Nasty Gal files for bankruptcy and may cease operations

Nasty Gal, which started as an eBay shop and turned into one of fashion’s biggest e-tailers, is now filing for bankruptcy. The Los Angeles-based company filed on Wednesday, November 9, in bankruptcy court for the Central District of California.

According to Recode, the vintage clothing e-tailer was expected to announce the bankruptcy on November 9 to its employees and was expected to file publicly soon. The company only launched nearly a decade again, so the bankruptcy comes as somewhat of a surprise. “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,” chief executive officer Sheree Waterson told WWD. Waterson only took over founder Sophia Amoruso’s role as CEO earlier this year in January, while Amoruso remained on the company’s board.

However, it has been rumored that Amoruso is also expected to step down as executive chairwoman. Danny Rimer, who served as her Index Ventures partner, is also expected to be leaving his role. It seems that the bankruptcy may have to do with internal issues, as the founder of the company has decided to drop out of her role.

Although it seems that the business was doing well as the brand is very popular, Nasty Gal has had some setbacks recently. The fashion-forward company had multiple layoffs in the past couple of years. In February of this year, Nasty Gal laid of 10 percent of its staff. Waterson said in a company email that the layoffs were necessary as the fashion market “is changing, both in retail broadly and apparel specifically.”

Nasty Gal seeks loan to make next payroll and continue operations

The company also suffered from multiple lawsuits. Four women sued the company who claimed that the reason for their termination from their job was due to their pregnancy, as reported by Racked. In 2015, another woman, Farah Saberi, had filed against Nasty Gal for “Discrimination in violation of FEHA, Wrongful Termination, Violation of the Americans with Disabilities Act, Retaliation in Violation of FEHA, Intentional Infliction of Emotional Distress, Fraud, and Breach of Contract,” according to The Fashion Law. It’s clear that the company struggled with internal lawsuits from former employees.

While the direct cause of the bankruptcy filing is still unknown, the company’s future remains unstable. Currently, the company’s attorneys have asked for a hearing for “emergency motions.” Nasty Gal is trying to gain court approval for a loan from Hercules Technology Growth Capital Inc. to maintain the business. According to WWD, the company may not be able to make its next payroll on November 25, which is why the loan is also necessary. The payroll expenses for the company total 512,000 dollars for 189 workers.

If the company is not approved for the loan, Nasty Gal would have to cease operations. This would cost approximately 10 million dollars, according to court documents. If Nasty Gal is able to continue its business, the company’s value is approximately 25 million dollars. However, at the moment it’s unknown whether or not Nasty Gal will be able to regain enough funds to maintain its operations.

Currently, the company has been searching for a buyer, however there have not been many prospects. The current financial state of the company also may have had an impact on Nasty Gal not being able to sell. At the moment, the e-tailer’s circumstances are not promising for its future business.

Photo: Nasty Gal