As you likely know, American Apparel filed for bankruptcy earlier this month. However, this is likely not the end for the Los Angeles-based retailer, which has been in a sales rut (think: a whopping $300 million in operational losses over the past five years) and plagued with a string of harassment allegations against its founder and former CEO Dov Charney. In fact, if American Apparel gets its way, it will exit bankruptcy with a $30 million loan and a considerably reduced load of debt obligations, allowing it to starting afresh. One its first order of business: “overhaul the out-of-date inventory and merchandise presently exhibited for sale at its racks in outlets,” according to court documents.
The brand, which has become synonymous with its risqué advertisements, has been working overtime to tame its image and to reassure suppliers and other creditors they are key to the future. In particular, the brand plans to acquire updated seasonal merchandise, more relevant to customers’ preference and popularity trends to bring to its shelves. Its marketing tactics will now be targeted to focus on advertising of the top selling products (only a minute fraction of its thousands of clothing styles resulted in a major portion of its sales), with more socially acceptable imagery.
And as further proof that American Apparel isn’t going away anytime soon, store closures have not been called for in its survival plan. Instead, the retailer states that it is in the process of negotiating less pricey leasing agreements with mall operators.
Both its debt restructuring (think: $70 million from a team of creditors led by Goldman Sachs Asset management, Monarch Alternative Capital and Coliseum Capital; and $90 million in debtor-in-possession financing by the lenders) and the survival plans are subject to approval by the bankruptcy court. The debt restructure will offer the retailer, the time and space to continue efforts to restructure its business and fund business processes. The retailer claims in court documents that if it is afforded the turnaround it envisions, it will soon have its most profitable years ever. In particular, it projected that it would return to profit in 2018, its first money-making year since 2009. By 2020, the company projected a net profit of $23.7 million, well above its previous peak in 2007.
The company warned in the court filing that ongoing legal battles with Dov Charney, the founder who was fired as chief executive last year, remained one of the risks to its future. The company accused Charney of orchestrating protests at the headquarters and said he could undermine the ability to hire staff and executives. Charney, who is listed among the company’s creditors, did not appear at the creditors meeting.