American Apparel Files for Chapter 11 Bankruptcy Again after Failed Turnaround Plan

by San Antonio Attorney

American Apparel filed for Chapter 11 bankruptcy on Nov. 7 after its most recent reorganization plan failed.

The first time the company filed for bankruptcy was in 2015.  It emerged from court protection this year but soon bumped into problems again.

Gildan Activewear, a Canadian clothing company, will pay $66 million to buy American Apparel’s inventory and intellectual property assets.  Gildan will also have a chance to keep some or all of the Los Angeles manufacturing and distribution operations, the court filing shows.

Shops will continue to open while American Apparel sells those operations.  However, liquidation is a major risk for any clothing retailer that is filing for Chapter 11 bankruptcy again.  American Apparel has already started liquidation process for all of its overseas operations.

In the retailer’s court filing, chief restructuring officer Mark Weinsten revealed that the company unexpectedly faced harsh market conditions.

The turnaround plan was a complete failure as the company experienced a 33% drop in sales, Weinstein said.

Weinstein said the company obtained bankruptcy loan to continue its operations for the time being, but the money would be exhausted by the end of this year.

In the cutthroat competition in the teen fashion market, fast-fashion stores Forever 21 and H&M have been crushing their rivals.  This year alone, Pacific Sunwear and Aeropostale filed for bankruptcies.

However, the troubles of American Apparel run far deeper.  Known for flaunting its made-in-America products and controversial advertisements, the company has been in the verge of insolvency for years.  Dov Charney, the founder and former CEO of the company, was fired in 2014 over allegations of sexual harassment of employees.

The succeeding CEO, Paula Schneider, overhauled its sexually provocative marketing and planned to enhance its products.  However, she left the American Apparel in September.

From the time when it filed for its first bankruptcy, the company was unable to make the most of its merchandising, improve online sales, enhance quality quickly and formulate a solid marketing scheme, Weinstein said.

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