American Apparel (APP) has filed for bankrupsy this morning. It has failed to turn a profit since 2009. Like many other designer brands that once dominated the market among teenage and young adult high-end clothing, its business has been severely weakened as young people’s tastes have changed much faster than the brands can keep up.
And with fashion, once your brand begins to go out of style, it can be nearly impossible to recover. American Apparel has been a stand-out among its peers for two reasons: first, it is one of the only clothing manufacturers to still produce all its wares in US factories, which it uses extensively as a selling point.
The second is its sexually charged advertising, and scandals. The advertising may be par for the course among its rivals, but the scandals are not. Founder and former CEO Dov Charney attracted several sexual harassment lawsuits turing his tenure, which is one of the biggest reasons he lost his post. Other charges include misusing company funds, and assisting with defaming former employees.
The company will continue to operate normally during the bankrupsy, including maintaining its US manufacturing, as it works to convert its debt into equity (trading outstanding bonds in the company for stock), and find new buyers. The operations will likely affected in the long run, but it is not yet clear how.
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