American Apparel, one of America’s largest clothing manufacturers, is reportedly preparing its second bankruptcy filing in less than two years, a move that could once again impact its real estate footprint, sources said.
“Many retailers have been forced into bankruptcy due to increased competition from e-commerce and reduced traffic at shopping centers,” says Anthony Napolitano, a corporate bankruptcy lawyer at Buchalter Nemer. “In addition to providing large retail chains with the opportunity to effectively terminate leases, bankruptcy also provides the retailer with leverage to force landlords into negotiating more favorable lease terms as such landlords may, depending on the market, prefer reduced rent over a vacancy.”
A spokesperson for American Apparel declined to comment on the bankruptcy or its potential impact on its retail presence. But the company’s first bankruptcy filing may provide a window into what’s in store.
The company, which at its peak was the hipster, made-in-America brand to beat, emerged from that bankruptcy earlier this year with a restructuring that cut its debt and annual interest payments by an estimated $20 million. During the first bankruptcy–which saw founder Dov Chernov ousted from his company–a judge allowed the company to break the leases in several retail locations, as wells as warehouse and manufacturing facility leases across the country. These included underperforming stores for which the company was able to negotiate more favorable lease terms.
The company’s most recent disclosures with the SEC show it operating a total of 227 retail stores in 19 countries, with 136 domestic locations. It had leases on another 13 manufacturing and office facilities, including the iconic 800,000 square-foot warehouse and headquarters in Downtown Los Angeles, according to the documents, filed in 2015. Since then, a number of retail locations across the country, as well as three other manufacturing facilities in Southern California, have closed.
In July last year, following a spat with the landlord, the company was able to renegotiate the lease on its Downtown L.A. headquarters at 747 Warehouse Street, agreeing to vacate part of the building in order to halve its rent.That lease is set to expire in 2019.
Its remaining retail locations have leases that expire at various dates through 2034, SEC documents show. One year ago, there were a total of 36 American Apparel stores in Southern California, 11 of which were in the Los Angeles area. Five have now closed, including the company’s first store in the U.S., which was in Echo Park. The most prominent leases are on Hollywood Boulevard, Melrose Avenue and San Vicente Boulevard.
The loss of bricks and mortar stores may eat into American Apparel’s bottom line. Just 10 percent of American Apparel’s total sales are conducted online, according to SEC filings.