American Apparel faces bankruptcy as store chain unravels

Fall of label behind the 'hipster revolution' is as mired in controversy as its founder's management style

He is the king of the hipsters; the eccentric fashion magnate behind a firm that turned skinny jeans and luminous Spandex into the uniform of the naughty noughties.

But now Dov Charney's fashion empire, American Apparel, appears to be on its last legs, amid growing rumours that its founder could soon be wearing his eclectic wardrobe in a court of law.

The clothing chain, known for its leggings and bright cotton T-shirts, has admitted that it is teetering on the brink of bankruptcy. It also faces investigation by the US attorney's office in New York into the reasons why its auditor, Deloitte & Touche, abruptly resigned last month.

The LA-based company's shares, which touched $14 in 2008, at the height of the so-called "hipster revolution", were trading at an all-time low of 75 cents at close of play on Friday, a drop of almost 50 per cent over the past week. It now has debts totalling $120m, and has admitted that it is currently losing money at a rate of nearly $30m a year.

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.

In the UK, 15 stores would close, providing a chaotic final chapter in the story of a bombastic figure whose unconventional management style, forward-thinking business model and self-confessed sex obsession have become the stuff of fashion-industry legend.

A fixture in the gossip columns as much as in business pages, the 41-year-old Canadian founded American Apparel in 2003, making and selling cotton basics to teenage shoppers at two LA stores.

He soon became famed for a character that was as sexy as his skimpiest garments. In interviews, he admitted to a string of affairs with young employees, and sharing offensive office banter with male and female staffers. Attractive women he met would be paid to participate in wet T-shirt competitions in the company's offices.

At least three female staff have filed sexual harassment lawsuits against him, with all the cases settled before reaching trial. One would-be plaintiff's legal complaint said he removes his trousers before business meetings and chairs them in his underpants.

Mr Charney relishes the reputation his track record brings. He once jollified an interview with Claudine Ko, a reporter for Jane magazine, by undoing his belt and fondling his crotch while discussing American Apparel's finances. The liberal attitude he brings to the office extends to American Apparel's advertisements, which have been repeatedly criticised by regulators.

Mr Charney's defenders point out that he is progressive with regard to his workforce, paying factory workers up to $20 an hour, well above minimum wage, and describing his clothes as "sweatshop free". He also gives staff health insurance and paid holidays.

The un-globalised structure of American Apparel also helped it react to the market far more quickly than its big rivals. Designs scrawled on napkins over lunch could be in shops within weeks.

Yet as the company grew, its ability to respond to the market was diluted. Earlier this month, Mr Charney declared the hipster trend, which powered his expansion, "over". He now wants to cater to older customers, who might prefer chinos to neon bike shorts.

That change, however, may come too late. The breakneck speed of American Apparel's expansion – 150 stores in its first three years, and nearly twice that in the ensuing three – saddled the firm with debts, the scale which is only now coming to light.

The company also faces production problems after a raid on its factory last year by police revealed that 1,500 illegal immigrants were working there. They all had to be fired.

Deloitte & Touche quit as American Apparel's auditors earlier this summer, after allegedly finding "material weaknesses" in the firm's financial controls. This week, in the announcement that precipitated its latest share slide, Mr Charney admitted the company is facing expulsion from New York's Amex stock exchange because the new auditors would not be able to file official second-quarter results to meet Amex's deadline.

News
Susan Sarandon described David Bowie as
peopleSusan Sarandon reveals more on her David Bowie romance
Sport
Arsenal supporters gather for a recent ‘fan party’ in New Jersey
football
Sport
sportDidier Drogba returns to Chelsea on one-year deal
Arts and Entertainment
The Secret Cinema performance of Back to the Future has been cancelled again
film
PROMOTED VIDEO
Have you tried new the Independent Digital Edition apps?
News
ebookA unique anthology of reporting and analysis of a crucial period of history
Life and Style
Balmain's autumn/winter 2014 campaign, shot by Mario Sorrenti and featuring Binx Walton, Cara Delevingne, Jourdan Dunn, Ysaunny Brito, Issa Lish and Kayla Scott
fashionHow Olivier Rousteing is revitalising the house of Balmain
News
people
Arts and Entertainment
Christian Grey cradles Ana in the Fifty Shades of Grey film
filmFifty Shades of Grey trailer provokes moral outrage in US
News
BBC broadcaster and presenter Evan Davis, who will be taking over from Jeremy Paxman on Newsnight
peopleForget Paxman - what will Evan Davis be like on Newsnight?
Life and Style
fashionCustomer complained about the visibly protruding ribs
Voices
The new dawn heralded by George Osborne has yet to rise
voicesJames Moore: As the Tories rub their hands together, the average voter will be asking why they're not getting a piece of the action
Sport
Dejan Lovren celebrates scoring for Southampton although the goal was later credited to Adam Lallana
sport
News
newsComedy club forced to apologise as maggots eating a dead pigeon fall out of air-conditioning
Arts and Entertainment
Jo Brand says she's mellowed a lot
tvJo Brand says shows encourage people to laugh at the vulnerable
Life and Style
People may feel that they're procrastinating by watching TV in the evening
life
Independent
Travel Shop
the manor
Up to 70% off luxury travel
on city breaks Find out more
santorini
Up to 70% off luxury travel
on chic beach resorts Find out more
sardina foodie
Up to 70% off luxury travel
on country retreats Find out more
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs General

