To say that American Apparel has a tumultuous history would be an understatement. While originally founded in the late ’80s with the humble intention of providing blank garments to screen printers and boutique labels, the brand quickly outgrew its wholesale roots and found a place within the wider retail landscape. The entire industry — from streetwear and high fashion labels to big box stores — was quick to notice the young brand, full of sass, attitude and seemingly unstoppable in its growth.
Known for its proud “Made in America” credentials, the company quickly became synonymous with its provocative advertising, and trouble (both financial and legal) was quick to follow. After a string of high profile bankruptcy claims, the courts recently ruled that AA founder and former CEO Dov Charney will never be able to regain control of the company he first started.
As the future of the brand — once found on highstreets the world over — looks increasingly uncertain, we decided the time was right to take a look back at American Apparel’s wild, storied past. Here goes…
Canadian and East Coast Origins, 1989 – 1996
In 1989, Canadian-born Dov Charney, then only 20 years old, started the first iteration of what would eventually become American Apparel. Charney’s first foray into the clothing business had been importing Hanes and Fruit of the Loom T-shirts into Canada to sell to friends and classmates at school. However, after graduating high school he briefly enrolled at Tufts University before ultimately dropping out to focus on his passion for the garment business.
In 1990, with a $10,000 loan from his father, he packed his bags and landed in South Carolina, where he transitioned from importing T-shirts to manufacturing them, learning the ins and outs of the trade. Since the very beginning, Charney was involved in nearly every aspect of the business: design, manufacturing and marketing. That’s not something you can say about a lot of people these days.
A Focus on Wholesale and the Move to Los Angeles, 1997 – 2000
The initial years Charney spent in South Carolina were by no means a success. Perfecting the art of production is tough, and the manufacturing learning curve can be unforgiving. After sustaining loss after loss, the company eventually had to re-think its approach, leading to a move to Los Angeles in 1997.
Nevertheless, Charney remained determined. Despite the obvious disappointment of a failing business, the knowledge he gained during his first swing at the ball would inform his next venture and lead him on to eventual success — or so he hoped. What followed were three years of steady grind, with Charney slowly working up a reputation for his business among the wholesalers of America.
By the year 2000, American Apparel had moved into the 800,000 square foot warehouse in downtown Los Angeles that it remains housed in today. Throughout that time Charney stayed true to his commitment to manufacture in America, even though the majority of the industry was moving production offshore to cut costs. Ultimately this relocation westwards provided the company with the boost it had so long sought, and business would soon grow beyond all expectations.
The First Taste of Success, Retail and Lawsuits, 2001 – 2005
Charney’s commitment to sell American-made goods directly to screen printers and emerging labels proved to be a profitable one. What’s more, beyond mere financial success, he also succeeded in disrupting the entire fashion industry. American Apparel was years ahead of the trend in its use of premium organic cottons and slim-fit silhouettes, which captured the attention of a captive market long before anyone else could.
But AA’s reach extended far beyond that of fashion insiders. Before long touring musicians and stores nationwide began using the premium blanks for their merchandise, and the little AA label soon became an instantly recognizable symbol of quality to a much larger and more mainstream audience.
Buoyed by the success of this wholesale model, American Apparel opened its first retail store in 2003 — a move that proved to be an instant sensation in the marketplace. In just two short years the company went on to employ over 4,500 employees, open another 50 stores and generate $250M (USD) per annum.
But there was more than just product behind this impressive turn of performance. Thanks to American Apparel’s vertically integrated business model (in which design, manufacturing, distribution and retail were all handled themselves) the company’s gross margins were significantly higher than other apparel brands at the time. At one point, according to the company, their blended margins were roughly 70%, while a company like Gap was averaging around 30%. It seems profitable production and a loyal brand following proved to be the perfect recipe for success.
