American Apparel •

American Apparel said it would lay off about 500 workers at several of its manufacturing plants.

American Apparel, which has just dodged bankruptcy two months ago, announced that it plans to cut up to 450 factory jobs in downtown L.A., Garden Grove, and South Gate. The workers’ union broke the news this week.

The L.A.-based clothing manufacturer has already fired 80 factory workers in Garden Grove and said it would slash an extra 150 jobs next week. According to a recent report from the General Brotherhood of Workers of American Apparel, hundreds of sewers, supervisors, and auxiliary personnel are expected to lose their jobs.

But the former workers will receive compensation packages which depend on the years they worked with the company. The union said that the move happened when it was negotiating its position as the sole bargaining entity at the clothing retailer with the National Labor Relations Board.

According to a separate report, the company’s chief executive Paula Schneider told workers via a letter that the manufacturing unit in downtown would be downsized to a single floor. In the wake of the announcement, 100 of 2,600 employees lost their jobs.

Additionally, 75 workers had to be transferred from Hawthorne to Garden Grove after the company shut down a finishing and fabric dyeing unit.

American Apparel narrowly escaped Chapter 11 bankruptcy after a court agreed on a reorganization of the business that in the end transferred ownership of the business to the company’s main lenders. The retailer filed for bankruptcy seven months ago, after being struck with a slump in sales and internal fights stirred by its founder and ex-chief executive Dov Charney.

Ever since, the former CEO has made inroads to get back in the company. But as of recently he said that he would create a new business that will rival American Apparel.

He also said in an interview that his idea of building an American Apparel manufacturing plant in downtown LA has proven extremely beneficial to the district. Additionally, Charney unveiled his plans to base his new business in South Central L.A.

“Downtown L.A., I made it cool,”

he told journalists.

He added that the next site he plans to ‘make cool’ is the southern parts from the 10 freeway, but declined to provide more details on the new business. He only said that employees would no longer work on minimum wage while some of them may even have ownership of the company.
Image Source: Wikimedia

A judge approved a reorganization plan that may help the retailer exit bankruptcy and revive the business.

On Monday, a Delaware bankruptcy judge ok-ed life-saving plan for American Apparel at the request of the company’s senior lenders. The judge, however, dismissed founder and former CEO Dov Charney’s bid to take over the company and revive the business.

Last fall, the chain filed for bankruptcy protection saying that weak sales, an out-of-touch sense of fashion, and scandals over former CEO’s sexual misconduct dashed all chances for it to thrive.

According to the recently-approved restructuring plan, several hedge funds would take control over the company in exchange of the debt American Apparel owes it to them. Additionally, the hedge funds agreed to invest more money into the firm to keep it going.

Charney, who was ousted from the company two years ago, has been making efforts to take over the business with help from a group of competing investors. He harshly criticized the current management board for its poor decisions that led to the company’s bankruptcy.

Nevertheless, the bankruptcy judge rejected his acquisition bid and considered a restructuring plan voted by creditors to be safer. Under the plan, the company’s senior lenders will gain ownership of the business in exchange of $230 million the company owes them.

Additionally, they are to inject $40 million into the company to help it dodge bankruptcy and an extra $40 million for investment purposes. In an 1,500-word letter, the former CEO criticized the decision, accusing lenders of running a “scorched-earth campaign” to prevent him from getting back. He also said that the company was faring better when he was ousted.

He believes that the new organizing plan is a ‘path to ruin,’ and he expressed his concerns over the current management’s abilities to bring the business back to health. He added that in the end, he and other shareholders would walk away empty handed. He also described the hedge funds that are about to take over the company as ‘predatory.’

Analysts believe that American Apparel’s struggles stem from a failing business model which made it uncompetitive against other retailers such as H&M. While American Apparel sells clothing made in the U.S., rivals lure in consumers with cheaper, China-made, but more fashionable clothing.

American Apparel currently has 8,700 employees and 218 stores of which 13 are slated to close down. The company was pondering on filing for bankruptcy since 2011, when sales were already struggling.

Image Source: Wikimedia

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