American Apparel files for chapter 11

Published: October 30, 2015

Business Correspondent

American Apparel had its humble beginnings as a wholesale brand; it would sell its designs to other brands. Gildan is a popular brand for this today and is used on many University t-shirts. Eventually, American Apparel became a full retail store, opening up brick and mortar, as well as online. Their rise to prominence was through a series of racy ad campaigns and a product that proudly asserted, “Made in America.” Now, unable to keep up with their competitors, like H&M and Zara, American Apparel has filed for Chapter 11 bankruptcy.

Chapter 11 bankruptcy sounds bad, but it does not mean that American Apparel is going anywhere soon. Chapter 11 is typically used for a period of reorganization, and control of the company will go to the creditors, since American Apparel has been unable to pay off its debts. In the second quarter of 2015, net sales dropped 17.2 percent and gross profit was down 25.3 percent. In filing for this type of bankruptcy, they will have extended time to turnaround a profit, which they forecast will happen by 2018. If this becomes the case, it will be the first year of profit since 2009 for the company. The stock is currently trading at about 11 cents, and for obvious reasons I would look to other retailers this holiday season.

Here at The University, American Apparel is fairly well known, yet not fairly well owned. In conversation with two fashion-conscious students, there seems to be a few reasons for this. Jonathan Cerchione, a sophomore here at The University, stated he was aware of American Apparel as a brand, yet never made an effort to shop there, much preferring PacSun. Adrian Laudani, also a sophomore, likes the brand, but has always been unable to find something worth purchasing over her favorite brand, American Eagle. Both students stated that the American production was a positive, did not outweigh the added price increases. American Eagle operates almost one thousand stores in several countries, and PacSun operates over six hundred. In relation, American Apparel had about three hundred stores open for business. Jonathan mentioned that since PacSun was in every mall in his area and the prices are reasonable on a college budget, he more often went there. The same is true about American Eagle.

American Apparel and American Eagle both have the word ‘American’ in their titles, yet only one is made in America. Recently, American Apparel had to squash rumors that it was possibly expanding production to South America, which would go in line with a need to cut costs. On the other hand, American Eagle holds manufacturing in numerous countries, but has an FAQ page on their website detailing the conditions of the workers and addressing sweatshop and child labor concerns.

American Apparel has attempted to be in public favor by appealing to a sense of nationalist pride, but a college demographic and prior economic downturn has served to mitigate any potential growth. Coupled with bad publicity from top executives, the domestic brand may be unable to stick to its roots and compete with current fashion industry powerhouses. The taste of college students is trendy, affordable and the everyday go-to University of Scranton hoodie. Without a myriad of changes, American Apparel will need more than an American gold rush to see green.

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