Boohoo Enters Bid for Nasty Gal

When Nasty Gal, the ultra trendy, venture-backed fashion retailer filed for Chapter 11 bankruptcy protection in the US on November 9, citing more than $20 million in unsecured claims, sources suggested that there may be a buyer waiting in the wings to procure the company’s intellectual property and nearly $10 million in inventory.

It appears that hypothesis may ring true. Boohoo, the Manchester-based fast fashion e-tailer, has filed a certificate of incorporation of a private limited company for Nasty Gal, Inc., with Companies House, a registrar of companies in England and Wales operated by the UK government. Boohoo secretary Allan Pollitt is listed as the company’s secretary.When asked about the filing, Boohoo declined to comment. Nasty Gal did not respond to requests for comment.

According to sources privy to the situation, Boohoo has put in what is referred to as a “stalking horse” offer on Nasty Gal, designed to test the market for Nasty Gal in advance of a court auction of its assets. The idea is to ensure Nasty Gal receives the maximum value for its assets once they go to auction. The process could take up to eight weeks.

Boohoo, of course, may not be the only bidder for Nasty Gal. Parties interested in Nasty Gal’s assets could range from a licensing company like Authentic Brands or Sequential Brands — which recently showed an interest in American Apparel, another Los Angeles-based bankrupt apparel retailer — or another fast fashion competitor, such as UK-based ASOS.

However, a “stalking-horse” bidder is usually seen as the favoured bidder by the bankrupt company taking part in what is known as a “363 sale” (363 stands for the section of the US Bankruptcy Code that allows a debtor that has filed for Chapter 11 bankruptcy protection to quickly sell all of its assets).

Boohoo’s application to incorporate Nasty Gal in the UK was submitted on November 21, 2016, just weeks after Nasty Gal, Inc. announced that it could not pay back its creditors. At a conference in Australia on November 11, Nasty Gal founder Sophia Amoruso, who started the company as an eBay site selling vintage in 2006 but has distanced herself from the operation over the past two years, was positive about the development. “Things that I would have freaked out about two years ago I can handle now,” she said. “Hopefully that is how I feel two years from now about this. It was my first business. I got really far.”

Boohoo, which was founded in 2006, is akin to online fast fashion purveyors such as ASOS and Misguided, as well as Nasty Gal. Boohoo generated £195 million in revenue, or $243 million at current exchange rates, in the fiscal year ending February 2016, with pre-tax profits at $19.6 million, a 42 percent increase from the year previous. Sales in the UK increased 38 percent during the same period, while sales in mainland Europe increased 25 percent.

Boohoo has actively pursued growth outside of Europe, opening pop-up shops in New York City during the holiday season in both 2014 and 2016. With nearly $10 million in inventory on hand and a name that has become synonymous in the US with the sort of recyclable, in-and-out fashion from which Boohoo has made its fortune, Nasty Gal could be a shrewd acquisition on the UK company’s part.

However, Nasty Gal — which raised a total of $65 million, mostly from venture capital firms — has also suffered from a loss of brand equity in the past two years, due in part to a slew of questionable business decisions that range from failing to outsource its logistics to shifting to a higher product price point.

There is also a chance that Boohoo may use Nasty Gal for customer acquisition only, redirecting its URL to Boohoo.com. Either way, it is unlikely that Nasty Gal’s two physical stores in the Los Angeles area will remain open.

According to one vendor, Nasty Gal has said the company is “confident” that a buyer exists, although Nasty Gal has not mentioned Boohoo by name. Since the Chapter 11 filing, Nasty Gal has asked the vendor to reinstate orders, promising that it would pay for goods prior to shipment. “Any previous balance was not at this time going to get resolved, but they are very much acting as if it’s business as usual,” the vendor said.

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