American Apparel: Dying And Struggling To Escape The Fate Of Bankruptcy Reorganization

The founder who wanted to go out of the house tried to regain power when the company went bankrupt, but was shut down. Dov Charney is not in a good mood at the moment.

In January, the headquarters of American Apparel (hereinafter referred to as AA) received a bid of $300 million jointly issued by a number of investors, including 90 million of the new capital injection and 40 million of the regular loans. Meanwhile, they supported the return of Dov Charney, the founder of the company, at the end of 2014.

But this "olive branch" was rejected decisively by the board of directors.

AA was the fastest growing fast fashion brand in the United States. It quickly accumulated fame with its eye-catching sex suggestive advertising. It was once a favorite shopping place for teenagers in the United States. It expanded to 450 stores in six years.

AA's ads like to play the erotic edge ball. From the beginning, they kept playing in sexual cues and sexual elements.

Its advertising word "Be yourself; Stay your own style" advocates its own longing, its own world and its hobbies.

Although all advertisements in AA are amateur models (mostly employees or customers of the company), the effect is not the same. Each model has a youthful flame, a beautiful young face, and a sexy and provocative pose, which is very stimulating to consumers.

For example, in an advertisement, the female model Max was naked on the upper part. Only a row of words "Made in Bangladesh (Bangladesh made)" was printed on the chest to block the "key parts". The media rebuked the advertisement "too absurd".

In another advertisement, a young woman in a short skirt is bent down, her underwear and her lower body are clearly visible, and the result is banned by the British advertising standards authority.

Over the past 20 years, AA has been controversial because of its bold style, highly provocative advertising and selling naked models from time to time.

But the creative director, Iris Alonzo, explains that AA's advertisements are complimentary to women. The images of women in their photos do not show much modification and show their true colors. These are all to show the beauty of the image of women and to appeal for the rights of women.

In early October 2015, AA announced bankruptcy protection and a comprehensive debt restructuring.

Although the company said that during this period, the global store operation, including China, will not be affected, but according to the Beijing business daily, AA stores in China are offering "2-5 fold" and "discount 50 percent off" promotions. The official website of AA also produced slogans of "500 new models, official websites and stores are all as low as 80 percent off", and over 90% of the products are over 50 percent off.

Analysts believe that this may be to clean up inventory.

To say why AA will take the route of sexy marketing, I am afraid it has a great relationship with the preference of founder Dov Charney.

The Canadian who came from an art family was a man of bold mind and bold adventures, and was called "hungry and eager to be noticed" by his friends.

His sexy line designed for AA is a reflection of his own ideas. He told the The Outlook Magazine reporter: "work and pleasure should be mixed. Sex is the driving force of everything and it motivates me.

Sex has brought people closer. It has stimulated the close relationship between people and worked closely together to make the work more creative.

He used to receive thousands of sexy photos every day, and endless girls came to see him wearing mini skirts and asked him to work for him.

Under his lens, the girls can either lie in bed or curl up in the sofa or bathe. The girls can only wear a pair of stockings and an underwear.

This style of Dov Charney has repeatedly been accused of sexual harassment, which severely damaged the brand image.

With the sexy marketing no longer works and the financial burden brought by a large number of physical stores, the pressure on the survival of the company is bigger and bigger. The change of AA is imminent.

At the end of 2014, Dov Charney again fell into a scandal of sexual assault and was accused of misappropriating public funds and other "misconduct".

In order to save the AA in distress, the board finally sacked Dov Charney and appointed.

For the new CEO, she became the first female CEO in the company.

Compared with Dov Charney, who calls herself a "dirty guy", Paula Schneider is really a perfect woman.

She has won the spirit award of the American Women Entrepreneurs Association, or the top fundraiser of AVON's fight against breast cancer. She is keen to promote the development of women's affirmative and anti maltreatment movements.

After the new official took office, he resolutely decided to abandon the previous sexy line and reshape the brand image.

In addition, AA will close a series of deficit stores, streamline business and change management mode.

However, the serious financial crisis made Paula Schneider.

From 2010 to the end of 2015, the total amount of the company's losses totaled US $338 million, and the stock price fell by 70% in two years.

In March last year, the company borrowed $15 million from the private equity fund Standard General, while a 14 million dollar bond interest needed to be repaid.

The new CEO realizes that AA needs to be reformed. In the regional revitalization plan list, it touches on infrastructure, cost control, retail store productivity, e-commerce optimization and so on. But all of these require a lot of capital investment, and AA can hardly be overlooked.

Although Paula Schneider believes that the company has shown signs of improvement, its products in 2015 are better than in the same period last year, and the comprehensive pformation of e-commerce operations is also in progress.

She even stressed that the AA brand was "extremely strong", but it was all too late.

In the first half of 2015, the company still made a loss of more than $90 million.

In its heyday, the market value of AA rose to $1 billion, and today it is between 180 million and 270 million dollars.

In December 2014, AA consulted Moelis Company, an investment bank, whether it wanted to seek acquisitions, or continue to borrow to expand production, or to repay debts through other means.

Finally, a total of 18 legal persons were invited to assess the company's assets, but everyone thought that AA had no profit and refused to lend a helping hand.

At present,

A restructuring plan is under way, which is expected to last 6 months.

This will help the company reduce its $300 million debt to $135 million, and during this period, global store operations, including China, will not be affected.

It is expected that after bankruptcy reorganization, it will resume sales growth in fiscal year 2016 and make a profit of 6 million dollars from 2018, and net profit in 2020 will reach 23 million 700 thousand dollars, surpassing the highest recorded in 2007.

And the annual sales will rise to $615 million 970 thousand.

According to the analysis report completed by Moelis & Company, if the AA can complete the reorganization and achieve the above financial objectives, its valuation will rise to 1.8 to 270 million dollars.

After declining the offer offered by the founder Dov Charney, AA held a bankruptcy hearing in the Delaware court in January 20th.

The current bankruptcy reorganization scheme will convert more than $200 million of debt into equity. At the same time, senior bond holders headed by Monarch Alternative Capital LP will be fully controlled, and all shareholders, including Dov Charney, the largest shareholder, will have nothing.

Most of the creditors, including the unsecured creditors Committee, voted for the scheme.

Comparing the fast fashion brands such as UNIQLO, H&M, GAP and other fast developing brands in recent years, the dilemma of AA is inevitably caused by its own reasons, and whether the bankruptcy reorganization can help them get out of the mire and reorganize itself is still a test of time.