Dov Charney has one hell of a story to tell. After losing American Apparel in a death spiral of debt, corporate intrigue and troubling sexual harassment allegations, Charney is starting over with a new venture that sounds a lot like his old one. But can he really build a new and improved American Apparel — and escape his past?
In the months after American Apparel was sold out of bankruptcy and its stores were shuttered worldwide, Charney spoke at considerable length with Retail Dive about his complicated history, the road ahead — and everything in between.
PROLOGUE
Dov Charney has a proposition. “Do you wanna FaceTime?”
The reporter he’s talking to this morning has just a few follow-up questions, but Charney has something more exciting in mind. As the video call fires up, he shows off his Los Angeles living space — the walls filled with taped-up papers, his clothes folded onto an Ikea bookshelf. Charney’s signature mutton chops and 80s-style aviator eyewear are nowhere to be seen. His dark hair and scant beard are flecked with grey. He’s smiling — grinning, really. There’s a fervor.
Then Charney gets to what he really wants to show… and for anyone thinking about the American Apparel founder’s checkered reputation, don’t worry: it’s more captivating — not to mention more wholesome — than you might think.
It turns out the bedroom is little more than a bivouac. It’s set up so that Charney can spend days and nights in this building. The real action is beyond the bedroom door, which opens onto a vast, light-filled space where massive, state-of-the-art machines hum with activity. The realization quickly sets in: This is a garment factory — specifically, it’s the home of Los Angeles Apparel, Charney’s new venture.
“This is from Europe. It’s the best,” Charney says of one machine, navigating among the workers moving across the factory floor. “A lot of these people I know, they worked for me at American Apparel.”
He approaches several workers. “Cuantos años en American Apparel?”
“Nueve,” one responds.
“Seven,” says another, followed by, “Twelve.”
One man flashes his palms twice, then makes the number-one sign with his index finger: “Twenty-one.”
TIMELINE (1989-2017)
- 1989Dov Charney starts American Apparel
- 1997American Apparel begins manufacturing in Los Angeles
- 2003First retail stores open
- 2005Former employees file three sexual harassment lawsuits against Charney
- 2007American Apparel goes public
- 2009Immigration agents investigate American Apparel
- 2011The company receives bankruptcy waivers and installs John Luttrell to oversee its finances
Five former employees sue Charney amid claims of sexual assault
- 2014The company’s board ousts Charney as CEO and brings in Paula Schneider
- 2015American Apparel files for Chapter 11 bankruptcy for the first time
Charney makes a $300 million bid for control of the company, which is rejected
- 2016American Apparel emerges from bankruptcy as a private company
Charney starts a new venture called Los Angeles Apparel
Schneider leaves American Apparel
The company files for bankruptcy for a second time
- 2017Gildan Activewear buys American Apparel’s intellectual property for $88 million
American Apparel shutters its Los Angeles factory and retail stores worldwide
American Apparel, of course, is the apparel company Charney founded almost 30 years ago as a young Canadian carried away by a lifelong obsession with American-made cotton T-shirts. The company whose fledgling wholesale business he transformed into a trendsetting fashion brand and global retail empire with hundreds of millions of dollars in annual sales. The company that prided itself on its immigrant labor, domestic manufacturing and good wages.
But it was also the company whose sexually charged marketing — not to mention its CEO’s personal behavior — polarized the very public it wanted to buy its product. The company whose Shakespearean rise and fall became one of the biggest business stories for over a decade. The company that ultimately ousted Charney in 2014 amid accusations of financial improprieties and sexual harassment. And, ultimately, the company he watched stumble, fall into the ether and become just a shell of its former self — a brand in name only, its U.S. manufacturing base and retail stores effectively abandoned after Canadian T-shirt maker Gildan acquired the company at a January 2017 bankruptcy auction for a mere $88 million.
American Apparel is far from the only company to succumb to the mounting pressures facing so many apparel retailers, especially in recent months. The Limited, Wet Seal and BCBG Max Azria all fell victim to changing consumer tastes and shopping patterns in the first quarter of 2017 alone. But American Apparel stands out. For nearly 30 years, the company provided a steady stream of high-quality basics and edgy styles to worldly urbanites who had no use for the logo-laden clothes favored by suburban teens. Charney’s unique approaches to fashion, manufacturing, marketing and retail drove the brand’s rapid ascent to the top of the apparel world in the mid-2000s.
The company eventually crumbled in spectacular fashion under the growing pressures of its precipitous rise, accelerated by the Great Recession and its own rather peculiar set of problems. And one cannot escape Charney’s personal troubles when talking about American Apparel’s downfall. Several ex-employees filed lawsuits over the years accusing him of sexual assault and harassment — lurid and disturbing accusations that would eventually underpin his removal as CEO.
The real story of who is to blame for American Apparel’s downfall — and whether there’s truth to the allegations against Charney — played out in a rather public tug of war. While the company’s management disparaged his behavior in the press and in courtrooms, Charney has always sought to be the master of his own narrative. He denies the accusations outright and insists they were merely a pretense for his ouster, noting the company’s board acted on them long after they were news. At the time of his firing, Charney believes, American Apparel was poised for a comeback; he just never got the chance to make it happen. American Apparel ultimately unraveled without him — and a dark cloud still lingers over his reputation.
