American Apparel

Bad past management, bad weather and bad inventory levels were all blamed at different points throughout last year for much of American Apparel’s bleeding balance sheet. Monday’s decision by a Delaware bankruptcy court judge to confirm the Los Angeles firm’s reorganization plan will allow it to emerge as a private company in a $230 million debt-for-equity swap with $40 million in exit financing and a $40 million asset-backed facility.

“This just gives us the opportunity to move forward and not be encumbered by a protracted bankruptcy, so for us it’s gone through very quickly in the scheme of things,” chief executive officer Paula Schneider told WWD Monday afternoon. “What it does allow is the freedom to move forward now [and] the ability to have some liquidity that we desperately need and make American Apparel stronger.”

The bankruptcy court’s approval of the plan paves the way for a new chapter in American Apparel’s history, one during which company watchers will await a turnaround while excuses from the past can no longer be used. The biggest, and perhaps loudest of those excuses, being its founder and fired ceo Dov Charney, who waged war against the current management team and hedge fund Standard General last year in an attempt to win back the company he alleges was stolen from him in a conspiracy to sell American Apparel. He most recently attempted to stitch together a deal with two investment firms that offered some $300 million in a bid ultimately rejected by the board. His cause gained momentum last year among supporters — current and former workers — who staged a number of protests outside company headquarters. The unrest appears to have subsided, with Schneider pointing to the dwindling number of protesters.

The judge’s decision could be appealed, but such a move is not likely, said Charney, who was reached by phone Monday. That route would be costly and the onus would be on his legal team to prove the bankruptcy judge committed a clear error in his ruling, according to Jasmin Yang, an associate in the Los Angeles office of Snell & Wilmer.

American Apparel’s story is hardly an anomaly and offers a glimpse into the current industry landscape, Yang said.

“It’s a great example of what’s going on right now in terms of the retail marketplace when you have places with too many locations or underperforming locations. Kitson is another example. It’s a sign of the times,” she said. “Luckily for American Apparel, they negotiated with their bondholders and they walked into court on day one with a plan that the most important parties in the room were going to agree to.”

It’s now a matter of the plan being put into practice and the foundations and processes Schneider said were implemented last year being put to good use.

“This takes a while,” she said. “It’s a balancing act.”

She referenced the slow-moving merchandise in stores — about 40 percent — that will continue to be a drag on the retail business. Spring will see the introduction of 125 to 135 new pieces, with fall adding more than 150 new styles in hopes of gaining back customers who grew tired of seeing the same product in stores.

She said it’s too soon to say whether comparable sales might begin to grow in the back half of this year but “we will start to see some lift in the trend.”

“The trend for e-commerce is OK. The trend for wholesale is fine. You’re looking at a macroeconomic retail slump right now,” Schneider said. “We’re not buoyed by the tide.”

A turnaround is possible with the right offer, consumer, channel and voice, said California Fashion Association president Ilse Metchek.

“If they can put it in the right social media channels with the right voice, and here again it’s not Dov anymore, they can do it,” she said. “There’s nothing in its way except the right voice and getting it out into the right channel.”

Schneider, who celebrated her one-year anniversary at the company last week, said that when she accepted the ceo position she saw herself in it for the long haul and still does so today.

“I expected it be a longer-term gig….Was I expecting it to be this amplified? No, I was not,” she said. “But you couldn’t plan this. You couldn’t make this stuff up.”

Charney, for his part, continued to prefer his way of operating the business, praising it in a nearly 1,500-word tome sent to reporters as a statement following the bankruptcy court’s verdict, beginning with American Apparel’s move in the late Nineties from South Carolina to Los Angeles.

“There were many other things that we did differently at American Apparel, besides manufacturing domestically, where we were ahead of the times,” Charney said. “Whether it was deploying RFID technology in our retail stores, fulfilling e-commerce orders direct from retail stores, or opening stores in emerging neighborhoods before they were recognized as attractive retail markets (just a few examples among many), we were often ahead of the curve.”

The former ceo expressed disappointment with the judge’s decision and reiterated his belief that current management will be unable to restore the company’s financial health under the approved plan. He was cryptic about next steps, while admitting in his statement the long-drawn out battle for the company had reached its end.

“At the end of this saga, I, like the many former stockholders, will most likely be left with nothing,” Charney said. “Despite that, what gives me great optimism are the things I possess that can’t be stolen by a hedge fund — my ideas, values, drive and my passion. To that end I ask that my supporters stay tuned.”

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