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On October 5th, American Apparel (AA) published on their Investor Relations web page that the company had petitioned for Chapter 11 Bankruptcy. The company’s Chief Executive Officer, Paula Schneider, announced that the restructuring proposed aims to “enable American Apparel to become a stronger, more vibrant company” highlighting a focus on business efforts towards the turnaround strategy. For readers unaware, the firm’s financial footing is bleak to say the least. In their latest quarter they reported an operating loss of $19.4 million (£12.8 million), an amount only painful to swallow until you hear the current debt level of $311 million.
With the Chapter 11 reorganisation, American Apparel is aiming to implement a six-month plan of action to cut the $300 million debt figure down to no more than $135 million. A positive detail of the agreement is that the company’s debt and mounting interest payments will be slashed with a process involving $200 million of bonds being exchanged for equity interests in the reorganised business. As a result of the agreement scheme, American Apparel are hoping to revitalise their whole company to what it once was. The issue arising is whether or not the firm will ever actually recover from the state it is now in. For their consumer base, the typical campus dorm boy and sorority girl, there’s just not enough money available to justify a majority of their prices while alternatives such as Topshop and Urban Outfitters are right on the doorstep. If AA hopes to resurrect their former glory then it’s clear prices need to be more accessible and realistic to stimulate a new flow of customers.
All of the hard hitting financial uppercuts aside, the real story is how the company’s hardships manifested into such an extremity that lead the firm into its current downtrend. The company’s stock has been on a steady decline since January following the ousting of the firm’s founder, Dov Charney, subsequent to a string of sexual misconduct allegations. More apparent to the enterprise is that AA’s campus-chic demographic just don’t have the £38 spare for a striped tee. The firm has always focused consumer’s attentions to the ‘sweatshop free – Made in the USA’ standpoint the company brought up with them from the grass roots. Schneider insists through filing for bankruptcy the aim is to benefit their employees, keeping jobs in the USA, proposing that international stores won’t be affected. The situation in practice however, is difficult to comment on considering two stores in Manchester have closed down in the past year. For those living in Lancaster, the quickest option to visit your local store now means a long haul trip to Liverpool or Leeds. For those readers with a taste for spandex disco pants and nylon gym bags, fear not, as the company is adamant the finance ascertained through lenders will be adequate to fund current operations and revive their status as an iconic clothing brand.