Clothing Company Struggling

American Apparel, the clothing chain known for its racy advertising and eclectic leggings, is on the brink of bankruptcy it has been revealed.

The fashion retailer has warned it might not be able to continue trading because of debts and trading losses.

Unless sales in American Apparel's 279 worldwide stores suddenly improve (and at present they are down 16 per cent on last year), the firm will breach the terms of an $80m loan provided by the British company Lion Capital in March 2009 to rescue it from another financial crisis.

That would force it into receivership, threatening the jobs of 10,000 employees in 20 countries.

The group’s share price dived when it emerged that Deloitte & Touche quit as American Apparel’s auditors earlier this summer, after allegedly finding “material weaknesses” in the firm's financial controls.

As a result the company is facing an investigation by the US attorney's office regarding why the Deloitte & Touche resigned. A newly appointed auditor Marcum is completing a review of the accounts. 

American Apparel, which has more than 280 stores worldwide, and 14 in the UK, have now warned of losses of up to $7m (£4.5m) for the three months to June.

And the retailer, which makes all its clothing in downtown Los Angeles, now has debts totalling $120m, admitted that it is currently losing money at a rate of nearly $30m a year. 

The fashion retailer previously hit headlines when 2,000 shoppers descended on a London store sale prompting a rummaging riot which injured 10 police officers.

The group has attracted controversy since its creation. Dov Charney, the company's chief executive, also its largest shareholder, has been repeatedly sued for sexual harassment and the company has faced several problems in recent months from underperforming results due to mass lay-offs of illegal workers.

Last year, film director Woody Allen successfully sued American Apparel for $3.3m after it used his image in an advert without permission. 

Posted at 04:00PM Aug 25, 2010 by Marc Stenton in Insolvency  |  Comments[0]