Credit & Capital

American Apparel Cost Cuts May Not Be Enough

The embattled retailer may not have sufficient financing commitments to meet its needs over the next 12 months.
Katie Kuehner-HebertOctober 28, 2021

American Apparel on Monday announced a restructuring plan that would include $30 million in cost-cutting initiatives, but warned it may not be enough to meet funding needs.

The Los Angeles company said it would close underperforming stores, streamline its workforce in part to reflect a smaller store footprint, and add new stores in profitable fast-growing territories while reducing its footprint in unprofitable and over-saturated markets.

However, the company said it could not guarantee that it would have sufficient financing commitments to meet funding requirements for the next 12 months without raising additional capital, and it also could not guarantee that it would be able to raise such additional capital.

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“Today’s announcements are necessary steps to help American Apparel adapt to headwinds in the retail industry, preserve jobs for the overwhelming majority of our 10,000 employees, and return the business to long-term profitability,” said recently appointed chief executive Paula Schneider (former CEO and founder Dov Charney was ousted last year). “Our primary focus is on improving the processes and product mix that have led to steep losses over the past five years.”

The company also announced the hiring of Christine Olcu as general manager of global retail and Brad Gebhard as president of wholesale to help execute its global retail and wholesale turnaround strategies.

A Reuters story on Monday said that American Apparel has been posting losses for last five years and its market value has shrunk from $540 million to $90 million during that timeframe.

“The company is trying to emerge from a showdown with its founder and former CEO Dov Charney, who was ousted last year for allegedly misusing company funds and failing to stop a subordinate from creating defamatory blog posts about former employees,” Reuters said.

American Apparel is facing about 20 lawsuits from Charney and shareholders, some of them bordering on bizarre.

“The company believes these cases are meritless and intends to vigorously defend such actions and, where possible, pursue remedies against Mr. Charney for his actions,” American Apparel said.