American Apparel is facing the threat of bankruptcy after they reported being $120.3 million in debt, with a $94 million loan from Lion Capital that is due January 2011.
Companies face bankruptcy all the time; the thing that makes this case interesting is attempting to determine what makes a company at the top of their game, fall so quickly. The company was trading at $14 per share in 2008, which then plummeted to under 75 cents per share in August 2010. Though the CEO, Dov Charney, blames the early 2010 factory raid that saw him lose over 2500 illegal immigrant employees, a closer look indicates that this is only a fraction of the problem.
American Appparel Share Value
Internal stealing appears to be the driving force behind the $-30 million growth rate that AA faces. With untrained and inexperienced managers operating inventory control systems, products often go unregistered for over a month. In this time, employees steal thousands of dollars worth of merchandise. If AA hopes to stand a chance of survival, they need to improve management, providing training that will allow managers to properly use inventory control systems in a timely manner. Managers will also need to be trained to manage employee misconduct. A widespread lack of honesty in the organizational culture is evident due to few employees receiving any training or information regarding organizational standards. Overall, AA management is undertrained and under regulated; this needs to change before the company sees any growth.
Employee Testimony regarding training:
“We were put in the store, and we were given a website. Everything else was up to us.”