[Los Angeles] is not the America that Donald Trump has in mind. This is the America that the Rainbow Coalition had in mind.
Dov Charney
Now Charney’s starting over. He has a new venture — Los Angeles Apparel. At first blush, the company continues right where American Apparel left off. Charney’s essential approach remains unchanged, and he maintains the same unwavering confidence that young urbanites represent a niche market that will translate into hundreds of millions in apparel sales.
But even the name of the company hints at some differences. “America” is now Donald Trump’s America — and for Charney, “Los Angeles” is an antidote to that: A diverse city of strivers and the birthplace of the gritty style that won Charney over decades ago.
“Los Angeles is one of the most exciting places in the country for manufacturing, for culture, and despite the higher costs, it’s doing fantastic,” says Charney. “This is not the America that Donald Trump has in mind. This is the America that the Rainbow Coalition had in mind.”
With American Apparel now firmly in his rearview mirror, Charney’s future holds possibilities. But can he build a new and improved American Apparel — and escape his past?
I. The Rise
(1989-2008)
THE EARLY DAYS
Dov Charney’s determination to move on from American Apparel by creating a new company that closely resembles it speaks to the preternatural determination that sometimes vexed his parents and teachers when he was just a small boy in Canada.
“Dov — he was a handful,” his father Morris Charney tells Retail Dive. “They didn’t understand him at school, but he had an entrepreneurial spirit. Dov was persistent.”
That spirit got him in trouble at an early age. Inspired by The Montreal Star, which he delivered in the mornings, 11-year-old Dov established a newspaper, the “What’s Up Newsletter,” assigning his friends stories to write and printing copies in the Charney family basement. The kids sold the papers lemonade stand-style, but Charney’s school accused him of encouraging them to panhandle.
WHIZ KID. As a child, Charney was free spirited and entrepreneurial. He courted controversy early on by creating the “What’s Up Newsletter” and selling it on the street, lemonade-stand style. His teachers shut it down, calling it panhandling.(Credit: Dov Charney)
A few years later, Charney became obsessed with the superior feel of American cotton T-shirts. While attending elite Connecticut boarding school Choate Rosemary Hall and later Massachusetts’ Tufts University, he would bring carloads of American-made merchandise home to Montreal and sell items on the street, at one point earning a $25 fine for bootlegging. But buying T-shirts at stateside Kmart stores and driving them across the border wasn’t exactly an enduring business enterprise. So Charney quit school, borrowed $10,000 from his parents and established American Apparel in South Carolina in 1989, exploiting his next-level geekery about fine-gauge jersey and baby rib shirts to produce his own line with the aid of facilities and workers from Hanes Brands.
WHISTLING DIXIE. Charney would learn a lot about apparel manufacturing from seasoned pros in South Carolina’s textile industry, which thrived from the early 20th century until production began moving overseas in the 1990s. (Credit: Dov Charney)
“It wasn’t called ‘American Apparel’ because he was manufacturing in Los Angeles or in South Carolina — not at all,” Morris recalls. “He started in the basement of my home. And it was called American Apparel because he was in Canada, and he really liked American cotton and the American T-shirt and the quality of the fabric.”
During American Apparel’s formative years, Charney’s manufacturing depended on contracts with South Carolina factories. He speaks fondly of his years in the American South, and credits local mentors for shaping his business acumen. But Los Angeles beckoned even then. As the 1990s unfolded, Charney established an increasing number of West Coast contracts while South Carolina’s manufacturing sector waned. After continuing to manufacture on both coasts for a while, Charney finally embraced American Apparel’s destiny, trucking seven loads of raw materials and inventory west — a move completed in October 1997.
Despite steeper costs like higher wages — outside the area’s notorious sweatshops, that is — and more stringent break and sick leave rules, Southern California fit Charney perfectly with its temperate climate and intemperate culture. Los Angeles’ Korean garment community was “vigorously supportive” of his ambitions. “Many suppliers extended me credit even after I bounced so many checks on them and continuously failed to pay them on time,” Charney wrote in his online autobiography in 2014. He quickly came to appreciate the willingness of Korean-American garment factories to produce smaller runs, an approach that has become key to his idea of “rapid reaction” manufacturing — a process he believes is critical now more than ever to respond to what’s selling in the market and ensure quality control.
MADE IN THE USA. Charney established American Apparel’s manufacturing base in Los Angeles. The company’s famous factory finally shut its doors for good in 2017.(Credit: Dov Charney)
“It’s rapid reaction, it’s rapid production to react to trends, not fast fashion,” he says in a conversation with Retail Dive. “To manufacture in one part of the world and sell in another is turning out to be inefficient.”
As if to make his point, Charney stops speaking for a moment to address a worker: “It’s too much rib, you have to control that. Make sure it’s not too loose, not too tight. Always flat, not too much, not too little.”
To manufacture in one part of the world and sell in another is turning out to be inefficient.
Dov Charney
“That’s the benefit of manufacturing in the U.S.,” he says, returning to our dialogue. “I can be in the factory while I’m on the phone talking with you and address a quality issue. If I’m on the phone in New York and the factory is in Bangladesh, it’s not so easy.”
“Of course there’s the argument that [domestic manufacturing is] ethical, but that’s a kind of social argument. I’m telling you that it’s cheaper too — that’s what retailers need to know,” he says. “What local manufacturing allows you to do in the fashion context is accelerate or decelerate production.”
