LOS ANGELES — American Apparel’s future is increasingly uncertain with employees at the company’s Los Angeles headquarters warned of a possible shuttering of the business on Nov. 7 as the specter of bankruptcy looms for its European workers.
A letter, obtained by WWD, and sent to employees at the company’s headquarters and factory raises the likelihood that a sale process could lead to the closure of some of the business’ operations. The troubled company, which last month saw the departure of chief executive officer Paula Schneider, began shopping for a buyer earlier in the year.
The letter said “it is likely that the potential purchaser(s) of the company will not wish to continue manufacturing operations or to maintain corporate operations that support the company’s manufacturing, wholesale or retail divisions.”
If such a deal is reached, American Apparel “might begin the process of permanently ceasing operations and significantly scaling down operations at its headquarters/factory” in a move that would take place within the next 60 days.
A spokeswoman for the company declined comment.
Sources close to the company said American Apparel is evaluating multiple suitors with one of those likely to emerge the winning bidder in a deal involving the purchase of all of the company’s assets, which would encompass retail, wholesale and manufacturing. Those sources said the letter sent to employees today was a legal precaution but that the business has a good chance of continuing on after a sale.
Iconix Brand Group Inc. and Authentic Brands Group are two names that have emerged in recent months as interested parties in the business.
Questions about American Apparel’s European operations have also emerged with sources at the company confirming product shipments into the region stopped, effective Nov. 5, as that arm of the business weighs a possible bankruptcy.
The European business, which does not include the U.K., totals about 30 stores and employs as many as 400 people. Executives there say the business is healthy but faced headwinds from its customer base when the new management team that replaced founder and former ceo Dov Charney began introducing more fashionable styles at a rapid clip rather than remaining true to its core basics and more slowly introducing a new design direction to shoppers.
The company’s spokeswoman also declined to comment on the European business.
It’s been one hit after another at American Apparel since the firing of Dov Charney in 2014, when he was essentially terminated twice that year from the firm. Charney received a letter of the company’s intent to terminate his employment contract first in June 2014, followed by his official firing in December of that year when the company announced the appointment of Schneider.
Charney contends the overseas units all had positive earnings before interest, taxes, depreciation and amortization at the time of his June 2014 ouster.
“They stole control of the business from me and they proceeded to crash the company,” he said. “The business was not performing on this trajectory when it was taken from me. There was no chance. When they took over in December 2014, they said there was no chance of bankruptcy.”
Indeed, management at the time appeared optimistic that the business needed new direction and could be improved. Charney was painted as an incompetent micromanager who lacked a basic planning department. Schneider promised to reduce the company’s stock-keeping units and rid the company of slow-moving styles in clearance sales among other tactics. The business struggled under the weight of debt amid little traction on the turnaround strategy and filed for bankruptcy about a year ago, emerging from it in February of this year.
The business has continued to remain challenged. In October, the company auctioned off the equipment in its Hawthorne dye house. Now, speculation has emerged a sale could send American Apparel back to bankruptcy court again.