It's Chapter 11 Bankruptcy For American Apparel
October 5, 2015
In what has been seen as an inevitable move, American Apparel filed for Chapter 11 bankruptcy protection late on Sunday. The move will allow the company to restructure a massive debt load as it continues to transition to new management after the ouster of controversial founder and former CEO Dov Charney.
WWD reports that the filing will allow for $90 million of debtor-in-possession financing, most of which will go toward restructuring the company. It will also cut the chain's debt from $300 million to an estimated $135 million, reducing annual interest by as much as $20 million. Those are big numbers which demonstrate how dire the company's situation has become. While American Apparel's management continues to battle legal challenges from Charney, a great deal of its troubles stem from issues that developed under Charney's management such as enormous amounts of excess inventory that had to be sold at margin destroying clearance sales, as well as expensive investment in operational systems that ultimately functioned poorly.
In a public statement, current American Apparel CEO Paula Schneider stated, “This restructuring will enable American Apparel to become a stronger, more vibrant company. 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.”
One of the effects of the bankruptcy will also likely be an opportunity to close poorly performing store locations. While a few American Apparel store locations have vanished in recent months —like the recently shuttered Upper West Side unit in the Ansonia building— we may see more locations go dark as the chain has the chance to jettison particularly unprofitable stores.
While a lot of people hear bankruptcy and immediately think "going-out-of-business", what this news means is that the company now has a stronger chance of moving forward successfully and reinventing itself for a post-Charney future. Instead of the slow motion train wreck it has been over the past year, American Apparel just might be a chain we can watch as it evolves into something new.