of America’s Research Group told the Los Angeles Times. “At the rate they are going now, they won’t be here next year.”

A quick peek at Wet Seal’s third-quarter financial data truly shows how deep in trouble the company is. Third-quarter operating loss totaled up to $36.3 million, and comparable store sales declined by 14.5%. As of November 1, there were 528 Wet Seal stores operating across the U.S., so the closing of 338 of them signals a drastic contraction.

Wet Seal looks like it simply became caught in the undertow of America’s dwindling love affair with the shopping mall, and it is now paying for its inability to keep up with the competition. Again, the way it handled its store closings by misleading its workforce seems extremely misguided — and may only end up expediting the company’s demise. But the problems were written on the wall, and anyone familiar with the company’s performance is probably not surprised by its downfall.

Surprise layoffs and mass store closings may have been Wet Seal’s way of raising the symbolic white flag, but almost everyone can agree that it wasn’t a pretty way to do it.

More from Business Cheat Sheet: