Amazon, Forever 21 vying for bankrupt American Apparel -sources

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By Jessica DiNapoli and Lauren Hirsch

<span class="articleLocation”>Online retailer Amazon.com Inc and teen
apparel store chain Forever 21 Inc are among the companies
weighing offers to acquire bankrupt American Apparel LLC, people
familiar with the talks said on Wednesday.

The bankruptcy auction of Los Angeles-based American
Apparel, which made its branding theme “Made in the U.S.A”, will
determine the future of a major clothing manufacturing plant in
California, one of the most expensive U.S. states in terms of
labor costs.

Keeping jobs in the United States has become a hot button
political issue since the presidential election. Ford Motor Co on Tuesday reversed plans for a $1.6 billion factory in
Mexico and said it would add 700 jobs in Michigan after
receiving criticism from President-elect Donald Trump.

Amazon and Forever 21, as well as California-based apparel
maker Next Level Apparel and brand licensor Authentic Brands
Group LLC, are in talks with American Apparel and its financial
advisers about submitting offers ahead of a deadline on Friday,
the people said.

Any successful offer would have to top a $66 million
stalking horse bid by Canadian apparel maker Gildan Activewear
Inc, which American Apparel agreed to when it filed for
bankruptcy in November.

Gildan’s offer included an option to keep American Apparel’s
manufacturing plants in southern California, which employ about
3,500 workers, making American Apparel one of the biggest
garment makers in the United States.

But Gildan plans to preserve only some of the California
production should its bid prevail, the sources said. Many of
Gildan’s production facilities are in low-cost countries.

An outcome in the auction is expected next week, the sources
said, asking not to be identified because the deliberations are
confidential.

American Apparel declined to comment. Amazon, Forever 21,
Next Level Apparel and Authentic Brands did not respond to
requests for comment.

A Gildan spokesman said in an email on Wednesday that it is
putting together all the necessary information from its due
diligence to best position itself in the auction.

Amazon’s acquisition of American Apparel would be a major
push for the e-commerce company into branded fashion and
apparel. The Seattle-based company began to launch private label
brands last year.

Forever 21, founded by Korean-American Do Won Chang, is
known for its low retail prices, helped by lower labor costs abroad. American Apparel’s first bankruptcy in 2015 was due in
part to its relatively high labor costs.

“SWEATSHOP-FREE”

American Apparel went into bankruptcy for the second time
last November with about $177 million in debt. Former Chief
Executive Dov Charney founded the company in the late 1990s,
when most garment-making was moving offshore.

For years this contrarian strategy worked. American
Apparel’s “sweatshop-free” label was a hit with young people,
helping make the brand a part of popular culture.

Part of American Apparel’s name recognition also stemmed
from Charney himself, who was outspoken on immigration and fair
wage issues, but was plagued by sexual harassment claims, which
he has denied. The company was also famous for its sexually
charged advertising.

A 2009 run-in with Immigration and Customs Enforcement over
the legal employment status of 1,800 employees sent American
Apparel on a downward trajectory, according to court documents
from the company’s 2015 bankruptcy.

American Apparel had to fire these employees, more than a
quarter of its manufacturing workforce. The layoffs caused
production delays and a 90 percent year-on-year drop in profits
in 2009, according to the documents.

Charney was ousted in 2014, by which time the company was
struggling with declining sales and an unsustainable debt load.
It filed for bankruptcy in October 2015, and emerged in February
2016, only to seek bankruptcy protection once again in November
2016.

American Apparel has notified its workers that they could be
losing their jobs as early as this month.

Gildan makes most of its garments offshore, with close to 90
percent of its 42,000 employees in low-cost Caribbean and
Central American countries. In California, the minimum wage is
scheduled to rise to $15 per hour in 2022 for firms with 26
employees or more.

Gildan has yarn-spinning and distribution centers in cheaper
parts of the United States, including North Carolina and
Georgia. Gildan’s bid for American Apparel does not include the
retail chain’s approximately 110 stores.

(Additional reporting by Allison Lampert in Montreal and Mary
Milliken in Los Angeles)



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