American Apparel Might Have Already Been Dead A Year Ago

Photo: Via American Apparel.
The official demise of American Apparel really might be happening, and soon, if the brand's second-quarter-earnings filing released this week is any indication. Shares are down 87% this year, and net losses for the previous quarter are valued at $19.4 million. The prognosis for survival of the once-popular purveyor of bodysuits and hoodies is a year or less, possibly: “We believe that we may not have sufficient liquidity necessary to sustain operations for the next 12 months. These factors, among others, raise substantial doubt that we may be able to continue as a going concern,” the company said in the filing.

That bleak outlook doesn't come as a surprise. American Apparel’s former CEO, Dov Charney, was ousted from the company in December. In January, the retailer appointed a new CEO, Paula Schneider, an alum of BCBGMaxazria, Laundry by Shelli Segal, and Warnaco Swimwear, to save the flailing company. Charney’s farewell was a long time coming — the controversial head honcho’s departure was first announced as a suspension (a 30-day “cure period”) back in March 2014. Two months later, Charney received a termination letter from the retailer, detailing his ouster being a result of violating company policy, mishandling company assets, and breaching fiduciary duty to the company. Shortly after that, Charney sued the company for wrongful termination, breach of contract and retaliation, and other issues.

In March, an SEC filing revealed a thorough, pricey, months-long internal investigation of Charney, which cost the brand a whopping $10.4 million. The filing also detailed $7 million the company had to shell out for employment settlements and employee severance payments, the sum of which contributed considerably to American Apparel’s already bleak fiscal state.

That dent in the finances of a struggling company, combined with the dire latest earnings, all in a five-month span, means the days are likely numbered for the sparkly bandeau bra and leotard go-to for many a Halloween costume and/or barely clad night out. The brand has already tried trimming expenses at its Los Angeles headquarters by cutting houses and reducing costs as much as possible. If it can somehow pull itself out of this dispiriting, drama-filled slump — one that’s lasted a solid year and a half, at least — it’ll take ambitious efforts to make that happen.
Photo: Via American Apparel.
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There’s pressure on Schneider to improve the dismal fiscal outlook for the onetime soft-core brand — though one would hope the exec hooked herself up with a sizable payout in case she doesn't (read: cash, and lots of it). A professional prenup, if you will. But American Apparel has been weirdly upfront about its rocky financial state over the past year, practically to the point of oversharing — could the plan be for the retailer to be so frank about some pretty ugly money matters that should the company fold, it’ll be blatantly clear that Schneider didn’t screw things up? Granted, it’s a very strange approach, but at least she wouldn’t have to fully bear the brunt of Charney’s bad decisions.

Given American Apparel’s extremely shaky recent state, especially this year, it’s interesting that the brand’s PR strategy has been full transparency about how much Charney screwed up the company. There were emails from the company’s PR team willingly sharing details or legal updates, which didn't really accomplish the positive spin that public relations (especially for a troubled property) are typically eager to provide. Although we can't share some of the unflattering background information and the like from the company's PR reps, trust us that it doesn't make the brand look great. That transparency seems to reveal the company’s lack of confidence that it can fully recoup. (To their credit, the brand’s PR reps have also touted Schneider’s ambitious goals for helming the company.)

Yet it’s also Charney's absence that might be contributing the the retailer’s downfall. Before his creepy sexual dalliances and unsound business practices came to light, the latter causing his removal from the company, Charney used his weird charisma to dupe his employees, and perhaps even the fashion industry as well, into thinking things were going well at American Apparel.

These days, the brand is looking for legitimate models instead of “Instagram hoes” (per an unfortunately leaked internal memo), and the ads are slightly less porny. The 30-month cost-cutting initiative that kicked off in July (and will cause employee layoffs and store closures) has been billed as a rebranding. But American Apparel’s hippest days are definitely over, and it’s hard to see how turnaround efforts, no matter how drastic, will keep the company afloat — and competing with the likes of Zara and Uniqlo.
Photo: Via American Apparel.
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