American Apparel filed for Chapter 11 bankruptcy protection for the second time in just over a year on Monday.
The beleaguered retailer also agreed to sell the intellectual property rights related to its brand and some assets to Canada’s Gildan Activewear for $66 million.
American Apparel, an iconic Los Angeles-based retailer known for its racy advertising, just emerged from its first bankruptcy in February. It has struggled to overcome a difficult split with founder and CEO Dov Charney, tumbling sales and steep losses. In September, chief executive Paula Schneider resigned, apparently unable to turn things around after Charney’s ouster.
Gildan, which owns brands like Peds and Anvil, will not be purchasing any of American Apparel’s physical stores. It said it plans to integrate American Apparel into its printwear business and will separately purchase some inventory to ensure a smooth transition.
The bankruptcy process will allow American Apparel to put its stores up for auction and it’s possible a bidder could come in with a better offer and beat out Gildan. However, assuming that Gildan continues to be the preferred buyer, the deal is expected to be completed during the first quarter of 2017.
In the meantime, American Apparel plans to continue running its U.S. business as normal and said there would be no noticeable changes to the day-to-day operations of stores, according to a letter to employees obtained by Forbes. It will also seek to keep its manufacturing operations in California. (It’s a different story in the U.K. and Europe, where American Apparel appears likely to shutter its stores.)
American Apparel is far from the only retailer to experience hardship amid intense competition from online stores and declining foot traffic at malls, with companies like Aeropostale, PacSun and Sports Authority also tumbling into bankruptcy.
However, the retailer has also had to contend with steep legal bills tied to Charney, who was fired in 2014 amid allegations of sexual harassment and misuse of corporate funds. Charney, who founded the company in 1998 and built it into a global business with some 200 stores, has since tried and failed to buy the company back.
According to court filings, sales have fallen by about a third since American Apparel emerged from bankrtupcy earlier this year, and the company’s debtors were borrowing more than $2 million a week to keep the business afloat.
Here’s the full text of the letter sent to employees on Monday:
The Board of Directors and senior management of American Apparel have reached an agreement to be acquired by global apparel holding company, Gildan Activewear Inc. (also known as “Gildan”). We are confident that this decision is the best strategic move forward, in order to preserve the legacy of the American Apparel brand.
Gildan is one of the largest domestic consumers of U.S. cotton, and is a leading manufacturer and marketer of quality branded basic family apparel, including T-shirts, fleece, sports shirts, underwear, socks, hosiery and shapewear. Gildan is also invested in U.S. manufacturing. They own and operate vertically-integrated, large-scale domestic manufacturing facilities, offices and distribution centers and employ over 2,500 people here in the U.S.
Recently, Gildan purchased Alstyle Apparel, which is based in Southern California, like American Apparel. As part of that deal, Gildan continues to employ people in Alstyle’s administrative offices and distribution center. Similarly, Gildan has asked for the opportunity to maintain certain of our manufacturing, distribution and warehouse operations in and around Los Angeles.
In order to provide for an orderly sale of the business, American Apparel filed voluntary Chapter 11 bankruptcy this morning. Although we have reached an agreement with Gildan, filing with the court allows us to hold an auction process, where other buyers who might propose a better deal than Gildan’s, can submit competing offers, including for the retail business. Ultimately, we will be able to get the best deal done, by requiring various other bidders to compete to buy our iconic, valuable brand.
The competitive sale process I have discussed above will take some time to complete. Throughout this process, the Company will run its business as usual in the U.S. This will have no noticeable effect on our day-to-day operations in the U.S.
I’m sure you have many questions about what this means for you. In the short-term, there is still work to be done. Everyone will continue to come to work, do their jobs and get paid on each payday. Wages, hours, and benefits will remain the same.
Later this week, you can expect a more detailed communication from Craig Simmons, our head of Human Resources, who will give you additional information and further updates. In the meantime, you may reach the Human Resources Department at any time with any questions you may have.
We will continue to update you as we move forward. As always, we thank you for your continued dedication. I know we all care deeply about the Company and want the best for American Apparel.
Chairman of the Board