After filing for Chapter 11 bankruptcy twice in 13 months, American Apparel now may have a future with Gildan Activewear. That future, however, experts say, may still be uncertain.
As PYMNTS reported, American Apparel showed signs of trouble back in October. At the time, some rumored interested parties for buying the clothing brand included Authentic Brands Group LLC, Iconix Brand Group Inc., Sequential Brands and investment firm B. Riley & Co. As recently as last week, AA abandoned more than a dozen of its stores in the U.K., dropping off barely enough products for the holiday shopping season. AA has more than 115 stores in the U.S. still.
But issues have stemmed from a longer history. AA has seen diminishing consumer interest and a global PR scandal centered around its founder and former CEO, Dov Charney — some saw criminal sexual harassment, others saw it another way. In December, Charney attempted unsuccessfully to buy back his company. The following April, AA emerged from bankruptcy.
But as with the first time AA went through bankruptcy, it missed its first two required payments, totaling $2.5 million. Now, court filings show that the brand’s turnaround strategy failed, as AA reported a decrease of a third in same-store sales for its third quarter this year.
Gildan’s announcement, however, has limits. The agreement includes buying the intellectual property rights of AA for $66 million in cash but not the AA retail store assets. AA listed assets and liabilities between $100 million and $500 million, with cash slated to run out before 2017 begins, which has experts betting that stores won’t be open much longer.
Some experts say Gildan is giving AA a reasonable chance for maintaining some value within the AA brand. That said, the deal is subject to decisions made in bankruptcy court. In addition, the court may require that AA host an auction for its assets.
Gildan, which is known for producing basic clothing, like socks and t-shirts, has expressed confidence in getting the deal done, with a major component in this transaction being keeping the manufacturing in the U.S. and more so in Los Angeles. Gildan does, however, also produce larger brand products for Under Armour and New Balance.
Meanwhile, Charney said he is working on his next clothing venture.