American Apparel starts layoffs, employees say

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By Jessica DiNapoli and Lisa Richwine

Jan 16 (Reuters) - American Apparel LLC started to lay off staff on Monday after Canada's Gildan Activewear Inc withdrew its initial plan to buy some of the bankrupt U.S. fashion retailer's manufacturing operations, company employees said.

Gildan won the rights to American Apparel's brand with an $88 million bid in a bankruptcy auction last week. It had previously indicated it would assume some of its manufacturing operations, which had made the brand synonymous with "Made in the U.S.A."

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Many of the 2,166 employees at the company's headquarters in Los Angeles and 959 employees at the nearby South Gate manufacturing facility now stand to lose their jobs.

Francisco Morales, 56, who made clothes for seven years at the Los Angeles plant, was one of the American Apparel workers to be handed his employment termination notice and his last paycheck on Monday.

See photos of the struggling retailer:

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An American Apparel store logo is pictured on a building along the Lincoln Road Mall in Miami Beach, Florida March 17, 2016. REUTERS/Carlo Allegri
An American Apparel store logo is pictured on a building along the Lincoln Road Mall in Miami Beach, Florida March 17, 2016. REUTERS/Carlo Allegri
A man walks past the American Apparel headquarters in Los Angeles April 1, 2011. Clothing chain American Apparel, known for racy advertising and its founder's legal problems, may file for bankruptcy if it does not get enough money to keep running, and might even have to liquidate, the company said. REUTERS/Mario Anzuoni (UNITED STATES - Tags: BUSINESS)
A tag hangs of a piece clothing in the window of an American Apparel Inc. store in Chicago, Illinois, U.S., on Monday, Oct. 5, 2015. American Apparel Inc. bought itself time and relief when it filed for bankruptcy protection today, but there's still a long way to go if the struggling retailer is to pull itself out of a sales rut and win back shoppers. Photographer: Daniel Acker/Bloomberg via Getty Images
NEW YORK, NY - OCTOBER 05: The American Apparel logo is displayed outside of a store on October 5, 2015 in New York City. American Apparel has filed for Chapter 11 bankruptcy protection nearly a year after the ousting of founder and CEO Dov Charney. In its latest quarter, the youth driven clothing company reported a loss of $19.4 million. (Photo by Spencer Platt/Getty Images)
NEW YORK, NY - OCTOBER 05: The American Apparel logo is displayed outside of a store on October 5, 2015 in New York City. American Apparel has filed for Chapter 11 bankruptcy protection nearly a year after the ousting of founder and CEO Dov Charney. In its latest quarter, the youth driven clothing company reported a loss of $19.4 million. (Photo by Spencer Platt/Getty Images)
NEW YORK, NY - AUGUST 19: An American Apparel store is viewed on August 19, 2015 in New York City. The youth clothing retailer reported a net loss of $19.4 million for last quarter and has said it may go out of business in the near future. Blaming the closing of stores closing and a strong dollar, Los Angeles-based company said sales were down 17% last quarter. (Photo by Spencer Platt/Getty Images)
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"It's really bad what happened here, really bad," Morales said in Spanish, according to a co-worker who translated into English. He said he had three children and was worried about finding another job with the same benefits, because of his age.

"The company issued a WARN Act notice several months ago, letting employees know that depending on the buyer of the business, a sale could result in eventual shrinkage of some business areas," American Apparel said in a statement.

Last week, American Apparel reached a preliminary deal to sell its Garden Grove manufacturing site to textile manufacturer Broncs Inc, re-launching it as a knitting and dyeing facility.

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"The company is pleased that it was able to secure a second agreement with Broncs, which plans to save over 300 jobs when they take over the Garden Grove facility," the statement added.

Gildan had already indicated it would not take on any of American Apparel's 110 stores. Without another buyer for these stores, American Apparel has started to shut these stores down.

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American Apparel filed for a second time for bankruptcy protection, known as a Chapter 11 filing, in November with about $177 million in debt after the failure of a turnaround plan. It had filed for its first Chapter 11 in October 2015, and emerged from bankruptcy early last year.

Close to 90 percent of Gildan's 42,000 employees are Caribbean and Central American countries where costs are lower, and the company does not manufacture clothes other than socks in the United States.

Gildan had previously said it would take into account that American Apparel's U.S. manufacturing heritage is a component of the brand, but had noted that its manufacturing plan would also consider factors like transportation and energy costs.

Gildan did not immediately respond on Monday to a request for comment. (Reporting by Jessica DiNapoli in New York and Lisa Richwine in Los Angeles; Editing by Nick Zieminski, James Dalgleish and Frances Kerry)

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