American Apparel to close all 110 stores post sale to Canada’s Gildan Activewear
16 Jan 2017
US teen clothing retailer American Apparel will close all its 110 retail stores and its Los Angeles headquarters after being acquired last week by Canada's Gildan Activewear from an bankruptcy auction.
American Apparel was acquired by Canadian apparel maker Gildan in a bankruptcy auction for about $88 million in cash, $22 million above the stalking horse offer it made in November. (See: Gildan Activewear to buy bankrupt US teen clothing retailer American Apparel for $88 mn)
Gildan had said that it will buy certain manufacturing equipment, inventory and intellectual property rights related to American Apparel, but not its stores, distribution centres and e-commerce site.
Gildan, a T-shirt and underwear maker, will close all American Apparel stores by the end of April, resulting to around 3,400 job losses.
''This was always about buying assets out of bankruptcy …….. the reality is this wasn't a purchase of an ongoing concern,'' Gildan spokesman Garry Bell told the Los Angeles Times.
A judge at the Delaware bankruptcy court has still to approve the deal, but Bell said that he expects to close the transaction in early February.
In August 2016, American Apparel had hired investment bank Houlihan Lokey Inc to explore a sale, just six months after it emerged from Chapter 11 bankruptcy.
The Los Angeles-based company had struggled with shrinking sales, as well as litigation tied to its founder and ex CEO Dov Charney. It filed for a second chapter 11 in the US Bankruptcy Court in Delaware in October 2015.
Charney, a Canadian-born artist and industrialist, had in January teamed up with investor group Hagan Capital Group and Silver Creek Capital Partners to table a $300-million bid for the retailer.
The board of American Apparel rejected the offer saying that the ''debtor's plan was not feasible and would lead to poor long-term recoveries for the company's stakeholders and put thousands of manufacturing jobs in Los Angeles at risk.'' (See: Bankrupt American Apparel rejects $300-mn takeover bid from investor group)
Charney, who founded American Apparel in 1989 and holds a 52-per cent stake, said in December 2015 that he was exploring plans to revive the bankrupt company.
Although it once had around 250 owned stores worldwide, American Apparel had not made a profit since 2009 and losses over the last five years topped $340 million, forcing it to raise capital to make ends meet.
The sale price of $88 million to Gildan was a fraction of American Apparel's peak 2007 valuation of $1 billion.
The company also had to contend with image problems and had been criticised for its racy advertising and sexually-charged culture.
The board officially fired Charney in December 2014, bringing to a close the saga that started with board suspending him in June for misconduct.
In their termination move, the directors had cited infractions such as failure to adhere to the chain's sexual harassment policies and using company funds for family members' travel expenses. Charney's lawyer had dismissed the allegations as ''baseless.''
The New York Times had reported that Charney, who had led American Apparel since 1998, earned a reputation for outlandish behaviour and hyper-sexualised ad campaigns and had been accused by former employees of sexual harassment several times.
Though Charney managed to survive the scandals, matters came to head when an internal investigation found that he had misused company funds.
The investigation also determined that he had allowed an employee to post on the internet nude photographs of a former female employee who had sued him.
