The once renowned retailer, American Apparel (APP, Financial), has been reported to be running out of cash and is currently in a huge mess. As the clothing manufacturer is also suffering badly from the upheaval caused by the firing of founder, Dov Charney, the company is now delaying payments to its suppliers. So, what is the scene like at this juncture. Let’s quickly peek in to find out.
Suppliers are placing an outcry
The company is supposed to take around 60 days to pay its vendors but it seems like its extending it further. Thus, the suppliers are under a lot of stress at this moment which could possibly hurt the retailer’s ability to get the fabric it needs to make the clothing, thereby creating product shortages. It could actually affect the revenue at a time when the retail sector is under pressure.
American Apparel has being facing the heat from last June when Charney got suspended with the intent to terminate him after the 30 day cure period, which in turn spelled havoc for the retailer as it almost landed into bankruptcy.
Now, with suppliers also revolting against the credit policy of the company things are totally under the scanner.
Looking ahead
Over the first nine months of 2014, the company has generated $3.3 million in operating cash flow, a reversal from that seen a year ago, primarily by paying less money to suppliers and employees. It also cut capex for the year, which slowed the rate it would use cash for investment purposes. After all such measures, still the company was not able to produce positive cash flow and recorded negative cash flow of $5.4 million during the first three quarters of 2014.
It even resorted to heavy promotional schemes which did not work well for the company. It also maintained its inventory well-stocked. But as suppliers are not getting paid as per the credit terms, this could convert into lowered stock as this spring approaches in the U.S. With a retracting business, mounting losses and a looming cash crunch, American Apparel does not seem to have a bright future going ahead.
At the brink of bankruptcy
According to some reports, the ex-founder is trying to buy back his company with the help of another private equity firm, Irving Place Capital, which reportedly has offered to purchase American Apparel for as much as $1.40 a share. According to Bloomberg news, the retailer is considering the offer taken the financial crisis it’s currently facing in the retail industry.
As American Apparel is not being able to pay out suppliers, which is a bare minimum required as a retailer, its liquidity has come under question and thus sources have confirmed that the retailer is looking out for more options.
However, even if there is a takeover that happens and Charney returns to take his chair, there’s nothing right now that suggests that overall trends will reverse soon. Influx of cash into the company could aid in moving out of the inevitable but the damage has already been done and time will only foretell the future for American Apparel.
Last word
The styling retailer is under terrible headwinds at this juncture and is leaving almost no stone unturned to revive itself from its woes. The future is yet to be decided and we should stay tuned to check out what is in store for the renowned retailer in the year ahead.
