American Apparel Files for Bankruptcy Protection

Retailer became infamous for its salacious ads

Years of controversial advertising couldn't save American Apparel from a trip to bankruptcy court.

Today, the long-troubled company, unprofitable for half a decade, filed for Chapter 11 bankruptcy protection, part of an equity arrangement with creditors designed to trim its debt from $300 million to $135 million. Lenders will provide about $160 million in financing and new capital to keep the company operating during a six-month restructuring phase. All told, American Apparel had approximately 9,000 employees and operates 227 stores in 19 countries.

The filing was not unexpected, especially since American Apparel has posted a single profitable quarter in the past five years, and its stock has been trading of late around 12 cents per share. Sales for its second quarter fell 17 percent, and it has lost about $300 million since 2009. Through the years, the company failed to keep pace with fashion trends, and some believed it overcharged for basic items like T-shirts and slacks.

"I would contend that American Apparel has been and continues to be dramatically outflanked by its competitors, including Urban Outfitters, Forever 21, American Eagle, H&M, Zara and, most recently, TopShop," said Scott Davis, chief growth officer at Prophet, a brand consultancy. "American Apparel has lost relevancy and thus lost its ability to inspire, influence and compel consumers to choose their apparel over more dynamic brands in the category."

To some extent, the company is synonymous with its founder and former chief executive, Dov Charney, who cultivated a bad-boy image, championed salacious marketing and was cited in several sexual-harassment suits by former employees before his ouster last year. New CEO Paula Schneider, a former Warnaco executive who took over as 2015 began, toned things down considerably. For example, American Apparel's Tumblr, once brimming with quasi-pornographic shots of panties at half-mast and topless female models, is decidedly G-rated, with more sedate fashion images on display.

In a statement, American Apparel said it would continue to create "marketing campaigns that are positive, inclusive and socially conscious."

Charney, who still owns 5 percent of American Apparel, in June filed a $100 million lawsuit against the company and hedge fund Standard General, accusing them of conspiring to bounce him out.

@DaveGian David Gianatasio is a longtime contributor to Adweek, where he has been a writer and editor for two decades. Previously serving as Adweek's New England bureau chief and web editor, he remains based in Boston.
Publish date: October 5, 2015 © 2020 Adweek, LLC. - All Rights Reserved and NOT FOR REPRINT