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By Conor Gaffey
Staff Writer
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American Apparel, the iconic U.S. clothing retailer that became infamous for its colorful T-shirts and raunchy advertisements, has filed for bankruptcy protection.
A statement on the company's website said that a "restructuring agreement" had been approved by the company's board of directors. The company's debt is to be reduced from $300 million to $135 million, with creditors stumping up $70 million of fresh capital in a bid to turn the fortunes of the edgy retailer around. Apparel said that business would continue as usual at its 260-plus stores across 19 countries.
American Apparel's chief executive, Paula Schneider—who took over in January after the company's founder Dov Charney was fired amid allegations of misconduct—said the restructuring will "enable American Apparel to become a stronger, more vibrant company."
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The company has never been far from controversy since it was first founded in 1989 by Canadian Charney. Starting life as a T-shirt wholesaler, the company distinguished itself with simple, block-colored items and its distinctive American flavor. American Apparel prides itself on manufacturing all its clothes in the U.S. and markets its products as "sweatshop-free." The hipster retailer claims that its sewers earn an average of $25,000 per year or $12 per hour.
However, another distinctive aspect of American Apparel's brand has proved less appealing in recent timesthe highly-sexualized nature of its advertizing. In September 2014, American Apparel was reprimanded by U.K. regulators the Advertising Standards Authority (ASA) for two images used in a 'back-to-school' style campaign, which the ASA said "had the effect of inappropriately sexualizing school-age girls." The noticewhich American Apparel disputed, explaining that the model concerned was 30was the sixth time in two-and-a-half years that the ASA had banned the retailer's adverts.
In financial terms, the bankruptcy notice is not necessarily surprising. The BBC reported that the fashion company has not made a profit since 2009. In 2010, American Apparel's independent auditors Deloitte & Touche resigned, citing weaknesses in the company's financial reporting. In August this year, the chain recorded losses of $19.4 million in the second quarter of 2015.
At the time, American Apparel said there was "substantial doubt" as to whether the company had enough liquidity to continue operating. Neil Saunders, of retail analysis firm Conlumino, told the BBC that bankruptcy protection "is, in our view, the only viable option for American Apparel." It remains to be seen whether the retailer will be able to survive on limited capital while facing a number of unresolved legal challenges.
One of the main challenges facing American Apparel in the near future is the litigation being brought by former boss Charney. The controversial founder was officially terminated in December 2014 after a string of allegations of misconduct, including multiple accusations of sexual harassment from former company employees. Charney has since filed a $30 million defamation suit against the company.
The decision to file for bankruptcy protection does not bode well for Charney, who will see his 42 percent stake in the company wiped out as a result. However, the ongoing legal proceedings and controversy surrounding Charneywho in June was placed under a restraining order forbidding him from making negative statements in the press about the companyis likely to weigh like a millstone around American Apparel's neck as it seeks to rebuild its fortunes.
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