Time to clarify some things about the bankruptcy of American Apparel and the potential purchase by Gildan.

1. Reports in many media outlets that Gildan has bought American Apparel are false, or at least not entirely accurate. They have bid on certain assets but you would not say that it is a done deal.

2. American Apparel retail stores will close. This apparently is true, as Gildan has not bid on those assets and there do not appear to be other suitors. Gildan’s bid on the other assets has allowances for the American Apparel retail division to beat an orderly retreat, but they will not buy the retail operation. In my conversations with Gildan officials they said, “we do not have experience in running retail stores.” There could be other companies that come forward to bid on the retail stores but that seems unlikely or they probably would have surfaced already.

3. I have heard it said and seen in print that “Gildan bid only on the name American Apparel.”  This is also false. They bid $66 million and that included the intellectual property, the leases on two of the main buildings, the distribution center lease, and all of the equipment from sewing machines to forklifts.

4. American Apparel has not ceased operation. The factories continue operating until the auction happens. Gildan also put in a large purchase order for bulk inventory. This will help allow the factory to continue to operate and presumedly will allow continuation of the wholesale brand if Gildan’s bid is accepted. Incidentally, the distributors like TSC, Alphabroder, Commonwealth Cotton etc. all have a large stock of inventory.

5. All the workers at American Apparel will lose their jobs? This may be true but it also might not be true. There are California and USA regulations call WARN that mean that you have to inform employees (WARN is the Worker Adjustment and Retraining Notification) that they might lose their jobs. 3,500 American Apparel workers received those WARN notices. However, skilled workers are not that easy to come by and if Gildan’s bid is accepted they need to ramp up quickly to continue operations. They say they need to evaluate operations before making such determinations.

Some other details of the Gildan bid are that it is what is called a “stalking horse” bid. This is a common thing in bankruptcies. There are also break-up fees associated with the Gildan bid. Basically Gildan bid on the assets sight unseen. They also made a substantial bid which means that the bidding starts at a higher level than it might otherwise. So this kind of bid which favors the bankrupt company has to have certain protections for the bidder. Gildan’s “stalking horse” bid means that they have the right to match any future bid and means they get certain fees from any company that outbids them. They also can pull out if this all takes too long.

The bankruptcy hearing and auctions were originally scheduled for early December but now will happen in early January, with bids due on January 6th and potential auction on January 9th.

And so ends the factual portion of our article.

My conjecture is as follows:

The American Apparel retail stores will close and liquidate. Gildan’s bid will be accepted. Operations will continue in Los Angeles, both sewing and distribution under the American Apparel brand name. Gildan will hire many of the production workers at American Apparel but change production according to their highly efficient ways. My guess is that they will continue that for a year or so and in the meantime evaluate the operation and the brand. I doubt they will move the operations out of the USA, I don’t think an American Apparel made outside of the country would fly with anyone. I think they will at least consider moving manufacturing to a place with lower wages (LA minimum wage is to go to $15/hour) but not necessarily. Will American Apparel keep its current styles or will it continue to set trends? I think that also remains to be seen.

American Apparel will not be the same in a month but what it exactly is going to become is not certain at all. It appears that the brand will continue but on what basis is a big question mark.