American Apparel in financial difficulties

Ultra-trendy American Apparel has warned that it may not be able to stay in business for the next year, due to insufficient liquidity, and their numbers reflect an alarming trend. The company’s stock has dropped 25.9% on Tuesday alone. Shares have dropped 67% this year, and sales have reportedly slumped 16% in all stores that have been open for at least a year. American Apparel has also closed three stores in the last three months. In 2008, American Apparel had to fork over two board seats and an 18% stake, to procure an emergency $80 million loan from Lion to pay off debts and avoid bankruptcy.

Not helping share prices is the company’s choice to drop their Deloitte & Touche auditing services and return to their previous auditor Marcum. This decision has drawn a lot of attention from the Security Exchange Commission as the corporation continues to crumble amid organizational changes. In a regulatory filing, American Apparel stated that it had received a subpoena from the United States attorney’s office for the Southern District of New York over the resignation of Deloitte. Deloitte had raised concerns to American Apparel about “material weaknesses” in its financial controls.

American Apparel is not new to controversy, and in many ways has used it as leverage to build the brand up. The company institutes a sexually aggressive marketing campaign, and its CEO Dov Charney, rumored to conduct meetings in his underwear, has fought off a number of sexual harassment lawsuits. Also, the actor Woody Allen was awarded $5 million after suing the company for using his image on a billboard without permission. The company sells casual wear at a high price, and experts are seeing a decrease in high end pieces across the board as the age of excess seems to be concluding.