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Wet Seal Should Skip The Malls With Version 2

Now that Wet Seal (NASDAQ:WTSL) has officially filed for bankruptcy moncler uk sale protection, let's begin the speculation on how they will reemerge.

Option 1 for the company is to restructure debt and trim down stores and inventory. This is the path most retailers take when in Wet Seal's situation. Note that, according to Bloomberg, the company presently has a reorganization plan under way with B. Riley Financial who will acquire 80% of Wet Seal in exchange for $20 million in DIP financing to fund operations during bankruptcy proceedings.

Option 2 is for the company to liquidate all its assets, pay back creditors, and move on. Management may feel that the business model is no longer viable and there is no reason to try again.

Option 3 involves rebuilding with a focus on better serving their core teen market by ditching the stores, building an awesome app, and connecting directly with their customers.

Objectively observing the company's website, the products look fashionable and the price point reasonable. With the merchandise not being dated or overpriced, we now need to ask ourselves can Wet Seal, in an ideal world, make enough money to pay their rent, designers, and advertising on earrings and mini dresses?

From their December 10, 2014 10Q filing, Wet Seal provided the following competitive challenges:

Anticipating and quickly responding to changing consumer demands;Maintaining favorable brand recognition and effectively marketing our products to consumers in narrowlydefined market segments;Sourcing innovative, differentiated highquality products in sizes, colors and styles that appeal to consumers in our target markets and maintaining a sufficient quantity of these items for which there is the greatest demand;Obtaining favorable site locations within malls on reasonable terms;Sourcing merchandise efficiently;Pricing our products competitively and achieving customer perception of value;Offering attractive promotional incentives while maintaining profit margins; andWithstanding periodic downturns in the apparel industryThey missed one getting moncler uk store target customers through the doors. According to a recent Yahoo article, there is a rising trend in malls banning or imposing curfews on teens. Further, many teenagers need friends or family to take them shopping. Even if getting to the mall or store is not the problem, teens are now more inclined to use their phone, tablet, or computer to shop or entertain themselves than any generation prior. As such, Wet Seal needs to focus its sales on where the consumer is and not where they were.

So what should Wet Seal do? From an infrastructure standpoint, they should invest any money they would have spent on space and build an awesome app that enables customers to browse, share, and buy items. Further, they should follow the Zappo's model and offer free shipping and easy returns with amazing customer service. On the product side, the company should work to improve sales cycles and get their turns up to Zaralike levels. With shrinking overhead and accelerated factory to floor time, this should not be a challenge.

At a current market cap below $3 million, the company has potential to dramatically increase. A year ago, the company was worth $210 million. If Wet Seal follows Option 3, there is no reason why the company could not return to those levels, if not go higher.

Editor's Note: This article covers one or more stocks trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks moncler uk associated with these stocks.