By Kari Hamanaka
with contributions from Vicki M. Young
 on January 6, 2017
A bankruptcy court auction will determine the future of American Apparel's store base.

The odds of a white knight riding in to save all of American Apparel LLC’s U.S. stores is looking more and more unlikely as the clock ticks on the company’s bankruptcy process and last-minute bidders mull their options.

New players, including Amazon and Forever 21, are said to have emerged as potential acquirers. All bids are due into the bankruptcy court today. That process marks the beginning of the next phase for the business, which is expected to be radically changed under new ownership.

For American Apparel’s nearly 400,000 square feet of U.S. retail space, along with additional space abroad, it’s already been a slow bleed. WWD has confirmed through workers the planned closures of the company’s stores at the Irvine Spectrum Center in Irvine, Calif., Third Street Promenade in Santa Monica, Calif., and Victoria Gardens in Rancho Cucamonga, Calif. A fourth on University Center Boulevard in Tucson, Ariz., is also expected to close. Those stores are no longer receiving new inventory, according to workers. A spokeswoman for the company declined comment on the real estate portfolio.

A judge in mid-December approved the closure of nine of the company’s U.S. stores.

The timing of any significant real estate sales isn’t the great. Macy’s Inc. is set to close 63 stores in the spring and another 32 over the coming years. Sears Holdings Corp. is liquidating about 30 doors and closing another 150 more. The Limited also has been struggling mightily could shut down operations.

American Apparel filed for its second tour in bankruptcy court in November, less than a year after emerging from its first go through. As part of its latest filing, the company struck a deal with Montreal T-shirt firm Gildan Activewear Inc., which is poised to acquire the intellectual property and potentially some of the manufacturing of the company but not its stores.

But that deal is just a placeholder.

“As we’ve repeatedly shared with employees, personnel plans will not be made until a deal with a buyer is complete,” the company’s spokeswoman said. “Gildan — a leading garment company with whom we currently have an agreement — has expressed a deep interest in retaining manufacturing jobs in Los Angeles. That said, there is still a possibility that another purchaser will prevail at the auction, which is scheduled for Jan. 12. After that, a completed sale of the business would not be finalized until the end of January at the earliest.”

The company closed eight stores in Canada at the end of last year and 12 U.K. stores just before Christmas. Former workers on social media have also confirmed the closures of some stores in Japan and Mexico City.

Stateside stores, such as those in Irvine or Rancho Cucamonga, appear spartan with undressed mannequins in some cases, half-filled walls and sparse rounders of hoodies or sale items. The company’s end-of-year 40 percent off everything sale in store and online, has continued into the new year.

American Apparel last month asked the bankruptcy court judge overseeing its case for permission to hire DJM Realty Services LLC to oversee its real estate portfolio for negotiations with landlords on the termination or restructuring of leases, subleases, extensions on decisions about lease agreements or claims in court among other services. A hearing to review that request is set the same day the court is expected to approve a potential sale.

If Amazon or Forever 21 were to swoop in with a bid, the company and brand could head in an entirely different direction.

Forever 21, with its growth having stalled in more recent years, is more than likely eyeing some of the locations. Lloyd Greif, president and ceo of investment bank Greif & Co., speculated that the firm could conceivably step up to take on perhaps a third to half of American Apparel’s U.S. real estate portfolio.

There is also a chance that companies could partner on a bid.

“You could see any of these [companies] could do it by themselves or they could do it in combination,” Greif said. “Whenever you have a bankruptcy auction like this, people say ‘Do I want to bid this thing up?’ That is certainly a possibility not to be ruled out.”

Observers who are keeping tabs in the American Apparel bankruptcy believe that Amazon could want some of the chain’s stores. Amazon has also been building out a private label business, feeding its growing interest in fashion.

The possibility of the two newest names — Amazon and Forever 21 — partnering on a bid is not as likely as perhaps, for example, an Amazon and Authentic Brands Group joint bid, Greif said.

Others cite ABG’s most recent deal for bankrupt Aéropostale — it partnered with General Growth Properties and Simon Property Group to have them operate the mall stores while ABG kept ownership of the intellectual property assets — as an example of ABG’s flexibility and openness to these kinds of joint venture deals. ABG could also buy the entire company, and then simultaneously flip the parts it doesn’t want — the stores — to an already interested buyer, such as Amazon.

Over the last few months there’s been talk in the marketplace that Amazon was even interested in other properties, such as some Sears’ stores, so it could expand on its brick-and-mortar ambitions. But unlike most firms that would use the floor space to sell things, the thinking is that Amazon really wanted to build out its own set of local warehouses so it can have ready inventory on hand to expand its same-day delivery service, as well a provide a point for pickup of orders placed earlier in the day.

Still, things have a way of turning very quickly in the case of American Apparel.

Color Image Apparel Inc., which emerged in early December as a potential bidder in the firm, took a closer look at the company but industry sources say the firm — parent to the fast-growing Alo Yoga brand along with the Bella Luxx and Bella + Canvas lines — dropped out of the running after completing initial due diligence.