FINANCE

Wet Seal Sued Over Scuttled Private-Label Deal

There’s more trouble for struggling retailer The Wet Seal Inc. A complaint recently filed in Los Angeles County Superior Court alleges the Foothill Ranch, Calif.–based retail chain broke a major contract withSekses Distribution LLC, a Los Angeles–based manufacturer that makes private-label fashions. Sekses is also the parent company of contemporary fashion brand Comune, which has been sold at prominent retailers such as American Rag, Bloomingdale’s and Karmaloop.

Sekses asked for more than $1 million in damages. No date has been set for a future hearing. The suit alleges that Wet Seal made a deal with Sekses in August 2012 for Sekses to produce more than 100,000 units of the retailer’sBlue Asphalt–label jeans. As with most fashion-industry deals, Sekses paid for the manufacturing of the jeans and expected to be reimbursed upon delivery. The deal seemed to be going well, and Sekses claimed that it submitted samples of the jeans before the final delivery date on Nov. 1. Wet Seal reportedly approved the samples. Then the deal soured. On Nov. 2, Sekses received an email from Wet Seal stating that the retailer would not pay for the jeans because they were too small to be worn by Wet Seal’s fit model. After a Nov. 5 email exchange where the plaintiff protested that its delivery had been made to the defendant’s specifications, Wet Seal requested the jeans be relabeled with different sizes in a process called resizing.

Sekses relabeled the units. Wet Seal accepted and paid for some shipments. Around Dec. 10, Wet Seal cancelled the rest of its order—68,741 units, which remain in Sekses’ warehouse—according to the lawsuit. Brian Kail, Sekses’ president and chief operating officer, was outraged. He has done work with Wet Seal since the 1980s. “We’ve never seen such behavior,” he said. “This big of a cancellation—with the store taking no responsibility—this is private-label abuse.” Around Christmas, Sekses asked for permission to sell the jeans, which still bore the Blue Asphalt label. At Wet Seal, Blue Asphalt's "Fashionista" jean sells for $26.50 at full price. Sekses has not received any formal deal to liquidate the inventory.

Wet Seal’s legal department did not answer a phone call requesting comment by press time. The lawsuit comes during a rough period for the company. Sales have been sliding. During the crucial holiday month of December, it reported a decline of 9.7 percent compared with the same time in the previous year.

Also in December, the U.S. Equal Employment Opportunity Commission found Wet Seal had discriminated against an African-American former store manager. A hearing for that case is scheduled for next December. Wet Seal also recently emerged from a bruising proxy fight where the old board of directors was replaced by a new board. On Jan. 7, John D. Goodman, a Wet Seal director, started his job as the retailer’s new chief executive officer.