American Apparel bankruptcy deal leaves future in doubt

Matt Townsend
Bloomberg News

American Apparel, once a high-flying retailer that peaked at more than $600 million in sales, is probably headed toward liquidation after a bankruptcy auction ended with Canadian T-shirt and underwear maker Gildan Activewear Inc. buying intellectual property and other assets for $88 million.

This transaction doesn’t include American Apparel’s stores, and the fate of its garment workers in Los Angeles remains in doubt. The company had 4,700 employees and 110 stores (including two in Michigan) as of November, when it filed for bankruptcy for the second time in 13 months.

Gildan said it has no obligation to keep any American Apparel employees.

“We’ve never been in a position to be able to assume operations,” Garry Bell, a spokesman for Montreal-based Gildan, said in an interview Tuesday. “We’re not buying an ongoing concern.”

The end comes about two years after American Apparel’s board orchestrated the firing of founder and chief executive officer, Dov Charney, for alleged misconduct, which he denies. Charney engaged in a bruising — and ultimately futile — public battle to regain control.

Saddled with high-interest debt racked up during Charney’s tenure, American Apparel first filed for bankruptcy in October 2015 and was taken over by former bondholders led by Monarch Alternative Capital.

But the reorganization did little to slow American Apparel’s decline as sales continued falling. A second bankruptcy, filed in November, focused on auctioning the company with an initial offer from Gildan for $66 million. Charney accused management of making a “colossal mistake” and destroying the company he started as a college student.

“I’m extremely disappointed,” he said in an interview Tuesday. “This shouldn’t have happened.”

Charney blamed American Apparel’s downfall on “reckless Wall Street behavior” and said the company’s decline also hurt its suppliers, which employ thousands of people in the Los Angeles area.

“This was a good company,” said Charney, who’s working on a clothing startup. “We were exporting to the world and paying fair wages. All of that has now gone away.”

What happens to the American Apparel brand remains to be seen. American Apparel can keep selling clothes in stores and online under a 100-day license, said Bell. The bigger prize is to fold the wholesale business into Gildan’s North American division to gain market share in fashion basics.

Before the auction, American Apparel creditors urged Gildan to find a partner for the parts of the company it didn’t want, including the stores. Since the November bankruptcy filing, American Apparel has been liquidating its least profitable locations, according to court records. More promising stores could still be taken over and run under the American Apparel name.

“We do think that marrying the parties is going to be the key here,” Cathy Hershcopf, an attorney for creditors, said in court last month.

Gildan has expanded into branded clothing and produces Under Armour Inc. socks for retail, and the acquisition may help the company grow in the more fashionable and lucrative end of the screen-printing business, which makes up about 60 percent of its revenue.

Bell said Gildan hasn’t decided where American Apparel-branded goods will be made from now on, but it chose not to exercise the right to assume leases on two factories and a distribution center in Los Angeles. The Canadian company is buying sewing machines and knitting and dyeing equipment for making wholesale products. Gildan already has plants in states including North Carolina and Georgia, but socks are the only finished goods made in the U.S.

“We haven’t established yet what the manufacturing” plans are, Bell said.