What the Hell Happened to Karmaloop?

Insiders (and Greg Selkoe himself) shed light on the rise and record-breaking fall of the pioneering e-commerce clothing site.

Greg Selkoe knows why people point the finger at him.

When you’re the founder and CEO of a company that, at its peak, was revolutionary in its offerings, employed 250 people, and was regularly doing over $100 million in sales annually, you get blamed when things turn to shit.

And things did. Big time. But there are reasons—complicated reasons—and Selkoe wants you to hear them.

“Retail is a hard fucking business,” he said, roughly a month after being ousted as Karmaloop’s CEO.

Selkoe, now 40, started Karmaloop out of his parents’ Boston area basement in 1999. His idea was to sell cool clothes online to cool kids who didn’t have a cool boutique in their town. At the time, the idea of buying clothes on the Internet was preposterous. As “The Karmaloop Story” on karmaloop.com facetiously tells it, Selkoe got into business to combat the “evil forces of McFashion”— the Aeropostales, Banana Republics and Abercrombies—that “spread a dastardly agenda throughout the universe,” otherwise known as selling wack clothes. The mall brands were the Evil Empire. The rebel force was Karmaloop. And it successfully navigated the potholes of the early aughts to carve out more than just a niche in the e-commerce industry.

“It was bigger than just selling clothes,” said Selkoe. “It was about a culture.”

Selkoe realized the gear and brands Karmaloop featured had stories to tell, so the site posted interviews with designers and brand owners, and stories about up-and-coming artists—first within the EDM world, then hip-hop. Karmaloop was about clothes but became as much about content that introduced Kid Cudi, A$AP Rocky, and Kendrick Lamar to a new audience.​

Kanye West at the Karmaloop store in Boston, circa the early 2000s. Image courtesy of Greg Selkoe.

Culturally speaking, Karmaloop was completely different than anything else in preppy, buttoned-down Beantown. It was the cool place to work and those lucky enough to score a job there felt like they had won the lottery. Employees could wear whatever they wanted; dogs roamed the office; music played; the company encouraged employees to explore other artistic interests outside of work. For many of Boston’s young creative set, it was the perfect place to work.

“If you proved yourself, you were able to move up in a department you wanted to move up in,” said Jeni Ni, a former women’s buyer at Karmaloop. “You got to interact with the owners. Free product was given out. It was an awesome environment to start in.”

Especially if you liked to party. Back in the early days, if you didn’t know Karmaloop for its clothes, you knew Karmaloop for its parties.

“It was part of the image and marketing that we projected with the company,” said Selkoe. “It helped us get tight with a lot of these artists that were up-and-coming.”

Partying or retailing—it was a toss-up which Karmaloop did better.

Long days frequently turned into long nights. Employees were expected to take care of business—drinking on the job or getting high was not tolerated—but things changed come quitting time. Multiple former employees, who requested anonymity so as not to jeopardize relationships in the industry, attested to wild behavior.

“We were a ratchet crowd,” said one. “There were afterparties in our office where people were having sex, there were drugs being done. That company has done so many crazy things that a movie should be made about it.”

Instances of employees drinking so much that they slept in their offices or under their desks weren’t unusual. Drug use was rampant. Marijuana use was commonplace and, according to multiple former employees, there were even times when managers offered employees cocaine. “It was a regular thing,” said one former staffer who spent five years at Karmaloop.

Selkoe, who is seven years sober, says that’s farfetched. “If that happened, no one ever told me about it,” he said. “And I never saw anything like that.”

“PEOPLE WERE HAVING SEX AT OFFICE PARTIES; DRUGS WERE BEING DONE. THAT COMPANY HAS DONE SO MANY CRAZY THINGS A MOVIE SHOULD BE MADE
ABOUT IT.”
—Former karmaloop employee

That, in part, was the Karmaloop of 10 years ago. Or five years ago. Or even three years ago. Things were good: The company was making money, employees were working hard and having fun, and the future was bright. At one point, there was even talk of an IPO.

