Answer: Because they earned less than they spent.
If you want a more specific answer, maybe you would like one from the following two choices:
- It is almost impossible to successfully make a profit selling commodity clothing that is made in the United States (and please don't try to say that American Apparel is a popular brand name which makes it more than simply a commodity item).
- They moved from "manufacturing and wholesaling" to "manufacturing, wholesaling, AND retailing".
American Apparel, and certain of its domestic subsidiaries have voluntarily filed to reorganize under Chapter 11 of the U.S. Bankruptcy Code in the U.S. Bankruptcy Court for the District of Delaware (the "Bankruptcy Court"). The Company expects to complete the restructuring within approximately six months.
American Apparel, Inc., announced today October 5, 2015 that it has reached a restructuring support agreement with 95% of its secured lenders to implement a pre-arranged financial restructuring. This reorganization will enable the Company to implement a comprehensive transformation strategy to revitalize the business and brand, while keeping its production and operations in the U.S. Throughout the implementation of this process, American Apparel will continue to operate its business without interruption to customers, employees and vendors. As you know American Apparel is a vertically-integrated manufacturer, distributor, and retailer of branded fashion-basic apparel. The restructuring will hopefully help them get their business back on track.
American Apparel Reaches Agreement with Lenders to Significantly Reduce its Debt and Interest Payments.
Below are a few key points:
- American Apparel plans to recapitalize through consensual pre-arranged Chapter 11 reorganization
- Retail stores, wholesale and U.S. manufacturing operations to continue without interruption; international stores not affected
- Pre-arranged agreement with 95% of secured lenders will strengthen balance sheet
- Lenders will provide the company with additional liquidity to ensure financial stability throughout the reorganization process
- Reorganization enables the implementation of the Company's transformation strategy to revitalize brand
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