American Apparel May Shutter Its Oak Stores in LA and NY

Two years ago, American Apparel founder Dov Charney snapped up a small high-end specialty-store chain called Oak.

With Charney ousted last year as the company’s chief executive and American Apparel now in bankruptcy, the struggling Los Angeles clothing company has decided to shutter its Oak stores to save money.

That means the two stores in Los Angeles—one on Broadway in downtown LA and another on Beverly Boulevard in Beverly Hills—could be closing their doors as well as the two outposts in Williamsburg in Brooklyn, N.Y., and in Manhattan’s SoHo district.

In addition, American Apparel will be shutting down nine American Apparel stores that have been losing money.

The store closings were announced in documents filed in U.S. Bankruptcy Court in Delaware outlining the company’s road to emerging from Chapter 11 protection. But American Apparel also reserved the right to sell the four Oak stores if there were a buyer.

On Nov. 2, U.S. Bankruptcy Judge Brendan Shannon gave final approval for American Apparel to use $90 million of its debtor-in-possession financing package to continue operations.

The financing, which is being provided by investment firm Standard General and other investors, includes $30 million in new capital while refinancing $60 million in American Apparel debt owed to investors.

Under terms of the loan, American Apparel must receive confirmation of its bankruptcy-exit plan within four months of its Oct. 5 bankruptcy filing. The plan provides that more than $200 million in senior bond debt will be exchanged for equity in the reorganized company.

On Nov. 19, Judge Shannon is set to consider a request for American Apparel to conduct store-closing sales at the four Oak stores and the nine American Apparel stores.

The company is also requesting approval for a $2.3 million bonus plan to retain 82 critical employees.

American Apparel’s purchase of Oak—an edgy store with expensive fashions that center on the color black—seemed a surprise when it was announced in 2013. Oak had only two stores in the New York area. The purchase price was low enough that American Apparel did not need to include it in its filings with the Securities and Exchange Commission.

At the time of the purchase, Charney said that the small retail chain—started by Jeff Madalena and Louis Terline—had $5 million in annual revenues but could benefit from American Apparel’s retail know-how and manufacturing facilities that could grow revenues rapidly.

After the American Apparel acquisition, Oak opened two stores in Los Angeles. Last year, it also briefly opened stores in Tokyo and Paris, but those soon closed.

Oak operated as a separate division within American Apparel with Madalena and Terline continuing to run Oak store operations.