The approach allowed American Apparel to experiment and quickly learn from its mistakes. “I learned a lot, we’ve learned from a lot,” Charney says. “But one of the things we did learn is that people will pay for predictable quality basics, and they’ll even pay more if it’s predictably available.”
JUST THE BASICS
American Apparel gained new traction as a wholesaler after relocating to L.A., earning particular notoriety in the music industry for its 4.3 oz. 100% fine ring-spun combed cotton jersey.
Charney’s manufacturing finesse wasn’t all that set American Apparel apart; he approached the business with a creativity and knack for garments that he and his parents say is in his blood. His paternal grandmother was an immigrant sewer in a knitting factory. His father Morris is an architect and his mother, Sylvia Safdie, is an artist. Her website sports a slogan that could have worked at American Apparel: “The body is the most personal place that you can express from.”
TAKING THE SHOTS. Charney, who was American Apparel’s main photographer, uses an old Canon 5C or his iPhone. “I could use a 110 Instamatic,” he says. “Low-tech is sometimes interesting. It’s not about the camera. I don’t think grain is bad; I don’t like to do a lot of Photoshop. I think having something that comes across as authentic and real is important.” (Credit: Getty Images)
Charney, of course, is a photographer, too — one who’s made quite a name for himself and his brand with a series of provocative marketing campaigns that both titillated and offended. Charney’s sexually charged photos of young women in various stages of undress are now synonymous with American Apparel’s brand and his own public persona. This troubles him because he believes his campaigns were varied and pushed important boundaries. In addition to young women and girls of diverse ethnicities and body types, Charney says, American Apparel ads depicted older women and older couples, interracial couples, older interracial couples and gay couples — a veritable checklist of in-your-face challenges to cultural norms.
“We produced an enormous amount of variety — we were producing in some cases 30 ads a week in different markets. I kept shooting till the end. I was shooting days before I was fired,” Charney says. “We were doing selfies before the age of selfies. I was buying cameras for women and said ‘Shoot yourself’ because what a selfie is, is a real moment, it makes the person look larger than life.”
We were doing selfies before the age of selfies.
Dov Charney
In his print ads — which have the sort of faded glow that suggests you’ve found a Polaroid hidden in a box of private snapshots — Charney was chasing one of his most prized attributes: authenticity.
“What made it special is that it wasn’t rehearsed, it wasn’t contrived, it was honest. It was real,” Charney says. “The people were real, and we challenged notions of beauty because we rarely used professional models. I understand that not everybody understands the marketing, or that the media has raised hay over aspects of the marketing. But the reason that this was one of the most recognizable fashion ad campaigns or any ad campaign — a huge element of what made it special and why people connected to it — was its authenticity and its realness.”
Charney defends the sexually charged images as superior to the airbrushed ideals presented by most apparel retailers, and believes the controversy was helpful to the brand. “I do think there’s something to be said for photography that challenges cultural norms, that challenges what people think are right and wrong,” he says. “People are going to buy into authenticity. It’s not like everybody likes ‘Walt Disney’ perfect. The imperfect is often more appreciated than the perfect.”
ALL TOO REAL? American Apparel was criticized for depicting underage girls in sexy poses. Charney argues they only looked young in contrast to most advertising, which makes very young models look older than they are. (Credit: Dov Charney)
And while it may be difficult for some to remember now, the shtick really did work.
“The basics were good and they had normal girls that were cool and cute as hell, and live photos and they looked fantastic,” says Lee Peterson, executive vice president of brand, strategy and design at WD Partners, a global retail design firm, who spent 11 years at The Limited when it was still owned by Les Wexner. “To me, it was a good [campaign].”
Charney’s company was more than good marketing. Especially when it came to basics, he had a well-honed instinct about style and quality, bucking trends to appeal to the sophisticated urban 20-something he saw as his customer.
The company zigged as others zagged. While retailers like Aeropostale, American Eagle Outfitters and Abercrombie & Fitch were churning out apparel emblazoned with their logos, American Apparel’s merchandise remained free and clear of any corporate insignia — the people who wore its clothing advertised it through their sense of style.
One of Charney’s innovations — using thinner fabric and cuts that many women find more comfortable and flattering — remains a contribution to women’s fashion basics. Inspired by the shirts worn by a South American girlfriend, he developed the “Classic Girl” in 1997, which took off in the rock-and-roll merchandise circles that were a large part of his wholesale clientele and has been copied by every other basics brand since. American Apparel also arguably launched the by now-ubiquitous trend of wearing leggings as pants. Charney seemed to understand that for women and men alike, “basics” mean more than just cotton T-shirts, hoodies and socks — an innovation highlighted by Racked in an elegy for the brand by the site’s editors.
It’s not like everybody likes ‘Walt Disney’ perfect. The imperfect is often more appreciated than the perfect.
Dov Charney
But for American Apparel, the path from innovative garment maker to fashion icon and global retailer was fast and furious. At the turn of the 21st century, it was still a startup wholesaler, a huge hit among the merchandisers supplying rock and roll bands. But retail — and growth — proved irresistible. Charney relishes detailing this speedy rise, but for the business, it may have been too much, too fast.
