American Apparel Inc., a brand built on made-in-the-U.S.A. 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 Los-Angeles based 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 $66 million offer from Canadian T-shirt and underwear maker Gildan Activewear Inc.
Montreal-based Gildan said in a statement that it is 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 $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 U.S. clothing makers, with three plants and 110 U.S. 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," Weinsten said, citing a decline in sales since its last bankruptcy.
As malls lose foot traffic and more Americans shop online, many U.S. retailers have struggled, with clothing companies hit particularly hard. Aeropostale Inc., Quiksilver Inc., and Pacific Sunwear of California Inc. all filed for bankruptcy in the last 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.
The company's first round of troubles began under founder Dov Charney, who was pushed out in 2014 over allegations of misconduct. He fought unsuccessfully to regain control of the business he started as a college student.
The company filed for bankruptcy in October 2015. It shed $200 million in debt and emerged early last year with former bondholders, led by Monarch Alternative Capital, taking over.
Paula Schneider, who took over as CEO after Charney was forced out, resigned in September. Reports of a possible sale and a return to bankruptcy surfaced in October.
Gildan has asked to maintain some of the company's manufacturing, distribution, and warehouse operations in and around Los Angeles, according to the employee letter. Gildan recently bought Alstyle Apparel, also based in Southern California, where it continues to employ people in administrative offices and distribution centers, Scher said in the letter.