Senior Risk Manager - Banking - London - £650

£600 - £650 per day: Orgtel: Conduct Risk Liaison Manager - Banking - London -...

Commercial Litigation Associate

Highly Attractive Package: Austen Lloyd: CITY - COMMERCIAL LITIGATION - GLOBAL...

Systems Manager - Dynamics AX

£65000 - £75000 per annum + Benefits: Progressive Recruitment: The client is a...

Service Delivery Manager (Software Development, Testing)

£40000 - £45000 per annum: Ashdown Group: A well-established software house ba...

Day In a Page

Evan Davis: The BBC’s wolf in sheep’s clothing to take over at Newsnight

The BBC’s wolf in sheep’s clothing

What will Evan Davis be like on Newsnight?
Finding the names for America’s shame: What happens to the immigrants crossing the US-Mexico border without documents who never make it past the Arizona desert?

Finding the names for America’s shame

The immigrants crossing the US-Mexico border without documents who never make it past the Arizona desert
Inside a church for Born Again Christians: Speaking to God in a Manchester multiplex

Inside a church for Born Again Christians

As Britain's Anglican church struggles to establish its modern identity, one branch of Christianity is booming
Rihanna, Kim Kardashian and me: How Olivier Rousteing is revitalising the house of Balmain

Olivier Rousteing is revitalising the house of Balmain

Parisian couturier Pierre Balmain made his name dressing the mid-century jet set. Today, Olivier Rousteing – heir to the house Pierre built – is celebrating their 21st-century equivalents. The result? Nothing short of Balmania
Cancer, cardiac arrest, HIV and homelessness - and he's only 39

Incredible survival story of David Tovey

Tovey went from cooking for the Queen to rifling through bins for his supper. His is a startling story of endurance against the odds – and of a social safety net failing at every turn
Backhanders, bribery and abuses of power have soared in China as economy surges

Bribery and abuses of power soar in China

The bribery is fuelled by the surge in China's economy but the rules of corruption are subtle and unspoken, finds Evan Osnos, as he learns the dark arts from a master
Commonwealth Games 2014: Highland terriers stole the show at the opening ceremony

Highland terriers steal the show at opening ceremony

Gillian Orr explores why a dog loved by film stars and presidents is finally having its day
German art world rocked as artists use renowned fat sculpture to distil schnapps

Brewing the fat from artwork angers widow of sculptor

Part of Joseph Beuys' 1982 sculpture 'Fettecke' used to distil schnapps
BBC's The Secret History of Our Streets reveals a fascinating window into Britain's past

BBC takes viewers back down memory lane

The Secret History of Our Streets, which returns with three films looking at Scottish streets, is the inverse of Benefits Street - delivering warmth instead of cynicism
Joe, film review: Nicolas Cage delivers an astonishing performance in low budget drama

Nicolas Cage shines in low-budget drama Joe

Cage plays an ex-con in David Gordon Green's independent drama, which has been adapted from a novel by Larry Brown
How to make your own gourmet ice lollies, granitas, slushy cocktails and frozen yoghurt

Make your own ice lollies and frozen yoghurt

Think outside the cool box for this summer's tempting frozen treats
Ford Fiesta is UK's most popular car of all-time, with sales topping 4.1 million since 1976

Fiesta is UK's most popular car of all-time

Sales have topped 4.1 million since 1976. To celebrate this milestone, four Independent writers recall their Fiestas with pride
10 best reed diffusers

Heaven scent: 10 best reed diffusers

Keep your rooms smelling summery and fresh with one of these subtle but distinctive home fragrances that’ll last you months
Commonwealth Games 2014: Female boxers set to compete for first time

Female boxers set to compete at Commonwealth Games for first time

There’s no favourites and with no headguards anything could happen
Five things we’ve learned so far about Manchester United under Louis van Gaal

Five things we’ve learned so far about United under Van Gaal

It’s impossible to avoid the impression that the Dutch manager is playing to the gallery a little