Oil Prices Are Causing Your Favorite Companies to Go Bankrupt


Photo Credit: Avery Stanechewski

American Apparel filed for bankruptcy on October 5th this year and it is questionable how much longer they can sustain business.

Cheap oil is causing American companies to default or be unable to fulfill their legal responsibility to pay back their debt.

How is this happening?

Oil prices are now around $40 a barrel, down from the over $100 they were last year. When oil prices were through the roof, companies borrowed money to increase their supply and dug themselves into debt, never anticipating that oil prices would drop below $100 again. When they did, these companies found themselves struggling to pay the money back.

Oil companies aren’t the only ones defaulting though. Many retail companies have gone bankrupt this year including ~hip~ clothing company, American Apparel.

Trouble began for American Apparel in 2009, in the thick of the Great Recession. Oil prices began to rise, and oil companies started borrowing huge amounts of money to supply more product to the market. This caused interest rates to rise; a result of banks trying to make a bigger profit off their clients.

American Apparel was going through inspection under the suspicion of their employment of illegal immigrants. The suspicions were justified when American Apparel fired half of their LA staff as a result of the close investigation. The company had to train new workers, shelling out on one of the most pricy expenses in business.

To pay for all these expenses, American Apparel had to take out considerable loans at high interest rates (thanks to the oil companies) and when their sales fell because of increased retail prices, they couldn’t pay it back.

Sophomore Mia Leto says almost half of her wardrobe is American Apparel. She reports, “The quality is really good, especially the pants. They fit really well.” She does however find them costly as in her experience, prices for a shirt range from $40 to $50, and pants up to $100. Leto classifies these high prices as a reason the company is falling off the map. When asked for her prediction of how much longer she thinks American Apparel will stay in business, Leto responds “no more than a year.”

She also credits the formation of similar new companies to the downfall of American Apparel. “There are a lot of stores that are just as good, or better, and cheaper like TopShop, Urban OutFitters, and Brandy Melville”

Despite the competition in the market, Leto remains devoted to the American Apparel brand. “The look is pretty cool and I just like the excitement of it.” she remarks.

(Photo Credit: Keri Kelly) Sophomore Mia Leto frequents the American Apparel website and hauls in some new staples for her wardrobe about once every two months.
(Photo Credit: Keri Kelly) Sophomore Mia Leto frequents the American Apparel website and hauls in a few new staples for her wardrobe about once every two months.

This year alone, the company has lost nearly $50 million, so in spite of their loyal customers, Leto’s one-year prediction might prove accurate if American Apparel can only juggle their monstrous debt for that much longer.