Former Owners Taking Back Oak NYC Stores from American Apparel
After months of negotiations, the former owners of the edgy and hip Oak NYC stores have reached an agreement to buy back their small retail chain from American Apparel.
After bidding twice for the retail chain of two stores in Los Angeles and two stores in the New York area, the former owners—Jeff Madalena and Louis Terline—made a final bid after offering $600,000 and then $1.1 million. The final offer, whose amount hasn’t been disclosed, was outlined in U.S. Bankruptcy Court documents filed Dec. 15. It was accepted by American Apparel, which filed for Chapter 11 bankruptcy protection on Oct. 5.
A U.S. bankruptcy judge must finalize the deal in a hearing scheduled in U.S. Bankruptcy Court in Delaware on Jan. 20.
Once Madalena and Terline take control of the Oak stores, it is unclear whether they will shutter the Los Angeles locations, but it seems likely they will retain the New York stores, which were the original locations the two operated before selling their small business to American Apparel.
Originally, Oak launched in 2004 with high-end clothing that gravitated to dark colors, such as black, navy blue and brown. A store was started in Brooklyn’s Williamsburg neighborhood, and then the Oak partners branched out to Manhattan. After American Apparel’s then–Chief Executive Officer Dov Charney bought the chain’s inventory, trademarks, websites and warranties in 2013 for an undisclosed price, other locations were opened last year in Tokyo and Paris but soon closed.
The company’s two Los Angeles stores —one at 910 S. Broadway in downtown Los Angeles and another at 7228 Beverly Blvd.—opened in early 2014.
The five-year leases for the two Los Angeles locations were signed by Madalena and Terline under their corporate name, Canary New York LLC. The two leases for the New York locations were sublet by Madalena and Terline to American Apparel.
In court filings, Madalena and Terline said American Apparel hadn’t paid rent for any of the four locations since Oct. 7. Just between Oct. 7 and Oct. 31, American Apparel owed nearly $50,000 for the four store leases.
The 2,100-square-foot downtown LA location, owned by Tarina Tarantino Management, has a monthly base rent of $11,082, and the larger Beverly Boulevard location, covering 3,250 square feet, has a monthly base rent of $14,000.
Meanwhile, American Apparel has gotten permission to close several low-performing stores around the country. It is in the process of shuttering its Echo Park store in Los Angeles and has gotten permission from the bankruptcy court to close its stores at the Citadel Outlets in Los Angeles; on Main Street in Huntington Beach, Calif.; at the Gilroy Premium Outlets in Northern California; the Woodfield Mall in Schaumberg, Ill.; the Round Rock Premium Outlet in Round Rock, Texas; the Newport Mall in Jersey City, N.J.; and the Prime Outlets in Orlando, Fla. Earlier this year, American Apparel closed its store on the Lower East Side in Manhattan.
Recently added store closures include the outpost on the Third Street Promenade in Santa Monica, Calif.; the Fashion Valley Mall store in San Diego; a store on Stevens Creek Boulevard in San Jose, Calif.; and an emporium in Madison, Wis.
With the bankruptcy filing, American Apparel is working to emerge as a privately held company by Jan. 20 rather than a publicly traded company on the New York Stock Exchange.
The company has not made a profit since 2009, and its woes hit a crescendo when the board fired Charney as its CEO in December. Early this year, he was replaced by veteran apparel executive Paula Schneider.
Under the bankruptcy reorganization plan, the company struck a deal with its secured lenders to reduce American Apparel’s debt through a process called debt-for-equity conversion, which means the company’s bondholders swap their debt for shares in the company.
Those secured lenders will convert $200 million in bonds into equity in the reorganized company. They will also provide $90 million in debtor-in-possession financing as well as $70 million in new liquidity.
American Apparel’s debt will be reduced from $300 million to no more than $135 million, and annual interest expenses will be decreased by $20 million.