American Apparel Files for Bankruptcy

An American Apparel store in Miami
An American Apparel store in Miami
derÄsthet/Flickr

Your favorite hipster outfitter is waiving the white flag.

American Apparel today announced that it has filed for Chapter 11 bankruptcy. The struggling manufacturer and retailer says that it has already reached a deal with 95 percent of its "secured lenders" to eliminate $200 million in debt in exchange for ownership in the clothing maker.

Hopefully that will work out. If not, it's a sad day for a brand that made Los Angeles ground zero for made-in-America clothing and an immigrant workforce that is paid above-the-minimum wages.

"This restructuring will enable American Apparel to become a stronger, more vibrant company," said CEO Paula Schneider. "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."

The firm was being run under a crushing debt load accrued during the tenure of founder and ousted chief Dov Charney, who expanded American Apparel's reach to include 246 retail stores in 20 countries.

Last spring Schneider said, "Previous management saw losses of more than $300 million over the past five years." This time around, however, Charney's name wasn't mentioned. The ex-CEO was fired in December amid allegations of sexual improprieties. Charney fired back with a lawsuit.

Company critic Nativo Lopez, who supported Charney's attempt to get reinstated at the firm he founded in college, says the bankruptcy is an attempt to erase such lawsuits, including others filed by terminated employees.

He claims the reorganization also is cover for outsourcing American Apparel manufacturing jobs that have been so high-profile in Los Angeles. Since Charney's ouster, production workers have organized under the General Brotherhood of Workers of American Apparel, and layoffs have ensued.

"The current CEO, she received the company in good, stable condition, and she's basically run it into the ground," Lopez alleged. 

We reached out to Charney but couldn't catch him. He told us previously that, while indeed saddled with debt, the firm was making money when he was there.

"The first thing they're doing is firing workers," he said. "They're trying to financialize the company in a way that's detrimental to the community."

An American Apparel parking lot sale
An American Apparel parking lot sale

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Charney lost his job after he found out that his board was scheming behind his back to sell to new corporate owners, Lopez said. So the CEO did his own meddling and found a New York hedge fund to take over. Then it essentially fired him. It happens — especially in fashion.

New CEO Schneider, by the way, says the reorganization will help to keep jobs at home.

"This process will ultimately benefit our employees, suppliers, customers and valued partners," she said. "American Apparel is not only an iconic clothing brand but also the largest apparel manufacturer in North America, and we are taking this step to keep jobs in the U.S.A. and preserve the ideals for which the company stands."


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