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Debts spoil American Apparel’s party

Jessica Brown

Building a high street chain on basics was never going to be easy but the controversial Dov Charney appeared to have done just that when American Apparel, the business he founded, burst into the UK in 2005.

Building a high street chain on basics was never going to be easy but the controversial Dov Charney appeared to have done just that when American Apparel, the business he founded, burst into the UK in 2005.

Shortly after, street style embraced all things 1980s and an army of 18-year-old Peaches Geldof lookalikes piled into his stores to load up on brightly coloured cheap Spandex leggings and draped jersey tees.

But it wasn’t just the product that delighted. The store experience (edgy music, fit shop assistants), the marketing (porno-like and more in your face than FCUK) and the business model - vertically integrated with an ethical factory where workers are paid twice the minimum wage in downtown LA - all made this one seriously cool retailer.

This week told a very different tale though. American Apparel’s debts have spiralled and a breach of banking covenants looks imminent, putting the chain at risk. Charney’s problems began when he was forced to lay off workers who could not prove their right to work in the US at the very factory upon which he built his brand. This led to stock shortages.

In reality though, fashion has moved on from the stretch leggings that defined this chain. Uniqlo is doing the basics job smarter, better and cheaper, while Reiss is doing muted and stylish basics more appropriate to the austere mood.

The retailer’s name has not been devalued though - restructuring specialists such as Hilco and GA Asset are waiting in the wings, should the worst-case scenario arise.

Charney has been totally exposed in the boardroom but this time it’s not of his own volition. This is a classic lesson in putting product development ahead of all the other stuff that makes fashion fashion.

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