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Gildan Activewear soon to own American Apparel

The two tags for American Apparel’s identity, “sweatshop free” and “made in Los Angeles,” has long been replaced with 'the troubled clothing company' tag and will soon be owned by the Canadian multinational corporation, Gildan Activewear SRL.

American Apparel, the one-time famous t-shirt manufacturer has recently  become infamous for its provoking advertisements and founder Dov Charney’s outlandish behaviour, has filed its second bankruptcy case within almost a year. The company has already closed several retail locations and recently sought bankruptcy court approval to close nine additional stores before the end of 2016.

 

American Apparel, founded by Montrealer Dov Charney in 1989, built its brand on risqué advertising and a “sweatshop-free” philosophy, with manufacturing based in the U.S. At its peak, American Apparel had 280 stores in 19 countries. The fate of the company’s manufacturing and distribution facilities in the Los Angeles area is now in the hands of the proposed purchaser of American Apparel’s assets, Gildan Activewear SRL. Since Gildan proposed the acquisition with an announcement last month, the company's shares have been outperforming its industry peers and as well as the S&P 500 Textile & Apparel Index.

Gildan will purchase American Apparel’s intellectual property, including trademarks “American Apparel,” “Classic Girl,” “Standard American,” “Classic Baby,” and “Sustainable Edition.” Gildan has the option (but not the obligation) to purchase American Apparel’s manufacturing, distribution and corporate headquarters located in Garden Grove, La Mirada, South Gate, and downtown Los Angeles. However, all are not so rosy as it seems, as Gildan as a company has previously been noted for their poor working conditions, that they were said to practice in their manufacturing hubs located outside North America.

American Apparel filed their  first bankruptcy case on Oct. 5, 2015 and sought to reorganize its finances by converting most of its secured debt ($200 million) into equity, new financing in the form of $40 million in new capital, and anticipated additional borrowing of $40 million. However, the $40 million in anticipated new financing never materialized, and American Apparel suffered a 32.77 percent decline in sales compared to the prior year, admitting in bankruptcy filings “the turnaround strategy contemplated in the Prior Plan had completely failed… It became clear that maintaining the Company’s operations as constituted was no longer realistic.”

Other factors the company cited for its decline were its inability to track and plan its product acquisition and merchandising process, failure to improve its e-commerce (American Apparel’s online sales constituted 10 percent of its sales compared to the industry average of 20 percent), quality control issues, and the lack of a unified and consistent marketing plan.

After filing its second bankruptcy petition on Nov. 14, American Apparel obtained bankruptcy court approval to borrow up to US$30 million in revolving loans to fund payroll, rent, and other operating costs during the pendency of its bankruptcy case.

Although Gildan is the stalking-horse bidder, the bankruptcy auction process allows other qualified bidders to make a bid for American Apparel’s assets. In the event there are other bidders, an auction of its assets is scheduled for Jan. 9, 2017 and a court hearing to approve the sale is scheduled for Jan. 17.

 

 

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