But today, Karmaloop is a battered and beaten shell of its former self. After years of portraying the company as thriving to the outside while it secretly struggled, Karmaloop made headlines in March when it filed for Chapter 11 bankruptcy protection.

To outsiders, it may have come as a surprise. To those in the industry or with insights into Karmaloop, it wasn’t.

No single decision caused Karmaloop’s downfall, but interviews with ex-employees, brand owners, market experts, and Selkoe’s former business associates paint a picture of a CEO who, despite his best efforts and intentions, was the driving force behind the demise.

The accumulation of bad business decisions, alienating its core consumers and brands, and the inability to attract major investors, dealt devastating blows. Ranked No. 134 on the Internet Retailer 2014 Top 500 Guide, Karmaloop became the highest profile e-commerce site to file for Chapter 11 bankruptcy, beating out SkyMall (No. 247) and Wet Seal Inc. (No. 416) for the dubious honor.

In its filing, the company said its debts ranged between $100–$500 million. Its list of creditors stretched across thousands of pages.

“I’m sure people on the inside saw that it was going south a long time ago,” said E.P. Cutler, a consultant for WeConnectFashion and author of an extensive report on the 2015 streetwear market. “I have no doubt about that, and I’m sure the numbers show that as well.”

According to Selkoe, Karmaloop first entered the black in 2007 and reached its peak in 2013, when it took in $127 million in sales. Over the course of his run as CEO, Selkoe said Karmaloop did around a billion dollars of business while overtaking competitors like Digital Gravel to be the top streetwear site for males aged 18–35. But its success begat its problems and the descent started in earnest four years ago.

That’s when Selkoe, confident from his successes and looking to expand Karmaloop’s offerings and influence, sunk big money into several high-profile projects.

Greg Selkoe and Pharrell Williams discuss Karmaloop TV on CNBC's "Power Lunch" in 2011.

One of the ideas was to create boutique online stores under the Karmaloop umbrella.

In 2011, Selkoe and the company started and staffed four new websites to cater to niche crowds. Included in those sites was Boylston Trading Co., an destination for the more refined male customer. Frank “The Butcher” Rivera was hired as creative director of the site, which was served up as an online magazine featuring interviews, product reviews, and high-end goods. The site debuted unique collaborations and sold merchandise from brands like accessories company Want Les Essentiels de la Vie and Alpha Industries. Another site, Miss KL, catered to Karmaloop’s female fans. The subscription service Monark Box mailed exclusive gear to members who paid a monthly fee.

This was during the e-commerce boom, when sites like GiltMAN were all the rage. Selkoe’s lenders, who had increasingly taken greater control of the company as they invested more money, encouraged him to build a “youth culture conglomerate” with specialty sites.

Costs quickly mounted and the returns didn’t justify the sites’ existence. Selkoe and Karmaloop realized they had bit off more than they could chew.

“You could cite a million reasons why those businesses didn’t work. It was just a weird thing,” said Selkoe. “Before we knew it, we got ourselves in a hole. We closed one site after another, after another. It just wasn’t fast enough. The debts were mounting.”

Selkoe contends that it might not have been so destructive on the business as a whole had he quickly pulled the plug on the sites, instead of letting them linger to spare friends and colleagues the pain of losing their jobs. The specialty sites weren’t completely shut down until the fall of 2014, and coupled with 2011’s other failure, it proved debilitating.

Selkoe had wanted to transform Karmaloop into a cultural powerhouse and the big idea was to start a cable channel. He envisioned Karmaloop TV as this generation’s MTV. It was to feature original productions and movies that related to streetwear culture. Selkoe hired former AMC TV executive Katie McEnroe to get it off the ground and made Pharrell Williams creative director in May 2011. The company threw $14 million into the project.

