In the end, Kanye West didn’t swoop in to buy online retailer Karmaloop Inc., and founder Greg Selkoe is on his way out as the bankrupt company’s chief executive.
A federal bankruptcy court judge Thursday approved the $13 million sale of the Boston-based online streetwear retailer to a group of senior lenders. The sale marks the end of Selkoe’s leadership at Karmaloop, a company he founded in the basement of his parents’ Jamaica Plain home in 1999.
As recently as this spring, Selkoe said he would keep his job as chief executive of the company and hinted that West was in talks to buy Karmaloop.
But the new owners, Comvest Capital of West Palm Beach, Fla., and Chicago-based CapX Partners, were the only group to submit an offer to buy Karmaloop in a bankruptcy auction process. The firms plan to replace Selkoe and install new management at Karmaloop in the coming weeks, according to Robert O’Sullivan, a partner at Comvest Capital.
O’Sullivan said Selkoe will remain involved with the company in an advisory role. Selkoe said he was “excited about the new capital coming into the business as well as my new role.”
The firms will continue to operate Karmaloop in the United States and Europe, as well as the company’s Kazbah marketplace and PLNDR website, O’Sullivan said. The business will remain headquartered in Boston.
“This is a new chapter in the Karmaloop story,” O’Sullivan said. “We’ll be a debt-free business, have a new owner and the ability to put more capital into the business. We’re excited about the brand and we’re excited about owning the company.”
Not long ago, Karmaloop was considered a local success story and became a go-to website for streetwear — a mix of skate, surf, hip-hop and other fashions. Selkoe, a former city worker, embraced his newfound fame.
He conducted business with pop figures such as singer Pharrell Williams and threw big parties at clubs in New York and Las Vegas. He launched a nonprofit that pushed to make Boston a more appealing city for young people, advocating for later MBTA service and more liquor licenses. Selkoe also became an outspoken critic of late mayor Thomas Menino.
But the company’s success was followed by poor business decisions and shrinking sales in recent years. Selkoe launched a series of failed e-commerce sites and a $14 million bid to launch a television channel that never materialized. Later, he conceded the ancillary businesses had been a mistake.
Karmaloop built up more than $100 million in debt before it filed for bankruptcy in March. Vendors, who were collectively owed $19 million, said Karmaloop had missed payments for months at a time. Annual sales, which peaked at $127 million, slumped to $80 million by last year.
“We’ve decided to bring in professional management,” O’Sullivan said of the change in leadership. “I think Greg was a typical entrepreneur who took on a lot and tried to manage his way through a lot of duress. It’s never easy building a business from zero to $150 million.”
In the two years prior to the bankruptcy filing, Karmaloop approached more than 280 potential investors, hoping to infuse desperately needed capital into business. They all turned the company down.
When the streetwear website filed for bankruptcy, it hoped to reorganize and sell the business at auction. Early in the process, Comvest and CapX submitted a so-called “stalking horse” bid that offered to forgive some of the debt it was owed by Karmaloop in lieu of cash.
Frank A. Segall, a lawyer for Karmaloop, previously said the group submitted a modest bid to encourage other buyers to participate in an auction.
The court set a Wednesday deadline for all other parties to submit bids, which also would have allowed them to participate in an auction slated for next week. The auction was canceled after it was clear no other bids had been submitted. The sale of the company is expected to close early next month.
O’Sullivan said his firm and CapX plan to focus on the company’s core business and invest new capital into the brands. In recent months, Karmaloop has been plagued with consumer complaints on social media about missed shipments, poor customer service and coupon codes that don’t work. O’Sullivan said it will be a challenge to right the business in the eyes of the consumer.
“You have to get back to the basics as a very prominent brand in the streetwear market,” he said. “You need to instill confidence in the customer and make sure you deliver and do everything you say you will do for the brand.”
Comvest is private investment firm with over $2.1 billion of assets under management, according to its website. O’Sullivan said Comvest and CapX have collectively sunk $36 million in senior debt into Karmaloop since 2012.