HIGH TIMES
Dov Charney turned a childhood obsession with American cotton T-shirts into an influential fashion brand with a burgeoning retail presence.
In 2003, the first store opened in L.A.’s Echo Park neighborhood, followed by one each in New York and Montreal. Within two years, the company was expanding to Europe and opening 65 new stores. By 2006, there were 140 total stores and by 2009, there were 281. The company was global. It was “the fastest retail roll-out in American history,” as Charney called it.
American Apparel store base (2003-2012)
American Apparel rapidly expanded its retail presence, going from zero to 281 stores in just six years.
Source: SEC Filing
The rapid retail expansion coincided with a rising fashion influence that seemed almost impossible for apparel basics. The Guardian called the brand “the fashion sensation of 2008” and “the basis for the signature look of the extremely fashionable brigade.” British GQ’s then-executive style editor Jodie Harrison told the New York Times, “I happen to wear American Apparel practically every day of the week.” Outfits detailed in fashion photographs, whether on celebrities, models or stylish young people on the street, often featured at least one garment from American Apparel.
But while Charney brought on young creative types to develop the company’s designs and marketing, he didn’t have a similar financial right hand to help steer the ship. That was fine as long as his suppliers were willing to take a chance on him, despite his financial setbacks and late checks. His ability to operate like a young entrepreneur dependent on a series of mentors and patient investors would eventually diminish. And his notion of ideal growth — bulk up profits by opening more retail locations — may have placed his fashion basics brainchild well beyond his expertise.
“My thing about them was — he had a really great idea, and it was in the name, ‘American Apparel,’” says Lee Peterson. “They had good stuff, and they had key locations, too, which was really smart. But it wasn’t an idea that could be 300 stores. If they could have stayed at 50 to 100 stores they would’ve been fine. Everything changes after you do over 100 stores — operations, marketing, everything. It requires huge changes, and speed bumps. You start going from having A+ stores to C stores, but you’re only profitable on your best stuff.”
There’s a niche market that’s growing that is the antithesis of fast fashion.
Dov Charney
One hundred stores is about what the company was running in 2007 when it went public via a sale — rather than an initial public offering — to Jonathan Ledecky’s Endeavor Acquisition Corporation, an investment firm known as a “blank check” company, for $382.5 million. (Blank check firms are publicly traded entities whose shareholders don’t know what acquisitions will be made before they invest.) This unusual but entirely legal way to go public avoids much of the due diligence that goes into preparing for an IPO.
At the time, the company was doing well: In its first quarter of 2008, it reported net sales of $111.6 million, a 51.9% increase over $73.5 million in the year-ago period, while same-store sales rose 36%. The company had conducted direct sales online since 2004, with localized storefronts in the United States, Canada, the United Kingdom, Continental Europe, Switzerland, Japan, Korea, and Australia. By the end of the third quarter that year — with the company boasting 228 stores worldwide — retail sales had overtaken its wholesale operations, with U.S. retail sales alone on par with its wholesale sales, according to an SEC filing.
FAST AND FURIOUS. American Apparel took the world by storm, undergoing a rapid global brick-and-mortar expansion that propelled the brand to stardom but ultimately contributed to its financial and logistical woes.(Credit: Dov Charney)
By the end of 2008, the company ran 260 stores in 19 countries, with a workforce of 10,000 in large metropolitan areas, emerging neighborhoods, and select university towns. Net sales had risen 40.8% to $545 million from $387 million the year before, and same-store sales continued to rise. Most of the company’s expenses went to expanding its manufacturing in order to fill up all those stores not just with its signature basics, but more stylish offerings and basics beyond shirts, including jeans.
The Great Recession was right around the corner, but Charney and Ledecky were transfixed by American Apparel’s potential. “We were shipping all over the world,” Charney says. “We had stores in 20 countries that were showcases of our brand, and almost all our stores were generating a profit. This isn’t a market of trillions. There was a niche market in New York, in Los Angeles and other parts of the world, even in Beijing. There’s a niche market that’s growing that is the antithesis of fast fashion — to buy basics that are ‘slow fashion.’ American Apparel had a static product line, we dropped things, we added things. What slow fashion is, is Converse All Stars, Levi’s 501 and the American Apparel basic tee.”
II. The Fall
(2008-2014)
THE BEGINNING OF THE END
In many ways, Dov Charney’s American Apparel lived and died by the sword.
Charney’s success was built on his own ethos: His marketing sprang from his philosophy of sexual liberty and gay and immigrant rights, his manufacturing was born from his vision of a borderless world with well-treated workers, and his business success came from his audacious ideas about apparel making. But there were stark contrasts to those big ideals, a yin to every yang — troubling allegations of sexual harassment, an investigation of his operations by immigration officials, questionable accounting practices that raised eyebrows, and some very expensive debt.
The first domino to fall was Charney’s workforce. In an industry notorious for cheaply manufacturing the vast majority of apparel outside the U.S., Charney’s “Made in the USA” philosophy relied on his hiring of immigrant workers — many of whom were undocumented. It’s well-known that Charney paid his workers well — far better than the area’s sweatshops — with benefits including health insurance, English lessons and shares in the company.