KLTV launched online in 2008 as a broadband entertainment network, but the end goal was cable distribution. Despite the millions spent on development, an agreement with Comcast to carry the channel on its system was never reached.

“Karmaloop TV was 100 percent the largest bad expenditure of the company,” said Holland Smith, Karmaloop’s former head of merchandising. “Over and over again, being used, frankly, to fulfill a dream that was a personal dream for Selkoe.”

According to Karmaloop’s bankruptcy filing, KLTV has no assets or operations.

“I don’t know if that’s the worst investment—it definitely wasn’t a good one,” said Selkoe. “The idea for Karmaloop TV fell in our lap and I wish that had never happened.”

Beleaguered by the dual Ls it took from the niche sites and KLTV, Karmaloop was forced to change strategies around its core business to address growing cash flow issues.

Greg Selkoe with Karmaloop employess and Russ Karablin from SSUR. Image courtesy Greg Selkoe.

According to former employees with intimate knowledge of Karmaloop, Selkoe made sure sales numbers stayed strong as the company looked to stockpile cash. He “was shooting for the stars,” said one former Karmaloop executive, hoping robust numbers would make the company look more attractive to outside investors.

“We had a lot of debt on the books,” said Selkoe. “That always scares people away. The fact that we had those other businesses made people nervous. The environment had changed.”

According to Selkoe, in 2013, investors no longer found e-commerce all that attractive. They’d reconsidered what kind of return they could honestly expect from retail. Trying to bring in more cash, Karmaloop hired companies in 2013 and 2014 to search for new investors, according to its bankruptcy filing. In all, over 280 were approached. None were interested.

“Selkoe decided we need to make our numbers. We’re behind. Let’s crank the shit out of this,” said the former executive. “We made awesome numbers, albeit at a very low profit.”

Driving massive sales through deep discounting was the directive. The site began regularly offering huge discounts, up to 40 percent off. It was great for customers but horrible for brands, many of which started to sense that things were going in the wrong direction.

“The actual reason we were discounting, or being so promotional—which I hated but unfortunately was the case—[was] we owed the bank and we had to make big payments every month to the bank,” said Selkoe. “We needed to generate revenue quickly to keep the lights on. We were hoping we could continue to churn cash and someone else would come in and invest in the company. It was like treading water.

“The problem is when you get unhealthy and need cash you over-discount. It didn’t work, but we didn’t have many options, either.”

An early sketch of the Karmaloop store in Boston. Image courtesy Greg Selkoe.

With debt mounting and no savior on the horizon, things took a turn for the worse late in 2014 and early 2015. Karmaloop didn’t have cash to cover some of the gear it ordered, but always promised it would square things up later with the brands.

“Not getting paid, that was the start of the sheistiness,” said the owner of one West Coast streetwear brand, who spoke on condition of anonymity. “Brands started saying: ‘These guys are in trouble.’”

Buyers were forced to lie to or duck their longtime clients—who in many cases were their good friends—at trade shows.

“We were being told certain things to tell brands, like ship on good faith,” said Ni. “And the things we told our brands didn’t end up being true.”

Some employees tried to talk Selkoe out of his decisions and tell him things had to change. But according to multiple former employees, he was difficult to get through to.

“If they listened to the ground floor of the building, it might not be in this position today,” said one former employee. “I would tell my bosses shit and they would say, ‘I can’t tell Greg that. He wouldn’t listen to me. It’s a waste of a meeting.’”

Even those who managed to speak up couldn’t change his mind.

“We would have to have accepted some negative growth to get back to a healthy place. It wasn’t accepted,” says Smith. “It was a blind confidence that was leading to doom.”

Selkoe understands the criticism, but doesn’t recall his team pitching him any gamechanging strategies.

“I’m sure there were times when I should have listened,” said Selkoe. “Even my wife says that about me. You have to be a certain kind of person to be an entrepreneur. A lot of times there [were] strong wills. I’ll give them that. Were there any big strategy changes that were suggested? I don’t remember any. What I would say is there’s some truth to what they’re saying, and certain people are saying things because they weren’t included.”

