Industry News

American Apparel Declares Bankruptcy

By: Abby Walker

After years of financial struggles and various scandals, American Apparel has finally declared bankruptcy. The company, that proudly advertises their “Made in America” brand, filed for a Chapter 11 petition at bankruptcy court in Delaware earlier this month. This comes after a series of scandals and financial challenges the company has faced over the past few years. According to Buzzfeed, the company has not posted a profit since 2009 and their stock has been trading at below $1 for the past two years.

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For many, this seems the inevitable outcome of American Apparel’s history of controversy. Most of these issues have centered on their eccentric ex-CEO Dov Charney. Charney was terminated in June 2014 for multiple misuses of his power, including sexually harassing his employees, mismanaging corporate assets, writing defamatory blog posts about former employees, paying off said employees to keep scandalous stories about him to themselves as well as forcing employees to sign releases that protected him from personal liability.

The company, famous for their provocative advertisements, use of “real” models and being 100% USA produced, faced many more difficulties than the questionable actions of Charney. American Apparel gained popularity with the hipsters and then more commercial recognition as time went on. Their racy advertising lead to a decline in public opinion, which helped push the company to rebrand in order to be more socially conscious and inclusive.

For a period of time, the novelty the company brought to the fashion market gave them substantial sales, but the fickleness of the industry soon caused a decrease in sales as the novelty wore off. Sales peaked for the brand in 2013 at $633.9 million, however they experienced a net loss of $106.3 million in the same year. Their losses continued to escalate until the bankruptcy filing. In addition to their poor financial performance, American Apparel faced massive debts that were initially brought on by loans for expansion. Eventually these debts expanded to insurmountable amounts. As of June 30, the company had long-term debt of $234.9 million, according to Marketwatch.

Other financial woes for the company came from extensive loans from Charney and his associates. Charney reportedly has filed over 20 lawsuits against the company, most addressed at wrongful termination. For the second quarter of 2015, the company reported $3.6 million in legal fees.

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With all of these challenges, it is surprising that the company has been able to avoid bankruptcy for this long. It is difficult to say whether American Apparel will be able to come back from this, but executives are trying everything in their power to get the brand back on its feet. As it stands, the company is hoping to achieve cost savings up to $30 million, by closing underperforming stores, using more modest advertising and trying to appeal to a more socially conscious market.

Sources: New York Times, MarketWatch, Buzzfeed

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