Wet Seal files for bankruptcy; workers sue
The employees said Wet Seal broke federal law by not warning them of impending mass layoffs.
Wet Seal Inc. became the fourth U.S. apparel retailer to file for bankruptcy in two months as the sector struggles with growing competition and lower spending by teen shoppers.
The company blamed the bankruptcy on a shift away from fast-fashion clothing, unprofitable ventures and a liquidity crunch because of weak sales and changes in vendor credit agreements.
Several teen apparel retailers have been struggling as customers switch to fast-fashion brands such as H&M, Forever 21 and Inditex’s Zara and online retailers such as Amazon.com Inc. that offer deep discounts.
Deb Shops filed for bankruptcy on Dec. 4, followed a day later by Delia*s Inc. Mall-based apparel retailer Body Central Corp. also shut up shop this month.
Wet Seal, which sells apparel and accessories for teen girls and young women, laid off 3,700 employees and closed 338 stores last week. It had 7,413 employees a year ago.
Affected employees filed a class-action lawsuit on Thursday, accusing Wet Seal of violating the Worker Adjustment and Retraining Notification that requires employers to warn workers of impending mass layoffs.
“Despite strong evidence that Wet Seal was in steep decline, it continued to keep its employees uninformed. … Employees were told not to look for other jobs and that the stores were simply remodeling,” the lawsuit said. The plaintiffs sought 60 days of pay and benefits.
Wet Seal and its attorneys were not immediately available for comment.
The company, which reported slowing sales growth for the past five quarters, warned last month that it might file for bankruptcy protection if it failed to address liquidity issues.
The company said it received $20 million in debtor-in-possession financing from B. Riley Financial Inc. It intends to reorganize its business around e-commerce and its remaining 173 stores.
Wet Seal, founded in 1962, listed assets of $10 million to $50 million and liabilities of $100 million to $500 million in its Chapter 11 bankruptcy filing late on Thursday. It has hired FTI Consulting Inc. as restructuring adviser.