After months of rumors that its business is in trouble, serial copycat retailer Nasty Gal has filed for bankruptcy. The decade-old company filed for Chapter 11 bankruptcy protection in the U.S. District Court for the Central District of California, as it restructures, a move the Los Angeles-based company confirmed to Fortune on Wednesday.
Additionally, founder Sophia Amoruso, who was (somewhat ironically) recently accepted as a member of the Council of fashion Designers of America, is resigning as executive chairwoman, while Danny Rimer, a partner from Index Ventures (one of Nasty Gal's investors) will step down from the board, according to tech news site, Recode. The company has not yet confirmed the departures.
WWD last reported revenue for the brand of about $130 million in 2014 but a report from Forbes put the business last year at more than $300 million. The company, in February 2015, brought on Ron Johnson, who led a $16 million Series C. The round brought the company’s total raised to date to $65 million and gave Johnson a seat on the board. The former Apple and J.C. Penney Co. Inc. executive was expected to help lend his retail expertise to the company’s brick-and-mortar business.
On Nasty Gal's very, very long list of credits (as seen by TFL), which consists of upwards of 800 individuals/companies: Courtney Love; Milk Studios; trend-forecasting company, WGSN; law firms including Greenberg Taurig LLP and Cooley LLPs; suppliers like Kendall and Kylie, Doc Martens, Steve Madden, and Puma; and the U.S. Attorney's Office.
“Our decision to initiate a court-supervised restructuring will enable us to address our immediate liquidity issues, restructure our balance sheet and correct structural issues including reducing our high occupancy costs and restoring compliance with our debt covenants,” said Nasty Gal chief executive officer Sheree Waterson. “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.”
Nasty Gal has had a rough last couple of years. It cut jobs both this year and last, and Amoruso ceded the role of CEO at the beginning of 2016. The company has also been on the receiving end of an array of lawsuits in recent years, both from former employees, who have all cited various forms of discrimination, and intellectual property rights holders, including jewelry designer Pamela Love, who filed a copyright infringement suit against Nasty Gal this summer, accusing the retailer of copying three of her legally-protected designs.
UPDATE (11/14/16): Nasty Gal’s lender, Hercules Technology Growth Capital Inc, a Palo Alto-based lender to venture-backed firms, has rejected additional proposals from the brand, which requested a loan just two days into its bankruptcy filing.
Per WWD, "Lawyers for Hercules allege in the motion that Nasty Gal rejected additional liquidity proposals that would have helped it avoid a bankruptcy and 'instead chose to rush headlong into an ill-advised and unfocused Chapter 11 proceeding that will kill its brand, destroy its already damaged vendor relationship, burn valuable cash collateral without adequately replacing it, and result in a liquidation at much more depressed values for all constituents.'"
The lender also seemed skeptical of the company’s ability to successfully emerge from a restructuring saying in its motion, “The [company] is already in liquidation mode and Chapter 11 filing with standard first day motions do not mean that a real reorganization is under way or achievable under these circumstances.”
UPDATE (11/28/16): Per WWD, "Fast growth it couldn’t keep up with and perhaps a lack of clarity on next steps for the business appeared to be hurdles for Nasty Gal. That, paired with a generally tough operating environment for most retailers, proved a bad mix for the business."