LEGALIZE L.A. In 2008, American Apparel initiated a campaign to ease work and naturalization regulations, staging protests and selling T-shirts emblazoned with rallying cries in Spanish and English.(Credit: Dov Charney)
An immigrant himself, Charney even took immigration rights on as a crusade: In 2008, long before it became a hot-button issue nationally, Charney and American Apparel initiated a “Legalize L.A.” campaign, staging a protest in the streets and selling T-shirts emblazoned with the slogan.
Some observers believe Charney’s pro-immigration stance made American Apparel an easy target for immigration officials. In 2009, the federal Immigration and Customs Enforcement (ICE) agency forced American Apparel to fire 1,800 workers — a quarter of its workforce — because of irregularities in their residency paperwork. The investigation severely hobbled American Apparel’s manufacturing, and it paid the price many times over: Production slowed while the company scrambled for replacement workers that it could ensure were legal, and severance packages, which included stock in the company, were expensive. The company was eventually cleared of any wrongdoing in the immigration case, but it took its toll regardless.
The production slowdown rippled to American Apparel stores: In March 2010, the company reported a sales dip that it said was due to difficulties producing inventory. Meanwhile, the recession was decimating both credit and consumer spending. The troubles created a perfect storm that led American Apparel to take on a debt load well beyond what even its massive growth would require — and at steep rates.
He lost 1,800 people in one day and half of them had warrants on his public offering that cost $30,000 each.
Ilse Metchek
“He got into financial difficulties that started with the [investigation by ICE],” Ilse Metchek, president of the California Fashion Association, told Retail Dive. “He lost 1,800 people in one day and half of them had warrants on his public offering that cost $30,000 each. That’s where the cash flow went. He needed a vast interim loan at 18%, and that’s what started that ball rolling.”
American Apparel was essentially a small company that had morphed almost overnight into a large, publicly traded one — and it was this rapid-fire growth and the sharp turn onto Wall Street that tested the limits of Charney’s abilities.
ADULT SUPERVISION
It was the beginning of the end for Dov Charney’s American Apparel.
In 2009, the worst recession since the Great Depression was seizing the economy, ravaging consumer spending and shrinking credit. American Apparel wasn’t in the best position to withstand that. When it needed an infusion of cash to meet impending debt obligations, private equity firm Lion Capital came to the rescue with a lifeline in the form of an $80 million investment. It was a grubstake that would prove fateful.
In 2010, with the company still scrambling to juggle the costs of its massive retail expansion and relieve its debt burden, American Apparel announced that its independent auditor Deloitte had resigned over “material weaknesses in internal control over financial reporting” — another sign that the company had grown too much, too fast and was now struggling to deal with the financial repercussions.
By early 2011, Lion Capital was back wearing a cape: The firm and Bank of America granted American Apparel waivers that would allow the company to avoid bankruptcy. At that time, John Luttrell, who had been CFO at Old Navy and Wet Seal, was installed as CFO at the company — a move characterized as the arrival of “adult supervision.”
American Apparel finances (2011-2014)
Despite American Apparel’s revenue and gross profit figures, the company’s expensive debt and high costs led to a negative operating income — a hole it was ultimately unable to pull itself out of.
| In Millions of USD |
2011 |
2012 |
2013 |
2014 |
| Revenue |
547.34 |
617.31 |
633.94 |
608.89 |
| Gross profit |
294.9 |
327.38 |
320.88 |
309.13 |
| Operating Expenses |
573.74 |
604.76 |
695.34 |
636.30 |
| Operating income |
-27.41 |
12.55 |
-61.4 |
-26.41 |
“What ought to happen is that Lion and BofA should push Charney out of the CEO’s office and replace him with an experienced executive,” CBS financial columnist Jim Edwards wrote at the time. “Charney—who has a genuine talent for picking and marketing new clothes—could remain as creative director, but he’d have to come under the authority of an operations chief. That won’t happen because Charney owns a majority of the company. No one can tell him what to do, no matter how bad things get.”
Before Luttrell’s arrival, American Apparel was somewhat on the upswing: The company posted a 15% increase in same-store sales and a 12% increase in wholesale net sales for fiscal 2012. But the company was still mired in a pile of debt — and job one for Luttrell was coming to grips with it.
Not all was smooth sailing. In early 2013, American Apparel launched a $206 million bond that missed its target. Once again the company faced higher-than-anticipated rates and fees — and once again, it turned to Lion Capital for help.
Another Luttrell project — a much-delayed, high-tech distribution center that Charney opposed as too expensive and unnecessary — suffered months-long delays that prompted Charney to camp out there for three months until it was up and running. Like the immigration debacle in 2009, the project ultimately led to inventory snafus that disrupted retail sales in addition to millions of dollars of cost overruns, according to a lawsuit filed by Charney in June 2015 against his former company, its board and many of its executives, including Luttrell.
TAKING CARE OF BUSINESS. In addition to his chief executive and marketing roles, Charney regularly visited retail stores and kept tabs on manufacturing. “Dov is completely hands-on,” says his father, Morris Charney. (Credit: Dov Charney)
The appointment of Luttrell chafed on Charney. To Charney, the costs of Luttrell’s moves came as evidence that the money men in suits didn’t understand the company’s needs. “I was investigating him,” he says of that time, claiming that Luttrell “wasn’t doing a good job” and “his financial controls were poor.”
