American Apparel's Bankruptcy Is Inevitable
LatestThings have gone from bad to worse for the pants-optional C.E.O. and his t-shirt company. To put it nicely, it’s highly probable that the retailer will go bankrupt — and soon. Bluntly: American Apparel is probably fucked. Here’s why.
To get a sense of just how fucked, allow me to explain how relative levels of fucked-ness are calculated, in retail. “Same-store” sales or “comparable store” sales are sales figures retailers report from stores open 12 months or longer, and these results are considered a key indicator of retail health for two reasons. Firstly, just measuring a brand’s overall sales without distinguishing between sales at newly opened stores and sales at existing stores camouflages the huge start-up costs incurred by store openings. Secondly, if it’s the case that a retailer has over-saturated its market, if it then persists in opening new stores, those new stores can actually cannibalize sales from its older outlets. Just measuring “sales” is misleading if you had 223 stores in 2009 and 190 in 2008, because 223 stores will move a lot more product than 190 stores, almost no matter what; while overall sales growth is important, you also need to measure how those same 190 stores fared year-on-year.
American Apparel, as it turns out, has experienced declining year-on-year same-store sales in every month for which the company has made records available since February, 2009. In that month, comps fell by 9%. In March, they were down 11%. April’s same-store sales fell 7%; the following month the decline was 10%; the month after that, 13%; the month after that, same-store sales fell 13% again. Then, in August, same-store sales fell 20%. The month after that, they were down 15%. The next month, they fell 6%; the month after that, the decline was 11%; American Apparel wrapped up its horror year with a decline in same-store sales of 6% during the month of December.
As for 2010’s numbers, official results aren’t even yet available for the first three months of this year, because American Apparel wasn’t ready to file by the Securities and Exchange Commission’s deadline. The SEC gave Charney’s company until August 16 to tell investors how it did in the months of January, February, and March of this year. (As one financial writer quipped, “I guess we’ll get Q2 around Christmas.”) American Apparel’s preliminary first-quarter report showed a decline in same-store sales of 10%, and an operations loss of $17.6 million during the period. (Comparatively, the $3.6 million it lost in the first quarter of 2009 seems small.) There’s no reason to believe the company has experienced any miraculous reversal of fortune in the intervening months. 2009 was a bad year for retail, and American Apparel wasn’t the only company to experience months of successive year-on-year declining comps — Abercrombie & Fitch was also left reeling for a long spell — but Charney’s baby did perform a lot worse than almost all of its competitors. (Even Abercrombie eventually made a hesitant reversal.)