However, despite this huge windfall in profit and a growing reputation as one of the kings of high-street fashion, all of this would soon be overshadowed by a lawsuit filed that same year…
More Success, More Lawsuits and the Ensuing Fallout, 2005 – 2008
While Charney’s big personality and love of everything risqué were hardly a secret, the entire world would soon learn details of just how inappropriate the CEO’s behavior was alleged to be. In a lawsuit filed by former American Apparel employees, a list of incidents ranging from conducting job interviews in his underwear to gifting his attractive employees vibrators was revealed to the public.
Then, as if the sexual harassment lawsuits weren’t enough, yet another high-profile lawsuit would later be directed at the company by legendary director Woody Allen. According to Allen, American Apparel’s unauthorized use of his likeness on a billboard amounted to a gross breach of his rights, and he sued for compensation. While the majority of the employee lawsuits were either dismissed or moved to arbitration — with Charney maintaining his innocence throughout — the Woody Allen case had to be settled by American Apparel’s insurance carrier, for a cool $5M.
Despite the bad press, American Apparel still remained a successful business. In fact, in 2006 a nearly $280M stock deal set the company up to open retail stores overseas for the first time. And, in another major move for the company, it paved the way for American Apparel to become a publicly traded company — something that would later prove immensely troublesome for Charney.
The First Sign of Major Trouble, 2009 – 2013
American Apparel continued to see increased sales and even managed to post a higher gross margin in 2009 than the year prior — a remarkable achievement in a time when the market was struggling with a weakened global economy.
However, the financial tides would soon change, and, as the hipster-led fashion boom of the 2000s began to tail off, sales slumped. What’s more, the company was forced to lay off 1,800 factory workers as part of an immigration sweep by the US government, causing a major setback in production that affected every aspect of the company. The following year proved tough, for understandable reasons.
After reporting an $86M loss in 2010, AA found themselves in the midst of a federal subpoena with regard to their accounting, and yet another sexual harassment suit aimed at Charney. The compound effect of these issues caused many investors to jump ship, sending the retailer’s stock plummeting by nearly 70 percent in the space of a year.
Upon announcing that they might have to file for bankruptcy, the wounded manufacturing giant received $14.9M in funding from a group of Canadian investors that provided a much-needed boost to the ailing company. Unfortunately, this proved to be little more than a temporary sticking plaster over a much more serious set of problems, and it wasn’t long before the corporate vultures started circling…
A Change in Leadership, Bankruptcy and an Unknown Future, 2014 – Present
For years, American Apparel stood by, or at very least tolerated, Charney as their tenacious leader. Yet, whether it was the result of mounting pressure arising from the company’s financial woes, or simply an eventual acceptance that “enough was enough” when it came to his personal behaviour, the board of directors made the decision to oust Charney as CEO in 2014 after further allegations of misconduct. Charney appealed the decision, but was unsuccessful, leading to his official termination and replacement by veteran fashion executive Paula Schneider. A strong and successful woman, it seemed, was what the company needed to salvage its reputation.
Yet, despite Schneider’s best efforts, American Apparel officially filed for Chapter 11 bankruptcy in Fall 2015. The deal wiped out all current shareholders (including Charney’s stake, once worth $8.2M) and put the company’s creditors in full control. Currently, American Apparel continues to struggle among the glut of fast-fashion brands like H&M, UNI QLO and Zara — companies less tied to a particular aesthetic — but remains committed to keeping manufacturing within the US. To date, the company continues to operate to the best of its ability, although its retail stores are closing their doors right across the globe.
In a parting shot at the company he once helmed, Charney recently penned an open letter on Medium reflecting on his time at American Apparel. Unsurprisingly, he held nothing back, treating the new owners to the full extent of his thoughts on how he was treated. Yet, while there’s little doubt the story of American Apparel hasn’t unfolded exactly as Charney would’ve liked, there’s no disputing the impact both he and his erstwhile company have had on the world of milennial fashion.
The final chapter in the American Apparel tale may not be written just yet — especially with the recent news that Charney is prepping a return to the market with a whole new venture of his own — and the world will no doubt be watching as to what comes next. However things turn out, one thing’s for sure, it’s been quite a ride.