When reached by phone for this story, Luttrell declined to speak with Retail Dive. Luttrell rarely spoke to the press while at American Apparel, and he went dead silent after his departure in September 2015.
SEXUALLY CHARGED
Financial troubles weren’t American Apparel’s only problems. It’s impossible to tell the story of American Apparel and its ultimate downfall without talking about Charney’s sexually charged personal brand — and the disturbing accusations that would form the basis for his ouster.
American Apparel’s marketing certainly pushed the envelope. Among the artistic style, progressive ads and tame product shots were plenty of softcore and smutty images that angered children’s advocates, feminists, and advertising standards watchdogs. They lent material to comedians and became a common point of reference for journalists and bloggers, who began to routinely refer to Charney as “pervy,” “creepy” or — at the very least — “controversial.” Charney insists, as he always has, that American Apparel’s sophisticated urban customers weren’t among the haters and slams critics for their duplicity in sensationalizing the sexual aspects of his ads.
SEX SELLS. “Human sexuality is part of the reason that people wear clothes,” Charney says. “You’re not going to escape our sexuality from a narrative about a clothing company.” (Credit: Getty Images)
American Apparel, of course, is hardly the only brand whose ads have been criticized as exploitative, misogynistic or simply in poor taste. But Charney’s own behavior fed the narrative in ways that pushed the boundaries of good taste and labor laws — and ultimately became inextricably tied to the American Apparel brand.
In a 2000 New Yorker profile of Charney as a young garment geek, the author Malcolm Gladwell describes how he tested the fit of women’s shirts: at a strip club near his Los Angeles factory. The practice was helpful, Charney explained, because the women’s bodies were of all different sizes and shapes and, unlike run-of-the-mill models, they didn’t charge $100 an hour.
“At a strip bar, you get a cross-section of chicks. You’ve got big chicks, little chicks, big-assed chicks, little-assed chicks, chicks with big tits, and chicks with little tits,” Charney told Gladwell. “You couldn’t ask for a better place to fit a shirt.”
Then there was the infamous 2004 interview with a Jane magazine reporter, who — though she made clear that she didn’t object — detailed how Charney masturbated in front of her during interviews. The scandalous story sparked a media frenzy and heightened the public’s attention to Charney’s sexual habits. Charney, however, defended his habit of dating and cavorting with the women who worked or modeled for him, often saying that he worked so much that it was his only way of meeting anyone.
At a strip bar, you get a cross-section of chicks. … You couldn’t ask for a better place to fit a shirt.
Dov Charney
But Charney’s sexual behavior became a far greater concern for American Apparel once lawsuits started raining down on him. Ex-employees filed a series of three lawsuits against him in 2005, alleging sexual harassment in the workplace. Later, in 2011, even more serious accusations emerged in lawsuitsfiled by five former female employees, some of whom claimed Charney had sexually assaulted them.
According to media reports, one suit charged that nude photos of a woman given to Charney appeared online without her permission. Another accused Charney of sexually assaulting a woman while at his home for a purported job interview. Yet another said American Apparel employees were forced to sign arbitration agreements when hired by the company that would “keep employees from disclosing unlawful conduct.”
The suits inflicted a dark edge of criminality onto Charney’s already pervy reputation — and though Charney didn’t know it at the time, the accusations would later be weaponized by American Apparel’s board as they pursued his ouster.
Throughout it all, Charney has strenuously denied any wrongdoing in these cases, while admitting to several incidents detailed in the press unrelated to his legal troubles. No criminal charges were filed in these cases and civil litigation has either been dismissed or settled.
“I do support the laws to protect workers and to protect women and to protect minorities,” Charney insists. “If I was a victim of the system — that’s a by-product of the justice system and that’s fine. I’m fine with that.”
Although American Apparel’s board of directors would say otherwise, Charney maintains that the lawsuits had nothing to do with his ouster. “What happened was the CFO wasn’t doing a good job,” he says. “This a company that was sold for parts, stolen from its shareholders — all shareholders got wiped out — and stolen from its employees, who, by the way, were also shareholders. This is not a massive victory for Wall Street.”
WINNERS AND LOSERS
Charney’s unconventional approach to marketing, the noticeably high quality of his apparel and his global and urban — if not urbane — outlook all contributed to American Apparel’s success; they converged into a wave that the company could surf. But while Charney’s personal brand may have helped the company, it would also eventually underpin the argument to unseat him.
Ousting Charney as CEO may not have been American Apparel’s initial goal. Unbeknownst to Charney, Luttrell met with American Apparel bondholders weeks before Charney was fired, and listened while hedge fund Monarch Capital Management — the retailer’s biggest lender with a record of successfully pushing companies to sell themselves — lobbied for a sale, according to the New York Post.
Morris Charney told Retail Dive that Luttrell appealed to him and Dov’s mother, too, saying that there was a lot of money to be made. “John Luttrell is the opposite of Dov,” Morris said. “He’s connected to the financial world. He and Dov never got along. [Luttrell] came to see me here. He wasn’t a hands-on guy and Dov is completely hands on. He instigated behind his back. They were wearing him down; his mother got alarmed.”
It was a CFO-led coup … this wasn’t a shareholder revolt.
