CHAIN IN DISTRESS:
Major Restructuring May Not Be Enough To Save American Apparel
July 7, 2015
The flashy story about American Apparel over the last year has mostly been about ousted CEO and founder Dov Charney's unethical workplace behavior, but those salacious tales have obscured the other major reason why he was shown the door: The company as a whole has been failing for years. Charney (who has filed numerous lawsuits to regain his position) departed the company after several years in the red, and while stories of his misbehavior make for racy copy, the real reason he was dismissed was probably his sub-standard management skills.
Yesterday, the company announced plans to cut about $30 million in operating expensive the old fashioned way, but closing underperforming stores, shrinking the size of existing stores, trimming payroll expenses and working to move into more profitable markets. The company also has high hopes pinned on its upcoming, revamped fall collection, its first under new CEO Paula Schneider, to drive sales.
The kicker is that the company's management is conceding at the outset that the new plan may not be enough to return the company to profitability. “Even if American Apparel increases revenue and cuts costs, there can be no guarantee that the company will have sufficient financing commitments to meet funding requirements for the next twelve months without raising additional capital, and there can be no guarantee that it will be able to raise such additional capital,” it said in a statement released along with the plan.
Many retail analysts have repeatedly pointed to the company's firm policy of manufacturing its products exclusively in the U.S. as a drain on profits, but the firm has repeatedly expressed its commitment to this strategy as one of the brand's defining values that attracts customers. At this point, the industry is waiting to see if American Apparel can turn itself around without a bankruptcy or being sold to a bigger company that may dismantle its domestic manufacturing policy. To its credit, the company and Schneider are being unusually transparent about the chain's condition in hopes to attract outside investment by showing that they are doing all the right things in the face of difficult conditions, but the news overall is somewhat less than promising. American Apparel fans should be keeping their fingers crossed for the chain's survival.