American Apparel seeks buyer, prepares for second bankruptcy

American Apparel has been no stranger to strife.

The retailer, which has grown notorious for its provocative ads and corrupt leadership, is rumored to be in talks with potential buyers to strike a bankruptcy deal. American Apparel filed for Chapter 11 bankruptcy last month, its second bankruptcy in two years. It simultaneously announced plans to keep its production in Los Angeles, despite ongoing challenges including high labor costs.

The company has been grappling with how to hold on to its costly “American-made” label amid a net loss of $384 million over the last five-and-a-half years—and its efforts have grown increasingly challenging. 97 percent of the world’s clothing production now occurs overseas, including that of brands like New Balance which previously boasted domestic production.

On Tuesday, the retailer announced that it will reduce operations in the U.K. It’s part of a plan established in 2015 to cut spending by $30 million over the course of 18 months by closing low-performing stores. In January, it parted ways with founder Dov Charney, following several complaints of sexual misconduct and money laundering. Since American Apparel’s first bankruptcy in 2015, it has been owned by a group of hedge funds led by Monarch Alternative Capital.

In an attempt to revitalize the brand, American Apparel has entered discussions with at least two potential bidders, including brand licensor Sequential Brands Group Inc. and financial services company B. Riley Financial Inc., according to Reuters. This comes after initial negotiations with Authentic Brands Group earlier this week began to slow. As a result of the bankruptcy declaration, prospective bidders will sidetrack millions of dollars in liabilities.

Elizabeth Elder, analyst at L2, said the latest efforts by American Apparel to identify a buyer aren’t particularly shocking, given the disparaging state of teen retailers. In May, Aeropostale announced it was filing for bankruptcy protection and closing 100 of its 800 stores. At the same time, its quarterly sales fell by 16 percent.

Meanwhile, Abercrombie & Fitch has strived to adopt a new identity that better resonates with young consumers. Such efforts have included revamping its Instagram account with fresh messaging. “Coming off the heels of a sluggish retail year — and a particularly brutal round of bankruptcies from teen retailers — it doesn’t come as much of a surprise that American Apparel is struggling to find a buyer,” she said.

She added that American Apparel struggles in that it lacks the allure of a luxury brands when enticing buyers. “American Apparel doesn’t have any luxury cache to bolster its brand,” said Elder. “The company hasn’t made any moves to revitalize its brand and the accusations against Dov Charney have had a lasting effect on the brand’s image.”

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