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Made-in-America Clothing Retailer, American Apparel, Files For Bankruptcy

On October 5, 2015, the Los Angeles, California based American Apparel, Inc. (“Company”) filed for Chapter 11 bankruptcy protection in U.S. Bankruptcy Court for the District of Delaware. ((Nathan Bomey, American Apparel files for Chapter 11 Bankruptcy, USA Today (Oct. 5, 2015), http://www.usatoday.com/story/money/2015/10/05/american-apparel-files-chapter-11-bankruptcy/73365964/.)) The next day, on October 6, 2015, the Company announced that the staff of NYSE Regulation, Inc. determined to suspend trading immediately and commence proceedings to delist the Company’s common stock from the New York Stock Exchange (“Exchange”). ((Weber Shandwick et al., NYSE MKT Suspends Trading in American Apparel’s Common Stock and Commences Delisting Proceedings, PR Newswire (Oct. 6, 2015), http://www.prnewswire.com/news-releases/nyse-mkt-suspends-trading-in-american-apparels-common-stock-and-commences-delisting-proceedings-300154666.html.)) The Exchange determined that the Company was no longer suitable to be listed due to the fact that there was tremendous “uncertainty as to the timing and the outcome of the bankruptcy process, as well as the ultimate effect of … [the] process on the value of the Company’s common stock”. ((Id.)) As of the writing of this publication, the Company will not currently appeal the delisting decision. ((Id.)) As part of the restructuring agreement that has been filed in bankruptcy court, the Company’s existing common stock will be extinguished and the holders of the common stock will not receive any consideration. ((Id.))

As of March 13, 2015, the Company had approximately 10,000 employees and operated 239 retail stores in 20 countries. ((American Apparel, Inc., Annual Report (Form 10-K) (Apr. 1, 2014).)) The Company has long prided itself in being the all American retailer that “manufacture[s], distribut[es], and retail[s] . . . branded fashion basic apparel” from is downtown Los Angeles location. ((Id.)) Under the filed restructuring plan, the Company does not plan to layoff any employees and the expectation of the filed plan is that it “will save thousands of American manufacturing jobs and will preserve a true American apparel manufacturer.” ((Bomey, supra note 1.)) This plan is yet to be approved by the Court. ((Id.))

It came as no surprise to the market when the Company announced its filing for bankruptcy protection. Since 2011, the business has been plagued with decreased sales, high amounts of debt, employee strife and most recently a drawn out litigation with its former ousted executive. ((Id.)) The Company has consistently posted quarter after quarter losses. ((See supra note 6.)) Sales plummeted approximately14 percent for the 6 months ended June 30, 2015 as compared to the 6 months ended June 30, 2014. ((American Apparel, Inc., Quarterly Report (Form10-Q) (Aug. 17, 2015).)) The Company’s net losses over the last three years have exceeded more than $200 million ((See supra note 6.)), and it lost approximately $45 million to date in 2015. ((Hiroko Tabuchi, American Apparel Files for Bankruptcy, N.Y. Times (Oct. 5, 2015), http://www.nytimes.com/2015/10/06/business/american-apparel-files-for-bankruptcy.html.))

Will the Company be able to come out of bankruptcy or will it be the end of the made-in-America fashion retailer? The Company is expected to emerge out of bankruptcy in approximately 6 months. ((Id.)) The Company primarily attributes its poor financial position to the lack of market share among it competitors, high operational costs, high debt servicing costs, and changes in executive leadership. ((See supra note 6.)) In its annual statement, the Company identified its wholesale competitors as “Gildan Activewear, HanesBrands, Russell Athletic, and Fruit of the Loom,” and its retail competitors include “the Gap, Urban Outfitters, H&M, Uniqlo, and Forever 21.” ((Id.)) The Company notes that each of their competitors has a larger market share as a result of the fact that they have greater name recognition and are well capitalized with broad distribution networks in comparison to the Company. ((Id.)) Additionally, the Company identifies that its online e-commerce operations compete against numerous websites, many of which may have a greater volume of web traffic and greater financial, marketing and other resources. ((Id.))

It is evident that retailers need to respond swiftly to the ever-changing market conditions. ((See Tabuchi, supra note 14.)) In the past year Wet Seal, Deb Shops, Delia’s and Body Central have all gone out of business. ((Id.)) Retailers that intend to be competitive need to invest in e-commerce, keep up with the ever changing style demands of millennials and decrease operating costs in order to be able to weather sluggish consumer spending. ((See id.))

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