OUT OF FASHION

The unraveling is complete: American Apparel has filed for bankruptcy

Trendy clothing retailer American Apparel has fallen comprehensively out of fashion.

The Los Angeles-based company that made its name selling basic clothes with hypersexual advertising filed for bankruptcy protection early this morning (Oct. 5).

An agreement with creditors will cut the company’s debt from $300 million to $135 million, with lenders receiving equity in exchange for debt. They will also provide fresh cash for the ailing firm, which says it will operate as normal during a restructuring it expects to last for six months. The retailer, which was founded in 1989 and listed in 2006, remains committed to manufacturing its clothes in the US, it says.

Although the acute phase of American Apparel’s decline began with the ousting of controversial founder Dov Charney last year, the writing was on the wall for some time. The retailer has turned a quarterly profit only once in the past five years:

As the once-edgy seller of generic, vaguely retro clothing fell rapidly out of style, the cost and distraction of suits and countersuits with Charney added insult to injury. Amid the legal wrangling, new boss Paula Schneider tried to professionalize the company culture, cut costs, and rethink the racy marketing that the company became known for, not always in a good way.

“I want to make sure we’re making the right business moves so we can sell clothes, not body parts,” Schneider told Quartz earlier this year. In its bankruptcy announcement, the company emphasised that its revamped advertising will remain “positive, inclusive, and socially conscious.”

Sadly for Schneider, and the company’s creditors and shareholders, signs of a turnaround are tough to see. American Apparel’s shares are practically worthless, last trading at just 11 cents:

The company will hope that the time and space afforded by Chapter 11 bankruptcy protection will allow it to accelerate its stalled restructuring efforts—or as the firm puts it, it will “enable the company to implement a comprehensive transformation strategy to revitalize the business and brand.”

This plan includes “improving product selection, cost management, improving supply chain efficiencies, SKU rationalization, maximizing retail, e-commerce and wholesale opportunities, while continuing to create award-winning marketing campaigns.” Is that all?

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