American Apparel filed for bankruptcy protection early this morning, according to The New York Times, after months of speculation due to a series of dismal quarterly reports. So, what does this mean for the once-beloved cool basics brand? American Apparel will be able to keep its roster of 130 stores in the U.S. open, as well as its Los Angeles manufacturing facilities, as the company told The Times, and there aren't slated to be any layoffs (as of now), per the bankruptcy filing.
However, American Apparel’s shareholders would lose control as a result of the bankruptcy status — instead, the brand’s creditors would take the reins. The company’s embattled founder, Dov Charney, is one of the shareholders that would be affected by the filing (his stake is worth approximately $8.2 million, according to The New York Times). Charney was stripped of his chairman and CEO titles at the company by the board of directors in June 2014, following his suspension in March. The ousting came after an expensive, $10.4 million internal investigation that revealed Charney’s misdoings with company funds — and employees. Charney then sued the company for wrongful termination, breach of contract and retaliation, and other issues.
There is a silver lining for the company in filing: American Apparel’s debt would drop to $120 million from $311 million as a result of the bankruptcy-spurred restructuring. Then, a slew of lawsuits against American Apparel would be put on hold. This could allow the brand to focus on its turnarounds efforts, like tweaking its supply chain, moving beyond controversial ad campaigns, and updating its product offerings.
American Apparel’s CEO of 10 months, Paula Schneider, will maintain her role through the bankruptcy process. “Our debt load simply wasn’t sustainable. You can’t do a turnaround plan without cash,” Schneider told The New York Times.
Schneider's stint at the company certainly hasn't been peachy. Two months ago, American Apparel employees aggressively beat up a piñata made to resemble Schneider, to voice their dissatisfaction with the exec over purported wage and benefits losses, among other concerns.
The Chapter 11 petition still has to be approved by the federal bankruptcy court in Deleware, where it was filed, for these changes to take effect. But there’s been talk of the troubled company’s impending bankruptcy for a while now. In August, the brand’s second quarter earnings filing revealed quarterly net losses of $19.4 million and that shares were down 87% for the year. “We believe that we may not have sufficient liquidity necessary to sustain operations for the next 12 months. These factors, among others, raise substantial doubt that we may be able to continue as a going concern,” the company said in the filing. Just last week, the New York Stock Exchange issued a warning that the company was in danger of being delisted. Can bankruptcy and restructuring save it?
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