Dov Charney
While the bondholders may have found that Luttrell was all ears, Charney had no interest in the idea. “It was a CFO-led coup,” Charney says of the movement to unseat him. “The CFO wanted to cash out, he had stock, he would’ve made a couple million bucks, and this was the easiest path for him to accomplish that. The mistake I made at American Apparel was that I didn’t demand early enough for special control rights when I could have. I wanted to tell my shareholders that they could trust me. And my shareholders did trust me. What went wrong here — this wasn’t a shareholder revolt.”
For anyone planning a coup, Charney’s personal behavior would serve as ample ammunition. In June 2014, the board moved to unseat him as CEO, citing “new information” about inappropriate behavior and misuse of company funds that had “come to light.”
“They fired me 20 minutes after they were elected,” Charney says of that moment. “I made a speech, people clapped, I hugged everybody, then we went into a room, and they said, ‘Give us the voting rights of your shares, take $5 million bucks and hang around as a consultant.’”
The board launched an investigation into what they said was sexual misconduct and misuse of company funds. Their promised report has never officially materialized, but the media and a public well-versed in Charney’s behavior didn’t need the report to believe that the American Apparel founder had finally gone too far.
In court documents filed after his ouster, American Apparel accused Charney of causing “financial and reputational harm” to the brand as it dealt with the lawsuits. The filings said Charney “repeatedly engaged in conduct that violated the company’s sexual harassment and anti-discrimination policies, and created significant risks of liability on the part of the company.”
CAN WE TALK? Dov Charney doesn’t rely on public relations firms to shield him from the media or shape his communications. He can be blunt, coy, philosophical, geeky or apoplectic — all in one conversation. “Think of me as a Smurf,” he says. (Credit: Dov Charney)
Charney maintains that has yet to be resolved in court, where he’s still fighting what he says are the company’s damages to him. “The litigation will go on for years,” he said. “There were no sexual harassment accusations at the time [of my ouster]. When I look back on it, it was a complete media manipulation. Not everything is what it seems.”
It is the actions of American Apparel’s board that he finds disingenuous and unjust, and it galls him that they found religion at the same time he was resisting a sale. “This isn’t a board that lost its cool,” Charney says. “I had no idea that they were upset because they weren’t upset.”
In fact, Charney is willing to play a hypothetical — if the charges were the reason to dismiss him, shouldn’t the board have acted when the charges were first made, rather than years later?
When Charney was ousted in June 2014, newly appointed co-chairman Allan Mayer told the Los Angeles Times that the company didn’t move sooner because “a board can’t make decisions on the basis of rumors and stories in newspapers.”
But, Charney points out, the board had been grappling with accusations and even lawsuits against him for some time.
“If there was something going wrong they should have said something in 2011, or they should have been honest with shareholders in their disclosure statements of 2011, 2012, 2013 and 2014 when they supported me as CEO. In 2012, they gave me a handsome contract. In 2013 and 2014, nobody said, ‘Hey, you’re doing anything wrong.’ They were going back in a time machine, unearthing something that was resolved,” he says. “They had already said they were baseless.”
Charney thought he could make a comeback after discovering a new source of support in hedge fund Standard General. Just weeks before Charney’s firing, Standard General executives touted his talents and vision in a presentation, arguing that they were under-appreciated by analysts and that the company’s debt situation arose from discrete financial incidents that could be overcome. They recommended strategic store closures and openings as well as merchandising changes, but emphatically said the company required Charney’s vision.
“The performance of the company has been hampered by high cost debt and one-off operational issues that may have been less punitive with a better financial position,” according to a March 2014 internal analysis obtained by Retail Dive. “Wall Street consensus is that CEO Dov Charney is the problem and company would be better without him. We disagree. We believe he is the lifeblood/anchor of the brand which is the key value proposition of American Apparel. We see significant upside with a solid balance sheet and better financial discipline.”
What you’re seeing is the underbelly of Wall Street — what they wanted was to monetize and financialize the company.
Dov Charney
With Charney still on as a board member and a consultant — and now with Standard General in his corner — he believed he had a few moves to play. With the fund’s help, he boosted his stake to 43% from 27%, but their agreement entailed Charney ceding his authority.
That provision proved fatal for Charney, as the hedge fund quickly pivoted from supporting him to supporting the board. “[Standard General] progressively reneged on the bargain. It’s not because they unearthed new things; they did it because of financial greed,” Charney says. “The only reason that I’m involved with this is that they said I’d take control of the company. Instead they took control of the company.”
“Standard General used that opportunity, and the fact that the media perceived me in such a way,” he says. “They used that opportunity to empower themselves, and they fucked it up for themselves.”
Standard General declined to go on the record to Retail Dive. The hedge fund has since sued its partner investors alleging that they neglected the company’s turnaround and unfairly pocketed the spoils of its 2015 bankruptcy — accusations that sound remarkably like Charney’s own.
Charney clearly remains stung by his ouster. “I felt cheated and shortchanged,” he says of that time. “It wasn’t just me; this was a transfer of wealth from Main Street shareholders, artists, workers, suppliers to Wall Street hedge funds, Wall Street lawyers and Wall Street consultants — and rarely does that work out.”
“What you’re seeing is the underbelly of Wall Street — what they wanted was to monetize and financialize the company,” he says. “I believe I was successful at American Apparel. Its ending was abrupt, but I believe in what I’m doing.”
