American Apparel files for Chapter 11 once more
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London - American Apparel has voluntarily filed for Chapter 11 bankruptcy protection in the United States once more, less than a year after it emerged from its first filing under court protection.
The second bankruptcy comes as American Apparel agrees to sell its its global intellectual property rights related to the brand and certain assets to Canadian apparel manufacturer Gildan Activewear for approximately 66 million US dollars. The deal also sees Gildan acquiring certain stocks of apparel, but the agreement does not include any retail locations.
American Apparel files for second bankruptcy as Gildan swoops in to purchase its IP rights
American Apparel joins the likes of Aeropostale, Quiksilver and Pacific Sunwear in filing for bankruptcy over the past two years, joining the ranks of clothing retailers who have struggled to stay afloat within the shifting retail landscape as younger shoppers flock to fast-fashion brands and malls are hit with declining foot traffic thanks to the rise of online shopping.
In a statement released by Gildan Monday morning, Gildan noted the Bankruptcy Court may require American Apparel to host an auction for its assets and business, which sees Gildan's proposed acquisition constitute as the initial bid. "Consummation of the acquisition would be subject to Gildan being selected as the successful bidder in any such auction and Bankruptcy Court approval," said the Canadian manufacturer of t-shirts and underwear.
"This disappearance of the American Apparel brand from malls and from Main Street represents the end of a turbulent period for a once controversial and iconic, but now just troubled, brand"
However, if Gildan is not the successful bidder in any auction, the company will be entitled to a break-up fee and certain expense reimbursements from American Apparel. The announcement less than a week after American Apparel entered into administration in the UK. On November 8, the apparel retailer appointed joint administrators Jim Tucker and Richard Beard from KPMG.
At the moment American Apparel counts 13 stores across the UK, which are likely to continue trading throughout the peak Christmas period. "While the UK business is not part of the US sale, a number of the UK stores are in prime high street locations, and we will also aim to sell individual stores following the Christmas trading peak," said Tucker in statement. The store on Oxford Street already bears closing down signs in the window, offering between 10 percent and 30 percent discount
American Apparel will continue to operate its business as usual in the US during the sale and bankruptcy process, which should have no ill effects on the daily operations of its business. The US fashion retailer first filed for bankruptcy in October 2015, following a deep decline in sales and ongoing legal battle with its founder Dov Charney, who was ousted as CEO in 2014 over allegations of misconduct which included sexual harassment.
Charney fought unsuccessfully to take back control of his business which he started as a college student, as American Apparel's sales continued to decline. The clothing company managed to shed 200 million US dollars in debt before emerging from bankruptcy early last year, when former shareholders led by Monarch Alternative Capital, came together and took control.
However, American Apparel was still unable to sail on smooth waters and saw its Chief Executive Director Paula Schneider, who took over the reins after Charney was kicked out, resigned this September. Rumours of its impending sale and potential bankruptcy began to emerge not long afterwards, as American Apparel continued to struggle to turnaround its dropping sales, unprofitable business and lack of consumers interest.
"This unfortunate dynamic comes at a time when competition in the apparel space in general, and the teen apparel space in particular, is sharper than ever," commented Neil Saunders, CEO of Conlumino, retail analysis and consultancy firm. "Against this backdrop American Apparel has struggled to reconnect its brand with fickle consumers and, as a consequence, has lost market share and sales to rivals. That the brand no longer has the cool or cachet it once did, has left many consumers unwilling to pay the premiums it once commanded."
"This has meant the acceptance of lower margins. These have been further eroded by excessive discounting across the teen fashion segment, driven both by competition and by the failure of other players like Aeropostale. Ultimately, this has put the company, with its more expensive US manufacturing base, at a distinct financial disadvantage. Worryingly, these problems, while a core part of the latest filing for protection, are not new."
"The emergence of Gildan Activewear, a Canadian apparel manufacturer, as a buyer is a sensible route forward," added Saunders. "In our view despite its many challenges, there is still some value in the American Apparel brand. However, that value is simply not sufficient to support the existing store network and its associated costs, hence Gildan’s decision not to buy out any of the store based leases or assets. Using its own network Gildan will be able to distribute the brand in a cost effective and profitable way."
"The deal with Gildan, which is subject to approval by the bankruptcy court, will inevitably result in the closure of American Apparel’s 117 US stores. This comes at an unfortunate time with the shuttering of other brands, like Aeropostale, hitting shopping destinations. However, given that a lot of American Apparel outlets are in fairly vibrant and high traffic locations, the gaps should, in our view, soon be reoccupied."
"This disappearance of the American Apparel brand from malls and from Main Street represents the end of a turbulent period for a once controversial and iconic, but now just troubled, brand."
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Photo: American Apparel, Oxford Street store, FashionUnited