Recently I read a blog written by Alison Griswold, where she revealed that American Apparel has files for Chapter 11 bankruptcy protection just recently. This clothing retailer is best known for its sexual advertisement and expensive teen clothing made in the U.S. It is striving to make a profit in the highly competitive market today. American Apparel is planing to cut more than $200 million bonds in exchange for equity, in the hope of liquidating its debt.
Having lower sales and numerous of lawsuits, American Apparel is possibly not going to survive the crisis. There was a few weakness of its business strategy that led to this failure today. A major one is that it is not meeting the needs of its customer segment. American Apparel, like lots of other fashion retailer, is targeting at the teen’s clothing market. Knowing most teens do not have an income, yet the company still charges relative higher price on its products. American Apparel might defend for itself by claiming a fancy title “everything is made in America”, but customers would not care as much.
With a growing number of cheaper substitutes, companies such as H&M, Forever 21, Bershka are having more competitive advantage. It is not a surprise that American Apparel is losing market share, and it is foreseeable that its stock value will continue to sink in the future. In addition, the company’s insufficient liquidity makes it even harder to sustain operations.
