Rise and Fall of American Apparel

This past Monday, American Apparel (NYSE: APP) filed for chapter 11 bankruptcy due to years of financial loss, litigation, labor unrest, and a war with its fired CEO and founder, Dov Charney. The downfall of American Apparel can be attributable to Charney as he allegedly had sex with a former employee, masturbated in front of a female journalist, and sent sexually explicit text messages to his staff. Many people have described him as a "perverted, incompetent individual who does not know how to lead a company." These series of events caused him to be fired last December. In backlash, Charney sued American Apparel for $20 million for defamation. American Apparel prides itself on all clothing being manufactured in Los Angeles rather than abroad. The company has created over 10,000 jobs in the United States, but many critics argue that is the biggest reason for their continuous financial loss. California's minimum wage is $9 which results in $1,440 monthly wages. In Bangladesh, it would cost the company $68. The bankruptcy plan is extremely comprehensive and intended to turn the company around. American Apparel does not plan to close any of their 260 stores or lay off any of their employees. The plan, however, does plan to reduce debt from $300 million to $135 million and cut interest expense by $20 million. The stock has also been delisted from the New York Stock Exchange. While I understand the fundamental reasoning for American Apparel manufacturing clothing here in the United States, I feel that in order to survive in a competitive clothing industry, they need to move manufacturing abroad to achieve better margins and stay afloat.

-- Kevin Dong