American Apparel files for bankruptcy again, with sale plan

American Apparel has filed for bankruptcy on Monday (Nov 14), and is planning to sell itself at auction.
American Apparel has filed for bankruptcy on Monday (Nov 14), and is planning to sell itself at auction. PHOTO: REUTERS

NEW YORK (BLOOMBERG) - American Apparel, a brand built on made-in-the-USA marketing and racy advertising at a chain of prominent retail locations, is going through a second bankruptcy that may turn it into a Canadian-owned operation with no stores.

The company filed for bankruptcy Monday, less than a year after ending its first stint under court protection. It plans to sell itself at auction with a leading US$66 million (S$93.1 million) offer from Canadian T-shirt and underwear maker Gildan Activewear.

Montreal-based Gildan said in a statement that it's buying the brand and inventory supply, but not any stores, and will integrate the brand with its own business and evaluate wholesale opportunities. The offer would be subject to higher and better bids through a bankruptcy auction and require court approval.

"We are confident that this decision is the best strategic move forward, in order to preserve the legacy of the American Apparel brand," American Apparel Chairman Bradley Scher said in a copy of a letter to employees obtained by Bloomberg News.

American Apparel is seeking a US$10 million operating loan to help it survive until the sale, according to court papers. Without the money, it would probably run out of cash in two weeks and be forced to liquidate in a Chapter 7 bankruptcy, American Apparel said in court filings Monday in Delaware.

One of the largest US clothing makers, with three plants and 110 US retail outlets, the company faced a more difficult retail environment than expected after exiting its prior bankruptcy in February, Chief Restructuring Officer Mark Weinsten said in court papers.

"American Apparel has struggled in recent years with chronic performance problems," Mr Weinsten said, citing a decline in sales since its last bankruptcy.

As malls lose foot traffic and more Americans shop online, many US retailers have struggled, with clothing companies hit particularly hard. Aeropostale, Quiksilver and Pacific Sunwear of California all filed for bankruptcy in the past two years.

In its heyday, American Apparel ran 280 stores and had five factories. It financed growth on borrowings and bank debt, leaving it with a high level of debt that made it vulnerable to a downturn in business.