As I reviewed the available financial statements from 2007-present, the company began to decline in the late 2008. However, the causes of the decline began with American Apparel CEO, Dov Charney, being involved in several sexual harassment in the mid 2008s. Since lawsuits have yet to be proven, their sales were still decent, which resulted in American Apparel beginning to stockpile their inventories during 2009. However, more sexual harassment cases popped out later in 2009, which could possibly be why many customers lost trust in American Apparel’s image, causing its downfall. Also Dov Charney has been sued from sexual harassment therefore it caused the company to have suffered a massive loss in cash on court. However the critical point of its downfall seems to be American Apparel being involved in illegal immigration issues. American Apparel has been hiring experienced illegal immigrants. As a result they terminated 1500 experienced workers which is around 10% of their workforce. Therefore their sales went down because of the loss of workers to provide services. Since sales went down therefore the amount of money coming into the company decreased. At the same time, the deadline of other accounts payable came up therefore they began paying their creditors. As a result they were running short on money and began to borrow huge long term debts. Their long term debt has risen from $6.35 million, 2009, to $138.48 million, 2010. They almost went into bankruptcy in 2010 however they borrowed $80 million loan just to escape a looming bankruptcy. Also American Apparel has the image of semi- pornographic because all of their advertisements are very disturbing. It is like sex advertisement on television which resulted in many people to turn away from American Apparel.
I believe before any money is used for investing activities partial of the money should be used to pay off the debt for American Apparel. Paying off the debt would establish trust with your creditors. As a result they may not pressure you that often, since there is a well establish connection. Also you can guarantee them that American Apparel would have money, because a Canadian investor would be investing more money to the company. The other portion of the cash should be used in investing activities such as advertising because American Apparel must refresh their image of semi-pornographic into a healthier image which could be accepted more easily by the public. The advertisement from American Apparel has been stepping past the border line therefore receiving many critics. Also advertisement can send a message to the public that American Apparel is still a powerful company and continuing to operate. Some money could be used into R&D to grab the attention of new customers and previous customers who have left American Apparel. After revenue comes in, money would be used to clear off debt again to provide creditors an image that American Apparel is very competitive and a trust worthy company. With a new image American Apparel would be able to gain back its original popularity and a healthier reputation. Once the company is back on track, revenue would be coming in and expansion could happen in the future.
