American Apparel has filed for Chapter 11 bankruptcy for the second time in 13 months, the latest step in the retailer’s downward spiral after a failed turnaround attempt that led to the resignation of CEO Paula Schneider.
The filing comes less than a week after the beleaguered brand put all 13 of its UK stores in the administration of a third-party official. American Apparel filed its first bankruptcy in October 2015 following years of revenue losses and a drawn-out legal battle with its ousted CEO Dov Charney. American Apparel then emerged from bankruptcy in February under the ownership of a group of former bondholders led by hedge fund Monarch Alternative Capital LP, with the company’s Board of Directors rejecting a $300 million buyout proposal from an investment firm backing Charney.
American Apparel has managed to find a buyer for some of its non-store assets after exploring sale options since the summer. Canadian apparel manufacturer Gildan Activewear said it agreed to buy intellectual property rights related to the American Apparel brand and certain assets for approximately $66 million in cash.
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The bankruptcy filing allows American Apparel to hold an auction for its assets and business under which Gildan’s proposed acquisition would constitute the initial bid. Gildan has no plans to purchase any retail store assets, the company said in a statement.
Throughout the sale process, American Apparel will run its business as usual in the U.S. and the proceedings are expected to have no noticeable effect on day-to-day operations, said Bradley Scher, Chairman of American Apparel, in a letter to employees.
While much of the negative publicity for the brand stemmed from its controversial advertising and Charney’s alleged sexual misconduct, American Apparel’s financial difficulties have been the biggest barrier to successfully implementation of any turnaround plan. Despite the company not making an annual profit since 2009 and displaying a complete inability to establish a cost-effective manufacturing and supply chain strategy, the retailer remains insistent that all factories must remain in the U.S. to continue its “Made in America” message.
With American Apparel’s manufacturing plant located in California, the company has considered moving its operations out of California when its lease runs out in 2019. California’s minimum wage is set to rise to $15 per hour by 2020, which is more than double that of the $7.25/hour in rumored destinations such as Tennessee, North Carolina and South Carolina.
