American Apparel’s Rehab

Sadie Keljikian, Express Trade Capital

It’s been a complicated year for American Apparel.

Founder and former CEO Dov Charney was fired following an internal misconduct investigation involving sexual harassment, defamation of a colleague and misuse of funds back in December of 2014. Since then, the company’s resilience has been repeatedly tested by Charney’s character, internal issues and declining sales.

American Apparel (“AA”) posted consecutive annual losses since 2010 (long before Charney was fired) and filed for Chapter 11 bankruptcy protection in October. During the company’s time under Chapter 11, new CEO Paula Schneider faced an insurrection of employees who were loyal to Charney and felt that new management was not living up to the standards that had been set in AA’s Los Angeles manufacturing facilities. Schneider responded with a memo asking staff “not to be influenced by unfounded personal attacks.”

Since his (very public) removal from the company, Charney has made numerous attempts to win or buy his way back to corporate control. He filed a $30 million dollar defamation case against the hedge fund controlling the company last spring, further depleting AA’s resources.

More recently, Charney and his allied investors from Hagan Capital Group and Silver Creek Capital offered to buy American Apparel in a $300 million bid last month, but were rejected in favor of one that gave control to the company’s debtors.

Schneider has attempted to rebuild the brand since she took over last year and is confident, despite recently mounting difficulties, that the company has a bright future. A Delaware Bankruptcy Court judge approved the new reorganization plan and rejected Charney’s bid, allowing AA to exit Chapter 11 and begin to rebuild without Charney. Schneider says she is relieved to be in a position that will allow stabilization of the company. She plans to address and improve e-commerce operation, the wholesale business, and other “foundational” concerns. In a recent interview, Schneider said of the upcoming changes, “These aren’t sexy things. It’s making sure a size 6 is a size 6 in every pair of bottoms.”

Although American Apparel has had a rough go of it for the last five years, with Charney truly gone and the company refocusing on limiting overtime and creating a consistent product, it’s looking like the brand might finally be out of the woods.

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