Paula Schneider’s turnaround plan for American Apparel Inc. comes down to three things: sell less, spend less and close stores that aren’t performing.
Operating with $234 million in long-term debt at 15 percent interest, the company needs to slim down even as it tries to boost sales. If successful, those steps could pave the way to refinancing its debt load on far more favorable terms.
The operational changes Schneider outlined at a June 9 Piper Jaffrey Consumer Conference in New York were accompanied by an announced shift in how management would view the business going forward. While still a manufacturer, American Apparel will think of itself as a retailer.
“The cultural shift is we are not a manufacturing company; we are a retail store company,” Schneider said at the conference. “We have an e-commerce component and we have a wholesale component and we have the capabilities of manufacturing internally for speed to market.”
Schneider posted the turnaround plan on the company website earlier this month, and the consensus among industry experts who reviewed it for the Business Journal was that it looks solid. The catch, as with all plans of this nature, is that success depends on execution.
“I believe in Paula; she’s tough and worked amid difficult environments before and she’s capable and not afraid to make decisions,” said Brien Rowe, managing director and group head of consumer products for Intrepid Investment Bankers in Los Angeles. “But there’s a lot of work to be done and a huge execution challenge, and she’s time-constrained to be able to make the appropriate changes because of the heavy debt load and heavy debt service. It would be hard for everyone.”
Rowe points to Schneider’s intention to reduce apparel items by 30 percent, cut money the company spends on each store by $325,000 and close unprofitable shops when leases are up. Doing all that would free up capital, he said.
That the focus is now on retail operations is clear. Schneider aims to go after what she said is stagnant product with improved offerings by revising inventory controls; creating systems in which products could be tested in stores; and hiring more designers to address design, quality and fit issues.
Deborah Greaves, former secretary and general counsel for True Religion Apparel Inc. now practicing law at Ezra Brutzkus Gubner, said emphasizing quality and fit is one way American Apparel can stand out from competitors such as fast-fashion retailers H&M and Forever 21.
For reprint and licensing requests for this article, CLICK HERE.