American Apparel Inc. has sought and filed for bankruptcy protection on Monday in Delaware amid a number of problems comprising mainly huge debts, workforce issues, diminishing sales and its continued legal battle with Dov Charney, the ousted founder of the company.
The filing did not come as a surprise to analysts who have already seen several weeks prior how the sales of American Apparel fell 17 percent in this year's second quarter as compared to last year's. Over the last five years and this year included, the company has reportedly lost a total of $385 million, as noted by NYMag.
The branded fashion apparel company is now planning on implementing a prearranged financial restructuring within 6 months after receiving 95 percent support from its secured lenders. Such big move would enable American Apparel to revitalize the brand through a more comprehensive strategy.
Also despite the bankruptcy filing, the company is keeping its 130 stores in the U.S. open and maintain its operations in manufacturing its products in Los Angeles amid the deal that would also provide American Apparel with some extra financing from bondholders, as per NewYork Times.
The attempt to revive the company is also to go smoothly since the filing does not include layoffs or job cuts though this is still subject to the decision of the court.
Meanwhile, the creditors are to exchange the company's debt for shares, and this would mean the release of current shareholders in favor of the creditors.
"This restructuring will enable American Apparel to become a stronger, more vibrant company," new CEO Paula Schneider said, as quoted by PRNewswire. "By improving our financial footing, we will be able to refocus our business efforts on the execution of our turnaround strategy as we look to create new and relevant products, launch new design and merchandising initiatives, invest in new stores, grow our e-commerce business, and create captivating new marketing campaigns that will help drive our business forward."
The fashion-basic manufacturer and retailer is now more focused on improving product selection, cost management, SKU rationalization, enhancing efficiencies of its supply chain and maximizing its wholesale opportunities, among others.