Retail Industry Trends: American Apparel Bankruptcy

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LA-based retailer American Apparel filed for Chapter 11 bankruptcy protection on October 5, after recent struggles with lawsuits and escalating debt. Revenue has declined for four quarters in a row, and and net losses have exceeded $340 million over the past five years.

Ongoing retail industry trends could make it difficult for American Apparel to return to profitability. The substantial market decline may be due in part to the agility and popularity of American Apparel’s competition in fast-fashion retailers, such as Zara and H&M. Millennial consumers are drawn to the modest prices and rapid turnover of fast-fashion styles, which allow them to acquire the latest seasonal looks without a huge financial commitment. Recent retail statistics indicate that American Apparel isn’t the only traditional retailer facing a challenge from fast fashion: according to research from Forbes, Gap Inc’s market share has declined from 5.1% in to 4.7% over the past five years.

The bankruptcy filing is only the most recent difficulty for the struggling retailer, which faced major controversy last year when its then-CEO, Dov Charney, was accused of sexual harassment and misuse of corporate funds. American Apparel fired Charney in December 2014, who subsequently filed a $30 million defamation suit in May of this year.

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The company announced that it has established a restructuring support agreement with its lenders and plans to undergo a restructuring that will allow it to revitalize its omni-channel retail strategy. Paula Schneider, American Apparel’s CEO, said, “This restructuring will enable American Apparel to become a stronger, more vibrant company. By improving our financial footing, we will be able to refocus our business efforts on the execution of our turnaround strategy as we look to create new and relevant products, launch new design and merchandising initiatives, invest in new stores, grow our e-commerce business, and create new marketing campaigns that will help drive our business forward.”

American Apparel currently has 227 retail stores, half of which are outside the U.S. The company also operates a retail e-commerce site that operates in more than 50 countries. All garments are designed and manufactured in the company’s factory in downtown LA.

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