American Apparel (AA) has applied for bankruptcy, reaching an agreement with lenders to reduce its debt and interest repayments.
The fashion retailer and manufacturer is re-captialising by filing Chapter 11. The agreement with 95% of lenders will reduce company debt from $300 million to $135 million, and the interest cost on borrowing will decrease by $20 million a year.
Lenders will give the company additional liquidity to ensure stability and allow the company to implement its transformation strategy. Retail stores and manufacturing won’t be affected.
Filing for bankruptcy in the US allows the company to receive relief in order to pay necessary costs, allowing the company to continue operations.
If bankruptcy is approved, stock will be extinguished and holders won’t receive anything. Hedge fund Standard General and other creditors will have full control over the company.
In Association with
American Apparel hasn’t made profit since 2009. Shares have been under $1 for much of the year, and were at 11c at the end of last week and the company had until October 9 to submit a plan outlining how it would meet its obligations.
What Went Wrong?
American Apparel was once a top fashion retailer for teenagers and young people. Dov Charney founded American Apparel in Los Angeles in 1997, selling basics and paying staff above minimum wage. The company was known for its provocative ad campaigns featuring ‘real women’ in sexualised, Terry Richardson-type poses. The company was bought by an investment firm in 2006 for $400 million.
Dov Charney was removed from his position in June 2015, as a result of numerous lawsuits brought against him.
Charney reportedly masturbated in front of a journalist and was known to dance naked in front of employees. Sexual harassment lawsuits brought against Charney allege he asked staff to simulate masturbation and pose naked, and that he demanded sex for employment.
According to Elle, after the first few legal actions, employees were asked to sign agreements forgoing their right to trial should conflict arise, and forbidding them to speak to media.
American Apparel founder, Dov Charney
New Management
Paula Schneider took over as CEO following Charney's removal, and hedge fund Standard General gained control of the company, replacing five board members with its own people.
In July, AA announced the next phase in its strategic turnaround plan to address legacy issues. The measures included €30 million in cost cutting, closing stores and reducing headcount, with manufacturing workers made redundant.
In an effort to rebrand, AA fired a number of employees, including long-time creative directors Marsha Brady and Iris Alonzo, as well as the marketing director, photo curators, a photographer and designer. Other issues for management include improving creative marketing, maximising new retail and improving expense management.
Reputation
American Apparel marketed itself as an all-American brand that prided itself on being sweatshop free. Garment workers for the brand are now working less hours, with many working 2-3 days a week, with layoffs occurring.
AA gained attention with its unconventional ad campaigns, but allegations of its ‘no ugly’ floor staff policy as well as overly-sexualised ads have seen the brand lose its appeal for many customers.
As a result of the global financial crash, and the rise of 'fast-fashion' retailers like Forever 21 and H&M, young people were less likely to pay $30 for a plain t-shirt when they can buy the same product elsewhere.
Speaking of the bankruptcy application, Schneider said: “The company plans to continue implementing its strategic plan, which is focused on improving product selection, cost management, improving supply chain, SKU rationalization, maximizing retail, e-commerce and wholesale opportunities, while continuing to create award-winning marketing campaigns that are positive, inclusive and socially conscious."
As of September 30, the company had approximately 9,000 employees and operated 227 retail stores in 19 countries including and an e-commerce site serving 50 countries.
