It’s not uncommon for businesses who file bankruptcy to fall back into it again. That’s precisely what has happened to the Los Angeles based clothing manufacturer, designer and distributor as they file Chapter 11 bankruptcy for a second time. This marks the second time that American Apparel has filed for Chapter 11 within just one year. The shortfall in revenue due to increased online competition and a lengthy legal battle to oust their CEO in 2014.
Normally when an individual files bankruptcy they must wait at least 7 years until they file again, but this is not the same for businesses filing Chapter 11 bankruptcy. American Apparel just filed bankruptcy in October of 2015 and exited that bankruptcy plan in early 2016. The company quickly ran into financial woes again, listing liabilities that are 5 times higher than assets.
Another large reason that American Apparel has struggled is their target demographic: teens. This demographic of spenders has been notoriously absent from shopping malls in the last few years as other teen retailers who cater to the trends of young shoppers have found out. Wet Seal, Aeropostale, Nasty Gal, and Pacific Sunwear have also been forced to file for Chapter 11 reorganization within the past two years as well.
What lies in store for the retail stores for American Apparel is uncertain. The Canadian Company Gildan Activewear Inc. has agreed to buy the intellectual rights to the brand, but is not planning on buying any of the retail assets.