By Sarah Chaney
The rapid rise and fall of Nasty Gal Inc., an online retailer
once popular with millennial shoppers and venture capitalists, is
culminating in a bankruptcy sale to a rival.
In less than a decade, Nasty Gal founder Sophia Amoruso, 32
years old, transformed an eBay vintage store into a company that
generated $85 million in revenue for the 2014 fiscal year.
But the Los Angeles company's swift growth led to stumbles.
Leadership turnover and poor communication hurt its bottom line,
according to interviews with 10 former employees. Some described
the company culture as becoming "toxic," referring to turbulence in
recent years including several rounds of layoffs.
The turmoil culminated in a November bankruptcy filing, with
Nasty Gal preparing to sell its brand name and other intellectual
property for $20 million to a rival fashion site, the U.K.'s
Boohoo.com. Nasty Gal's saga serves as a cautionary tale for
startups and investors who, in their quest for quick growth, don't
always spend their money wisely, retail analysts and former
employees say.
A Nasty Gal spokesman declined to comment for this article.
Early in the bankruptcy case, Nasty Gal lawyer Scott Gautier said
the company "is an incredibly valuable brand and will only be
stronger through the chapter 11 process."
Boohoo.com, which declined to comment for this article, has said
the transaction "has the potential to accelerate the group's
international growth, particularly in the U.S."
Named after the album by funk musician Betty Davis, Nasty Gal
began in 2006 as the then-22-year-old Ms. Amoruso scoured vintage
shops for stylish apparel and accessories that she resold on eBay.
It was a step up from her teenage life "of dumpster diving and
petty thievery," Ms. Amoruso wrote in "#Girlboss," her memoir and
career how-to that is the inspiration for a Netflix series
premiering this year.
Ms. Amoruso promoted her business via social media, where demand
quickly exceeded her supply of inventory, she wrote in "#Girlboss."
She bought the site nastygalvintage.com and began approaching
labels.
In 2012, the startup began selling clothes under its own name
and also leased a Kentucky distribution center. Venture capitalists
came knocking, with Index Ventures providing at least $40 million
in funding, according to an Index press release. Representatives of
Index didn't respond to requests for comment.
The company gained traction on social media with its dichotomous
aesthetic: high and low, edgy and glossy. "Nasty Gal is like Urban
Outfitters on crack," said fashion blogger Justina Sharp.
As it grew, former employees say, Nasty Gal built out its
management team and hired junior talent from retail outlets such as
Urban Outfitters Inc. But their traditional retail backgrounds
clashed with the startup mentality, these people said, and certain
choices -- namely a new Los Angeles office and the Kentucky
warehouse -- were seen by some employees to be too big and
expensive for what the company could afford.
Nasty Gal opened a brick-and-mortar store in Los Angeles in 2014
and one in Santa Monica in 2015. Meanwhile, bankruptcy-court
filings say Nasty Gal's revenue fell in 2015 as it failed to adjust
its product mix to its growing customer base. A move to raise
prices "definitely became a problem," said independent retail
analyst Kelly Tackett, pointing to giant fast-fashion chains'
ability to churn out the latest styles at lower prices.
Within the company, turnover and layoffs across ranks weakened
morale, former employees said. In 2015, Ms. Amoruso ceded her role
as chief executive to former Lululemon executive vice president
Sheree Waterson, who had joined Nasty Gal in 2014 as president and
chief product officer. Court papers show Ms. Amoruso was a director
and had a 55% stake, including common and preferred stock, in the
company at the time of its bankruptcy filing.
Nasty Gal declined to make Ms. Amoruso and Ms. Waterson
available for comment, and Ms. Amoruso didn't respond to requests
for comment.
Shoptalk retail analyst Sucharita Mulpuru said Ms. Amoruso
should have handed over the reins sooner.
"You can be a fantastic designer and marketer and create a brand
that resonates with people, but that doesn't mean you can
successfully manage the business part of your company," she
said.
More departures followed. Bankruptcy filings say Chief Operating
Officer Michael Kramer and Chief Financial Officer Robert Ross were
terminated within a two-week span last year.
Mr. Ross said in an interview he had philosophical differences
with the CEO and the board. He was retained to negotiate a sale of
the company, but the sale fell through and his employment contract
expired, Mr. Ross said. Mr. Kramer couldn't be reached.
Between 2015 and 2016, bankruptcy-court filings say, the
cash-strapped company raised an additional $24 million in equity
and debt financing from venture-focused Stamos Capital Partners LP
and Hercules Technology Growth Capital Inc. Representatives of the
firms didn't respond to requests for comment.
While the funding helped the business stay afloat, bankruptcy
filings say Nasty Gal still struggled to purchase new inventory, as
well as pay rent and other operating expenses. It also pursued a
sale.
Efforts to sell the company were hindered in part by strained
vendor relationships, court documents say. Lacey Micallef said her
Los Angeles-based women's apparel label Big Bud Press was set back
"tremendously" by several months' of unpaid bills from Nasty
Gal.
Nasty Gal entered chapter 11 protection on Nov. 9, one of a
number of retailers in search of breathing room from broad industry
distress. The company professed a desire to emerge from bankruptcy
"as a profitable enterprise poised for growth."
Within weeks, however, Nasty Gal struck a deal to sell its brand
name to Boohoo.com, whose offer won bankruptcy-court approval on
Feb. 8. In connection with the sale, Nasty Gal is laying off
employees and closing its brick-and-mortar stores.
(END) Dow Jones Newswires
February 24, 2017 05:44 ET (10:44 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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