American Apparel is Headed for Bankruptcy

05 Oct, 2015

American Apparel filed for Chapter 11 bankruptcy on Monday following a rocky period in which its made-in-the-U.S. model faltered and its controversial former CEO became embroiled in controversy over his behavior in the workplace.

The embattled retailer said it has already reached agreements with creditors representing 95 percent of its secured debts to execute a restructuring plan. The deal, which would require a court’s approval, will allow the company to stay in business, American Apparel said in a statement.

American Apparel, which flirted with bankruptcy as early as 2011, has about 8,500 employees at six factories and 230 stories in the U.S. and 17 countries. The company famously bet its business model on clothing made in the U.S. In a court filing, it said it has about 4,600 employees in Los Angeles and the L.A. area.

The company said in a court filing that it plans to shed unprofitable stores, though it did not identify how many it expects to close.

American Apparel has slumped in competition with agile retailers such as H&M and Forever 21 that have appealed to Millennial consumers with cheaper, more fashionable products.

It was not immediately clear how the bankruptcy would affect former CEO Dov Charney, who had undertaken efforts to exert control over the company after the board fired him in 2014 amid an investigation over what the retailer called “alleged misconduct.”

Charney was the target of several lawsuits alleging sexual harassment for what accusers described as his inappropriate behavior in the office. He still owns more than 5% of the company, according to American Apparel’s bankruptcy petition. He had long made headlines for airing sexual ads featuring young women and bragging about the company’s “sweatshop-free” business model.

Since his departure, he has sued American Apparel. In its filing, the company said bankruptcy would help it escape “significant litigation overhang resulting from its former chief executive officer’s misconduct and lawsuits he has brought against the company.”

The 26-year-old company lost about $300 million from 2009 through 2014, according to its bankruptcy filing. It had more than $600 million in revenue in 2014, 59% coming from its stores, 29% from wholesale transactions and 12% from online.

The company acknowledged a fundamental lack of seasonal planning, with workers producing swimsuits in September and stores selling “the same offerings year-round,” generating a “stale appeal.”

American Apparel listed $199.3 million in assets and $397.6 million in debt. The retailer has procured $90 million in bankruptcy filing from its secured creditors.

USA Today 

Image American Apparel twitter

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