American Apparel files for bankruptcy protection

THE racy clothing brand founded by a man who allegedly wore his underpants around the office has filed for bankruptcy. So is this the end for American Apparel?

Jackie O'Shaughnessy for American Apparel.

EDGY clothing chain American Apparel has filed for voluntary bankruptcy under pressure from falling retail sales, huge debts and legal battles involving controversial founder Dov Charney.

The filing was announced in a statement on the company website and includes a deal with 95 per cent of its lenders to reduce debt in a restructure that is expected to take six months and “revitalise” the brand.

It claims the 9000 employees will retain their jobs and international stores and manufacturing will not be affected in the 19 countries it operates in. Chief Executive Officer Paula Schneider said in a statement the move will enable them to become a “more vibrant company”.

“By improving our financial footing, we will be able to refocus our business efforts on the execution of our turnaround strategy as we look to create new and relevant products, launch new design and merchandising initiatives, invest in new stores, grow our e-commerce business, and create captivating new marketing campaigns that will help drive our business forward,” she said.

Dov Charney was ousted from the company over allegations of sexual harassment by staff. Picture: Keith Bedford/Bloomberg

It’s a blow for the racy retail giant that has built a reputation on its Los Angeles-based manufacturing and hyper sexual advertising that has led it to carve out a niche in high streets around the world.

However the antics of founder Dov Charney, who started the company in Montreal in 1989, have also damaged the brand leading to headlines such as “Sexy marketing or sexual harassment?” after he admitted under oath he “frequently” drops his pants in the office to “show people my new product” and reportedly conducted meetings wearing nothing but a sock — not on his foot.

Charney was ousted from the company in June 2014 amid allegations of sexual harassment including a lawsuit from former employee, Irene Morales, who accused him of saying he would make her his “sex slave”. An internal investigation found Mr Charney had misused company money and allowed a staff member to post naked photos of another employee, The New York Times reports, however Mr Charney says the conclusions are unfounded.

The company has also been subject to immigration raids which forced bosses to fire 1800 people after irregularities in identity documentation in 2009. Meanwhile embarrassing leaks of internal documents revealed full body photographs are required for job applicants along with exacting standards for employee grooming circulated via company-wide email.

American Apparel’s advertising campaigns are renowned for their racy style.

The scandals, coupled with Mr Charney’s decision to launch lawsuits of his own for defamation and a conspiracy that forced him out, have taken a huge toll on the brand at a time when it is facing intense competition from giants like H&M and Zara.

In July executives announced American Apparel would close stores and cut jobs. This was followed by a warning last week from the New York Stock Exchange who said it was at risk of being delisted due to dire finances.

The decision to file for bankruptcy is expected to give the company “breathing room” to get things in order without the threat of lawsuits and interest payments, according to the New York Times.

Ms Schneider told the organisation on Sunday: “Our debt load simply wasn’t sustainable. You can’t do a turnaround plan without cash.”

“Every day, we would make choices on what we were going to buy, even though we needed more for everyone. Every day, I have to pick between what I’m buying for retail or wholesale, or giving e-commerce enough money to develop a mobile app.”

Mr Charney has not commented on the decision to file for bankruptcy.