Here's what is going on with American Apparel
When American Apparel founder Dov Charney was fired last year from his position as CEO of the company (you remember, after allegations of sexual harassment and personal misconduct), Paula Schneider was inducted as his replacement. Under her leadership, it looked as though the company was going to turn their entire controversial image around. “We have a woman who’s like eight feet tall in [our Valentine’s Day ads], a transgender person, a woman who’s 70 years old,” Schneider told New York Times in February of this year. “So it’s a very broad mix of people. We’re a very accepting brand.” For a company that had built their image on vaguely pornographic images of young women, this was a revolution.
However, 2015 proved to be the company’s worst year yet. Not only did they ultimately go back to their “naughty school girl” aesthetic, with ads that appeared to sexualize underage girls, but in July, the company downsized considerably by way of layoffs and store closures. In August, it looked as though the end of American Apparel was drawing ever near after the company warned investors that its business — or lack thereof — may not be enough to keep things afloat.
Now, it’s officially official: American Apparel filed for bankruptcy protection Monday in federal court in Delaware. The deal struck involves cutting down the company’s debt from $311 million to $120 million through “debt-for-equity conversion,” which involves swapping debt for shares in the company, the New York Times reports. The deal will enable the company to keep its remaining 130 stores in the United States open, and no layoffs have yet been announced. However, this news effectively eliminates current shareholders in American Apparel, including Charney himself, who had approximately $8.2 million invested; now, the company’s creditors have taken the wheel, including Standard General, which has done the same for RadioShack.
However, even in the face of this news, Paula Schneider remains optimistic. “This restructuring will enable American Apparel to become a stronger, more vibrant company,” she said in a statement. “By improving our financial footing, we will be able to refocus our business efforts on the execution of our turnaround strategy as we look to create new and relevant products, launch new design and merchandising initiatives, invest in new stores, grow our e-commerce business, and create captivating new marketing campaigns that will help drive our business forward.”
In fact, Schneider told the New York Times that the bankruptcy was necessary to come up with a plan of attack. “Our debt load simply wasn’t sustainable,” she said Sunday. “You can’t do a turnaround plan without cash. . . it was all to get to the point where we could make these massive interest payments, and nothing that was really moving the company forward. Not having the nuisance lawsuits, not having this massive debt, these are all extremely important things for the company to thrive.”
American Apparel plans to complete the restructuring plan within six months, but this gung-ho optimism is not widely shared. Some experts and analysts believe that there are simply too many existing brands, and the competition is too intense; naturally, some brands will succumb to the pressure. “Zara, H&M and Forever 21 came in and ate these guys alive,” Ronnie Moas of Standpoint Research, an investment research firm, told ABC News. “There was too much competition and wage pressure. It was survival of the fittest.”
American Apparel was valued at around $1 billion in 2007, but the recession and market crash took a major toll; in combination with the legal fees the company paid after being sued for defamation by Charney, the business couldn’t take all the weight. “The nail in the coffin was the legal expenses tied to the CEO,” Moas told ABC News. “It was such a distraction and they already had zero margin for error. They just couldn’t come up with money with the legal expenses at the same time.”
So what is the fate of American Apparel? Time will only tell, but right now, its future is looking quite murky indeed.
[Image via American Apparel]