For years, American Apparel has used sex to sell. It became a problem when people stopped buying.
Allegations of misconduct and sexual harassment lawsuits against founder Dov Charney were dismissed by the company as baseless charges brought by disgruntled employees, even as its founder openly admitted to dating his underlings and walking around the company headquarters in his underwear. For a while, this "edginess" was part of American Apparel's appeal, but the company struggled when the economy went south and never really regained its footing.
"I think consumers looking for basics are much more price-sensitive than they used to be," said Morningstar retail analyst Jaime Katz.
The combination of losses and litigation might have just been too much.
"When the board is fighting challenges such as anxious creditors and angry shareholders, incremental lawsuits make it that much more difficult," said Todd Slater, managing director at Threadstone Advisors, LLC. "If you add litigation to the other challenges it's facing … it becomes a bigger distraction."