The Los Angeles firm’s second bankruptcy filing Monday, paired with the announcement that Montreal-based Gildan Activewear Inc. has proposed to pay $66 million for the intellectual property and some of its assets, leaves many questions about what’s to come of American Apparel’s workforce.
Craig Simmons, the company’s head of human resources, attempted to stave off fears of any mass cuts Thursday afternoon in a letter sent to workers with updates on the possible sale to Gildan, which becomes the stalking horse bidder in a bankruptcy auction that has the potential to shake loose additional suitors for the firm, along with a buyer for the company’s retail operations.
Simmons, American Apparel chief executive officer Chelsea Grayson and head of supply chain and manufacturing Kurt Messenger toured the company’s facilities this week with Gildan executives as the Canadian firm begins a facility review process that will lead to decisions about what shape the business would take if a Gildan deal goes through.
“I realize that there is some uncertainty right now, so I wanted to make one thing very clear: you are the key to keeping the business running until we are able to close a deal that secures American Apparel’s future,” Simmons said in his letter to employees. “You are who the management team has always relied on, and who we hope to continue to depend on through this process. Each one of you is American Apparel.”
Simmons also confirmed salaries, hours and benefits would not change and confirmed the stores remain open with “ongoing discussions about what the retail business will look like in the future.”
What happens with the workforce rests on the outcome of the sale, with some 3,457 workers across the company’s downtown Los Angeles headquarters, South Gate cutting and sewing facility and Garden Grove knit and dye house alerted seven days before the bankruptcy and Gildan deal announcement of possible facility closures, according to filings made with the state’s Employment Development Department Nov. 7 and an internal letter obtained by WWD that was sent out to headquarters workers that same day.
A spokeswoman for the firm called the notices “a precautionary measure in case of workforce reductions associated with a potential transaction,” given the uncertainty of the sale’s terms.
If all or some of those jobs are lost, the question then is whether Los Angeles’ apparel manufacturing industry can absorb some or all of those jobs.
Ilse Metchek, president of the California Fashion Association, expressed some doubt.
“Manufacturers for the most part are looking elsewhere than L.A. That’s a fact,” she said. “These [American Apparel] workers, for the most part, are used to large factory, automated operations. What we do have in Los Angeles and, successfully, are smaller boutique operations where there’s not more than 20 machines and they are cross-trained and do everything in that factory, from sewing buttons to putting on waistbands. That’s not the structure of a corporate factory.”
Gildan spokesman Garry Bell confirmed to WWD Monday the company is considering taking over the leases on the South Gate and Garden Grove facilities but the downtown headquarters — where the bulk of the workforce is located — is not part of the sale agreement beyond some equipment in the building. He also confirmed there are no provisions in the agreement related to American Apparel’s workforce but also tempered that with the reality that the bankruptcy and sale process have only just begun.
“The short answer is we really don’t know at this point without having gone through the evaluation [of the assets] and have the bankruptcy run its course,” Bell said when asked what Gildan plans to do with the employees. “It’d be premature for us to give any kind of direction in relation to the workforce.”
Sources close to the company said Thursday manufacturing is now part of the Gildan deal across the company’s three remaining factories in addition to consideration of the distribution center in La Mirada. That’s alongside bids being considered on the retail component of the business.
Gildan currently has no manufacturing presence in the Los Angeles area, with yarn-spinning facilities in North Carolina and Georgia, a dye house in Massachusetts and socks and sheers facilities in Montreal and North Carolina. The rest of the manufacturing operations are scattered throughout Central America, the Caribbean, Mexico and Asia.
Meantime, the American Apparel bankruptcy process rolls on with the judge overseeing the company’s case today signing an order allowing it to tap on an interim basis $10 million of $30 million in debtor-in-possession funding from Encina Business Credit LLC until a final hearing occurs as it gears up for an auction.
And then there’s always the Dov Charney factor. The American Apparel founder and former ceo, who aligned with others to try to buy the company twice — once just before his firing for $550 million and another bid following his ouster for $300 million. Charney was vilified among some camps as the vehicle that got the company into its mess — something he has vehemently denied — but he could always turn into the white knight of this saga. Although, even he has doubts about such an outcome.
Charney, reached by phone Wednesday, said he’d consider making a bid if he could align with partners who would give him half the company and another half if he met certain performance targets. In other words, a scenario so outlandish as to be more than unlikely.
“If it was an unbelievable deal,” he said. “But no one’s knocking on my door.”