Dive Brief:
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American Apparel filed for Chapter 11 bankruptcy protection early Monday in Delaware, according to a press release issued by the retailer.
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Under the filing, the retailer will try to reduce its debt through a debt-for-equity conversion with bondholders.
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The retailer announced no layoffs as part of the move, which requires court approval.
Dive Insight:
American Apparel's bankruptcy filing won't surprise many, but it could be one of the retailer's last chances to stay afloat. The retailer is staggering under the weight of its debt, exacerbated by sluggish sales and costly litigation against controversial founder Dov Charney, who was forced out as CEO last year amid allegations of sexual misconduct and financial mismanagement.
American Apparel is one of the teen retailers struggling in a highly-competitive retail environment. The emergence of the fast-fashion model and the shift in consumer preferences away from spending on clothing -- and more towards spending on gadgets and experiences -- has caused problems for the retailer.
The company, which announced store closings and layoffs earlier this year, will keep its remaining 130 stores nationwide open for business, while its factories will continue to remain operational.
The retailer is known for making its source materials and final products in America; its factories and headquarters are based in Los Angeles. That won't change, according to CEO Paula Schneider. But Schneider also said that the retailer will only carry 15% to 20% of its fall lineup in stores, as the retailer can't afford to offer more.
The move leaves the retailer’s shareholders — including founder Charney — in the dust and puts its creditors in the driver’s seat. The company's creditors will have the upper hand as it restructures, assuming the bankruptcy protection is approved. Participating bondholders include Standard General, Monarch Alternative Capital, Coliseum Capital, Goldman Sachs Asset Management, and Pentwater Capital Management, which represent 95% of American Apparel’s secured lenders. Last week, the New York Stock Exchange warned the retailer that it was facing delisting as it share price at the end of Friday fell to about 11 cents.
The bankruptcy filing could further erode American Apparel's strength, or at least the strength it had in the past: a sense of edgy American cool largely infused by Charney's sometimes dubious (and highly sexualized) approach to marketing. Although Schneider will stay on as CEO, the retailer must find a way to replace that edge with some other appeal, a level of flair and imagination that aren't exactly the strong suit of hedge funds and investment firms.