The company implemented a drop-shipping strategy late in 2014 and for many that was the last straw. Customers placed orders and paid Karmaloop, but it was the brands and vendors that shipped the orders. Karmaloop then paid the brands or vendors—at least in theory. It didn’t take long before Karmaloop couldn’t keep up its end of the bargain.

“Consumers would purchase a T-shirt that never comes and never receive a refund,” said the West Coast brand owner. “[It is] the example of an LLC gone wrong.”

“‘Why’d they make this call or that call?’ Sometimes there’s no good choices,” said Selkoe. “When things are going wrong you try to make the best choice out of only bad choices. Any rational person would second-guess your choices. The only options were bad. The bottom line is we didn’t have enough money to run the business.”

A collage of Karmaloop lookbooks. Images courtesy Greg Selkoe.

Customers, many of them teenagers, lashed out at Karmaloop for ripping them off. Threads on Reddit and other sites feature bitter tales of lost money and missing merchandise. Tyler Blake, a former Karmaloop rep and current New England-based brand consultant, documented his own Karmaloop customer service struggles and that of his 32,000-plus Twitter followers in a YouTube video titled “Is Karmaloop Legit? Why I Will Never Shop Again.”

Karmaloop stiffed Blake, like many of his followers, just before it filed for bankruptcy. In the video, Blake explained that customers who wanted a refund were directed to a bankruptcy site, where they could register as a creditor. Those not willing to go to court to recoup their $100 soon learned their cash was as good as gone. Consumers who went through the Better Business Bureau and PayPal to get their money back were usually successful.

But the money owed to Karmaloop’s customers paled in comparison to the money owed to brands and vendors. One of Selkoe's most vocal detractors said he “has failed to pay small business owners and affiliates on time despite countless promises to do so,” and claims over 5,000 brands are owed money.​

“I wanted to make sure these guys didn’t get hurt,” said Selkoe. “Unfortunately they did, far more than I would have liked. I tried to get as many people paid up until the end.”

Premium Co., a Washington D.C.-based men’s wear brand started in 2011 and known for its cozy basics, is one of the lucky ones. After Karmaloop placed its first order with the brand in 2013, it didn’t take long before Karmaloop stopped paying for purchase orders. According to Premium Co. co-founder Davin Gentry, eight months later they reached an agreement with Karmaloop, for significantly less than they were owed, just to put an end to the situation.

In a statement provided to Complex, Gentry said: “Karmaloop wanted to continue buying from us but we just didn't trust them or believe we would be paid on time. So after our settlement we washed our hands of them. Mind you, all of these orders were for jewelry. This was before we started primarily producing clothing. They've reached out numerous times wanting to carry our apparel collections, but it just didn't make sense for us.”

In all, Karmaloop was on the hook for over $19 million to various brands and vendors, according to its bankruptcy filing. Most prominent among the brands owed thousands of dollars were 10.Deep ($313,695), Mitchell & Ness ($191,672.40), and Vans ($126,253).

“Most of the big brands were OK,” said Selkoe. “We were trying to get most of the little brands paid as much as possible.”

As Karmaloop’s financial struggles worsened, so did the tension around the office. What used to be one of the coolest and most laid back places for young people to work in Boston wasn’t the same. Morale plummeted as layoffs started and those who remained were asked to do more with no additional pay. If employees didn’t quit in frustration, or jump at a better opportunity, they went to work wondering if today was the day the ax would fall.

It didn’t help matters that there were issues with paychecks. Karmaloop always made payroll—Selkoe didn’t mess around with that. But according to multiple former employees, on several occasions payroll was dropped from direct deposit. They were told it was a “glitch in the system.” And while the days of blowout parties were over, some felt the money going toward pizza parties and happy hours should have been reallocated. Several said bonuses were promised but never delivered.

