American Apparel Inc. has once again announced that it is flirting with the idea of filing bankruptcy.
"We are currently experiencing significant liquidity constraints," the company said in a regulatory filing yesterday. The chain said that if it can't improve performance or get alternative financing, it may file for bankruptcy. The company also posted a 2010 loss of $86.3 million.
The clothing retail company, founded by Dov Charney has been struggling for at least the past two years. Its revenue fell 4.6 percent to $533 million in 2010 and that's after the company tripled the number of stores in 2009. At the time we were already in a recession, with retail stores taking some hard hits. Some analysts thought the move to expand American Apparel's market share was a mistake and could lead to the need for bankruptcy protection.
But despite those fears, a bankruptcy filing for American Apparel is not set in stone-not yet. And the type of bankruptcy the company would file is not clear. Although a restructuring of their debts could happen in Chapter 11 bankruptcy, depending on the viability of the company, a Chapter 7 bankruptcy liquidation is probably not outside the realm of possibilities.
At this point the founder of the company is funding the enterprise with a large chunk of his own cash. He has invested $2 million into American Apparel in an effort to keep the company afloat and out of bankruptcy. But the fact that he needs to personally fund the enterprise may not be a good sign about how potential investors perceive the company's future.
(source: Bloomberg.com )