Popular Los Angeles based clothing company American Apparel announced they were filing for chapter 11 bankruptcy protection early Monday morning on Oct. 5. After a group of sexual assault allegations were brought to light against the brand's founder, Dov Charney, and controversy erupted surrounding their racy ads, American Apparel has struck a deal with lenders, according to the New York Times.
The Chapter 11 petition was filed in Delaware in bankruptcy court. This ruling is followed by a debt-for-equity conversion deal American Apparel struck up with its lenders. The deal will allow the retailer's debt to be reduced through a process where their bondholders can exchange their debt for shares in the company.
American Apparel also benefited from the deal in a different way. The deal will allow the fashion brand to sustain its manufacturing operations in Los Angeles and keep their 130 stores open throughout the country, because extra financing is included in the deal with their bondholders.
"Our debt load simply wasn't sustainable. You can't do a turnaround plan without cash," Paula Schneider, the brand's veteran retail executive, told the New York Times. "Every day, we would make choices on what we were going to buy, even though we needed more for everyone. Every day, I have to pick between what I'm buying for retail or wholesale, or giving e-commerce enough money to develop a mobile app."
Announcing their decision to file for bankruptcy doesn't come with much surprise. The brand has faced a lot of scrutiny and backlash over the years, which has made it quite difficult to rebuild their name and reputation.
An ongoing lawsuit against Charney surrounding several sexual harassment allegations in the workplace and the retailer's constant use of ads featuring women with little to no clothing have plagued the company. Over the last five years, American Apparel's sales have continued to plummet. According to the NYT, their losses have reached nearly $340 million, with a whopping $45 million loss this year alone.
"And it was all to get to the point where we could make these massive interest payments, and nothing that was really moving the company forward. Not having the nuisance lawsuits, not having this massive debt, these are all extremely important things for the company to thrive."
Despite the major hit American Apparel is taking, there has been no discussions of layoffs or store closures. The bankruptcy agreement would temporarily delay the numerous lawsuits against the company.
Schneider, who was brought on in January to help salvage the brand's operations, will remain chief executive throughout the bankruptcy proceedings. She is still hopeful and optimistic about American Apparel's future and what she can offer the company.
"We will continue to manufacture in America. That's what the brand is. That's what it's about."
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