“Believe me, I wasn’t out having any fun” said Selkoe. “I was watching 15 years of my life that I put blood, sweat, and tears [into] unravel. I was putting all my cash that I earned from selling portions of the business right back into the business knowing there was a good chance I was going to lose it.”

The evolution of Karmaloop.com's homepage.

Selkoe didn’t have any traditional business background when he started Karmaloop and attributed his success to understanding convergence culture— teens and young adults that spread fashion, art and cultural trends digitally. But he had some old-school mentors. First came former CEO of Filene’s Basement and former COO of The Gap, Sam Gerson. Then came Frank Estey, the one-time CEO of Marshall’s, who was a regular at the Karmaloop offices. Estey passed away in 2009 and Selkoe said if Estey had been around longer “he would have kept me on the straight and narrow a little more.”

Unprepared to deal with the bad times, the stress of trying to rescue the failing business may have contributed to behavior that turned off more than a few of Selkoe’s former employees and industry connects. Several described him as manipulative and intimidating. He reportedly yelled if he wanted your attention and had his eyes glued to his phone during conversations. One person described him as the classic high school bully because he would pick on underlings; according to the former executive, he regularly called one male employee “Rosie O’Donnell” because he was overweight.

“In terms of bullying people, that’s just not my style,” said Selkoe. “I don’t have any memory of that at all. We had a relationship with our employees. I lent employees tons of money, paid for medical procedures, bailed people out of jail, wrote recommendations to multiple colleges. We did a lot of joking around, so if someone misinterpreted something, that’s on them. My whole life has been about trying to empower those who are misunderstood.”

Thank You notes addressed to Greg Selkoe during Karmaloop's twilight. Image courtesy Greg Selkoe.

For all of his detractors, Selkoe does have plenty of supporters. He shared with Complex numerous correspondences from former employees and industry associates that thanked him for all he had done and wished him nothing but the best when Karmaloop was twisting in the wind after filing for bankruptcy. Perhaps people simply didn’t want to burn bridges, but it could also have been genuine.

He let friends and even new employees he barely knew crash at his place until they could find an apartment. He offered advice to young professionals who randomly hit him up via LinkedIn. He offered comfort to an employee transitioning to a woman by simply letting her use the ladies room and having her back if anyone said a word to her.

“He wanted people to feel at home in Boston and didn’t want Karmaloop to feel like a 9-to-5 where people check in and out,” said Todd Kane, Karmaloop’s former director of digital. “He wanted to support everyone working there as much as they supported him and the work he was doing.”

Selkoe’s future, just like Karmaloop’s, is murky. When the company filed for bankruptcy, Selkoe had no intentions of leaving, tweeting, “I am still gonna be owner no matter what we do. I am Karmaloop!”

Selkoe was also vocal on Twitter when news broke that Kanye West and Damon Dash were seriously considering buying the company. Dash even hinted on Instagram that a deal was imminent. Numerous outlets reported it was a done deal. Ultimately, they couldn’t make it happen. Dash declined comment and a request for comment from West was not returned.

“I was talking to them all the time,” said Selkoe. “I wish it happened.”

The story, according to Selkoe, is his lenders and the bank weren’t satisfied with the deal the Dash-Selkoe-West triumvirate hammered out. After progressively losing more and more control of his company to outside investors, and his relationship with them growing more and more strained, Selkoe knew he was fighting a losing battle.

“I fought these guys for a long time about filing for bankruptcy. I didn’t want to do it,” said Selkoe. “But again, the alternative is they foreclose and take the whole business anyway. I was trying to work with them because I believed that Karmaloop had a lot in play and there was a lot the brand could still do.

“A lot of people have said to me, when you owe someone tens of millions of a dollars, and they’re the senior lender, you don’t really own your company anymore. You’re not in the driver’s seat. You’re at the mercy of the bank.”

