27-Jun, 18:59

19:47, November 11 130 0

2016-11-11 19:47:17
Nasty Gal’s Path to Bankruptcy

With the rise of the “nasty woman” meme comes a decline in the fortunes of the Nasty Gal brand.

Nasty Gal is an e-commerce darling founded in 2006 by Sophia Amoruso and the poster child for social-media-driven, millennial entrepreneurship. It filed for Chapter 11 bankruptcy protection on Wednesday to secure financial relief while it restructures.

The company, which sells its own collection, vintage pieces and items from other brands, will continue to run its business and has asserted that customers and employees will see no change in day-to-day operations.

There are also reports that Ms. Amoruso, who ceded her role as chief executive to Sheree Waterson in 2015, will resign from her current post as executive chair, and that Danny Rimer of Index Ventures, which invested nearly $50 million in Nasty Gal in 2012, will step down from the board. Nasty Gal hasn’t confirmed these moves and didn’t offer any additional comments.

The news may come as a surprise for those who have followed Nasty Gal’s seemingly endless upward trajectory. By the end of 2015, Forbes estimated that the company surpassed $300 million in revenues (up from a reported $10 million in 2010), and this year internet Retailer estimated that Nasty Gal’s five-year compound growth rate was 92.4 percent, compared with a median 15.3 percent among online apparel sites.

The company has been courted by Urban Outfitters, has attracted venture capitalists for years, and opened its first brick-and-mortar store in Los Angeles in 2014, followed the next year by one in Santa Monica, Calif.

Just last summer, the Council of Fashion Designers of America inducted Ms. Amoruso into its hallowed halls, and Forbes added her to its list of America’s richest self-made women, estimating her fortune at $280 million and ranking her above Beyoncé and Taylor Swift.

But, as Allison Enright, an editor at internet Retailer, pointed out, growth and solvency are two different things. “They were able to grow their sales very quickly,” she said. “But you can always grow really fast and not make any money.”

Julie Zerbo, founder of The Fashion Law website, pointed to a host of legal troubles as well, including lawsuits from designers for copyright infringement and from employees for discrimination. In 2011 the company was a co-defendant in a lawsuit filed by the Hells Angels for trademark infringement, and in 2014, Jamies Spinello sued Nasty Gal for copying one of her necklace designs; this year, Pamela Love did the same over three jewelry designs.

“Suing and getting sued requires a ton of resources,” Ms. Zerbo said.

With the limited information that’s available about Nasty Gal’s balance sheet (the company isn’t publicly traded), the picture that’s emerging is one of rapid growth, built largely around the personality of Nasty Gal’s founder and undercut by mismanagement and legal stumbles.

Ms. Amoruso, 32, was 22 years old when she created the first iteration of Nasty Gal, an eBay store selling vintage clothes that grew its customer base through Myspace.

Over the next several years, she built a following and expanded the company through an engaged presence on social media; Nasty Gal now has almost 1.3 million followers on Facebook and 2.2 million on Instagram.

With so many brand ambassadors at its disposal, Nasty Gal quickly became synonymous with affordable, chic, yet slightly gritty cool-girl style — similar to Ms. Amoruso’s own look.

The Sophia Amoruso brand was integral to Nasty Gal’s success, a fact that Ms. Amoruso herself is fully aware of. “Everyone knows Nasty Gal requires me,” she told Forbes this summer.

Her image is founded on her style (elegant, with a sexy edge), her social circles (she counts Leandra Medine of Man Repeller and Lena Dunham among her friends) and her “Cinderella story” (Ms. Amoruso, a community-college dropout, wrote about how she used to commit petty theft and Dumpster dive as a teenager).

In 2014, she published a memoir, “#Girlboss,” which became a best-seller and was adapted by Netflix into a series that will debut in 2017, with Ms. Amoruso as its executive producer. Her by-the-bootstraps story and stylish, of-the-moment image seem to embody the lifestyle her company was selling.

Despite its successes, Nasty Gal went through several rounds of layoffs, in 2014 and earlier this year. High-level hires, like Kate Williams (editorial director) and Christian Parkes (vice president for brand marketing), left quickly, while other employees expressed discontent, rating the company 2.8 stars out of 5 on Glassdoor.

In 2015, Aimee Concepcion sued the company for laying off her and two others just before they were set to take maternity leave, while Farah Saberi claimed in a lawsuit that she was let go because she came in late to work and took a five-week leave after she was diagnosed with a kidney disease.

In September, Women’s Wear Daily reported that Nasty Gal was looking for a buyer or for more capital. The company has been approached by Urban Outfitters in the past, and Women’s Wear Daily reported that Revolve may be interested as well.

The company isn’t alone in its e-commerce woes. It’s joined by Gilt Groupe, which was bought by Hudson’s Bay this year, and One Kings Lane, which folded into Bed Bath & Beyond in October. Birchbox, which sends monthly boxes of cosmetics samples, had to lay off several dozen people this summer and raise $15 million to stay afloat.

But Ms. Enright said that this isn’t an industrywide pattern. “There are still plenty of e-retailers out there who grew much slower but steadier,” she said. “They didn’t have that big headline-grabbing growth phase, but they are profitable. It’s not indicative of a change in e-commerce.”

It seems Nasty Gal’s issues have reached a new peak with the bankruptcy filing, but Ms. Waterson, who left her role as Lululemon’s chief product officer in 2013 after a fiasco involving see-through pants, foresees a bright future. “We expect to maintain our high level of customer service and emerge stronger and even better able to deliver the product and experience that our customers expect and that we take pride in bringing to market,” she said in a news release.

Following news of the bankruptcy petition and rumors that she will step down, Ms. Amoruso wasn’t available for comment, but on Friday, she spoke at an event for businesswomen in Sydney, Australia. “It’s actually the most responsible thing to do right now,” she told the crowd as she teared up, according to Elle Australia. Two days before that, she posted a hopeful message to her Twitter account: “A decade above the influence. Onward babies. I love you.”