Uncertain times for American Apparel after auction

Uncertain times for American Apparel after auction
PHOTO: AFP

MONTREAL - American Apparel's made-in-the-United States heritage is uncertain after Canadian apparel maker Gildan Activewear Inc won a bankruptcy auction to acquire the edgy fashion retailer for about US$88 million (S$126 million) in cash.

Gildan said on Tuesday it would buy manufacturing equipment and intellectual property rights related to American Apparel, but the Canadian company did not assume the leases of the retailer's California manufacturing plants, fuelling questions about where the clothing will be produced.

Reuters reported on Monday that Gildan had won the auction, which also attracted bidders such as California-based Next Level Apparel and had garnered interest from Amazon.com Inc and Forever 21 Inc.

Gildan's stalking-horse bid of US$66 million for American Apparel included an option to acquire the company's manufacturing operations.

Gildan had planned to maintain some operations as recently as last week, but then reversed course.

Mr Garry Bell, a Gildan spokesman, said the company would decide where to make the clothing when it completes its integration plan.

"We felt it was best to not assume these leases while we worked through that plan," he said, adding that details will be outlined on Feb 23.

American Apparel had insisted in the weeks leading up to its bankruptcy and auction that any deal would keep its manufacturing plants in the US.

Gildan, which manufactures yarn in North Carolina and Georgia, has no "apprehension about investing in the United States", Mr Bell said.

However, close to 90 per cent of Gildan's 42,000 employees are in low-cost Caribbean and Central American countries, and the company does not manufacture clothes other than socks in the US.

Keeping jobs in the US has become a hot-button political issue since the election of Mr Donald Trump, who campaigned on stopping manufacturing jobs from moving overseas.

While Mr Bell said that Gildan is considering hiring some workers in product design and merchandising, approximately 3,500 American Apparel employees have received notices that they could be laid off as soon as this month, according to California public notices.

Gildan has also said it will not buy any of the 110 American Apparel retail stores.

However, existing American Apparel stores will continue selling the clothes for the next 100 days as Gildan decides how to make the products available to consumers, Mr Bell said.

American Apparel filed its second Chapter 11 in November with about US$177 million in debt after the failure of a turnaround plan.

It filed for its first Chapter 11 in October 2015 and emerged from bankruptcy early last year.

The deal, which is subject to approval from a bankruptcy court on Thursday, pushed Gildan shares up in Toronto and New York on Tuesday.

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