“We were hoping we could continue to churn cash and someone else would come in and invest in the company. It was like treading water.”
—Greg Selkoe

On May 21, Comvest Capital, of West Palm Beach, Fla., and Chicago-based CapX Partners announced they had snatched up Karmaloop for the minimum bid at auction—$13 million. They were the only bidders. The press release disclosing the sale claimed that “Greg Selkoe will transition his role to a new CEO” and the beleaguered exec would “remain with the Company in an advisory role.” Selkoe confirmed that going forward he has no role with Karmaloop.

Nearly a month later, Selkoe sent a resignation letter sent to his Karmaloop family. In it, he apologized to his former employees: “I am sorry I failed you in the end but I hope you know I tried as hard as I could.” He signed it “Greg Selkoe, Founder, Human, Individual.”

“He was doing something at the forefront that nobody else has done before,” said Cutler. “He did it and he did it well. And he kept doing it well. Then he became the CEO and all of a sudden it’s like a $100 million business. When you’re dealing with that type of level, you’re having to make these massive calculated risks. He made some bad decisions. I don’t think the decisions he made were crazy.”

Led by new CEO Seth Haber, who is the former co-owner and director of the Agenda Trade Shows, Karmaloop has a lot of relationships to repair. First with the brands, then with the customers.

“We need to get back to providing value to our customers like we used to. It’s something that we haven’t been able to do for quite some time and repairing it will not be an overnight process,” said Haber. “By restoring the relationships with the brands, we will then restore the relationship with our customers. Simultaneously, we need to show consumers that when you order something from Karmaloop, it shows up…and fast.”

With the old regime, “growth was prioritized over stability,” said Haber. Under the new regime, Karmaloop will no longer feature 500 brands or more because it doesn’t have the bandwidth “to tell 500 brand stories well.”

Haber, who took the job because “there’s an enormous amount of good to be saved,” helped steer Karmaloop out of bankruptcy one week after taking over. Bankruptcy proceedings, according to Haber, are “designed to be a fast process because the goal is to save the business” and he believes Karmaloop has the potential to be successful again.

“We have a lot of very obvious steps to take,” said Haber. “The people, who are watching us closely, want to see how well and confidently we take those obvious steps...without tripping up too much.”

Many brand owners agreed that Karmaloop was worth saving. With the right leadership, it could once again thrive. But earning back trust will be difficult.

“It’s going to be a bit of an uphill battle,” said a brand owner owed six figures by Karmaloop. “A lot of the brands they’ve done business with are going to be hesitant to continue to do business with them.”

Just like all the customers who were burned will be reluctant to shop with Karmaloop again.

“I get tweeted all the time and asked if Karmaloop is safe to shop again,” said Blake. “They broke a lot of trust. Jack Threads offers the same things. Why wouldn’t you go to them, and go to a company that has awful customer service? They’re not selling something that you can’t get somewhere else.”

At one time, Karmaloop was revolutionary. It was the spot for up-and-coming streetwear brands and a major cultural influencer. Brands would die for Karmaloop buyers to bring their goods to the masses. It launched hundreds of careers in fashion and media, made its early investors a lot of money, and changed the way many e-commerce sites do business.

Now, it’s a dog with fleas, to borrow a line from Gordon Gekko. The road back to prosperity, let alone relevancy, is filled with holes.

Like others, Selkoe thinks Karmaloop can survive, but it’s never going to be what it was. Fifteen years later, for richer and poorer, Karmaloop and Selkoe are officially separated and he insists he’s only looking forward. He’s going to spend more time working on his non-profit, Future Boston Alliance, which mentors entrepreneurs from less privileged backgrounds. He also has several new ventures he’s trying to get off the ground, including one with Pharrell.

“Karmaloop is not my defining brand,” said Selkoe. “I’m proud of what we did with it. But there will be other brands, other companies, and I’m just going to keep growing and building.”

Show Comments

NowTrending