III. The Comeback
(2014-2017)
AMERICAN APPAREL UNRAVELS
While the board positioned Charney’s ouster as imperative to the company’s survival, American Apparel’s deterioration worsened after his departure.
The company briefly installed Luttrell as interim CEO and attempted to finesse its break with Charney by continuing to pay him as a consultant well into the fall of 2014. But that didn’t work for either of them.
“I began to realize that they were not going to give me back control, that they’re going to give me this $1.6 million salary with millions in bonus potential, but that I’m not going to be the boss,” he says. “But it’s critical for me to be the boss — that’s where my pleasure’s derived from. It’s not derived from money, I could sleep on the floor. What makes me excited is to build the business.”
It’s critical for me to be the boss — that’s where my pleasure’s derived from. It’s not derived from money.
Dov Charney
The board ousted him from the company altogether in December and brought in Paula Schneider as CEO. She had held a range of positions at apparel companies that mostly related to improving the bottom line. At American Apparel, cutting expenses — including slashes to employment and overtime at the company’s factories — were among her first moves. But efforts to undo the retailer’s nimble supply chain and merchandising approaches only exacerbated its struggles. And the sex-laced marketing that invited so much controversy and the debt levels that did so much harm saw little change.
Charney himself approved the choice of Schneider — in part because he had been assured that he would continue to serve, essentially, in an executive capacity. That was out the window once he was fired. The next year would be messy as Charney, shareholders and his brainchild traded lawsuits over how and why he was let go.
“She’s a salesperson. Where’s retail in her resume? She’s not involved in manufacturing. She negotiated prime real estate. She’s not even pretending to be a retailer,” he says of Schneider. “But the media. I was like a crazy. Think of me as a Smurf — think of me as a cartoon, going crazy over it. The workers were demonstrating; no one would listen. The Anglo-American reader doesn’t want to hear about the workers. The shareholders got crushed. But even the day of the last firing of the last workers — I was down there, downtown.”
THE FIXER. Charney favored the choice of Paula Schneider to replace him as CEO until he realized how diminished his own role would be. As she instituted money-saving job and overtime cuts, she faced a worker revolt and endured death threats. (Credit: Getty Images)
A spokesperson for Paula Schneider did not ultimately return Retail Dive’s multiple requests for an interview. But in a series of interviews early in her tenure, she emphasized expense cuts and restructuring the supply chain operations that she considered to be loose under Charney, turning instead to the old-school tradition of designing and making styles a year in advance. These moves would ultimately accelerate American Apparel’s undoing — not stem the bleeding.
At the same time, Charney was trying to scramble back into the driver’s seat. Along with a string of lawsuits fighting his termination, Charney pulled together financing to buy back control and continued the effort through much of 2015 — the first of two major takeback attempts after his ouster. “They kept stomping on my garden,” Charney says. “I tried to buy the company, I wasn’t allowed. I’ve never seen so much money spent on PR in connection to a fashion company. They spent $100 million on lawyers and consultants. They didn’t spend it on workers, they didn’t spend it on product development, they didn’t spend it on branding or technology or research and development.”
As Schneider’s cost-cutting efforts proved ineffectual, American Apparel faced one of its worst financial years ever. Net sales in the first quarter of 2015 dropped 9% and plummeted 17.2% in the second quarter as losses widened. Deep cuts of $30 million over 18 months were unveiled in August. But other changes made by Schneider failed to shore up the business as intended — and would instead prove fatal, according to Charney.
“I kind of know what they were doing. They collapsed the margin — the margin was over 50% for a decade. Suddenly it’s at 38% and 41%. They started lowering prices; they started having all these sales,” Charney says. “Prior to my getting fired I had very few sales because markdowns are expensive — and it depreciates the brand.”
American Apparel sales growth (2012-2015)
American Apparel sales unraveled in the wake of Dov Charney’s departure
Source: Factset
Under Schneider, American Apparel began to dismantle two of Charney’s key imperatives:
- make only just enough clothing that will sell in order to avoid discounting; and
- manage the just-right inventory through “rapid reaction” manufacturing — swiftly making and delivering more of what’s selling and shutting down production of what’s not.
This nimble rapid reaction approach was also innovated by fast fashion, but Charney avoids that term because he insists on high quality. Such rapid reaction garment-making is only enabled through domestic manufacturing, he says.
Instead, the retailer began designing collections out of season — a process that is increasingly being abandoned by even haute couture fashion today. “The problem is, they brought up a new collection, and they couldn’t make enough of the good stuff because the factory was all screwed up, and they got stuff they speculated on,” Charney claims. “They tried to produce in advance — I would produce in season.”
Under Charney, American Apparel could turn things around in a matter of weeks. “In January, I’d be in Miami hanging out by the pool testing out the bathing suits. I’d go to the store on Lincoln Road and we would see if the bathing suits would sell,” he says. “If we would sell three or nine of them, we’d know how many to make for when summer hits New York and when summer hits London. That’s how we did it, in season. Not the year before! So they dismantled all of my strategy.”
Schneider may have ripped up the Charney manufacturing and retail playbook, but interestingly she left the marketing approach mostly intact. She told Elle magazine that year that she was happy to see American Apparel on the National Center on Sexual Exploitation’s “top contributors to sexual exploitation” list: “I’m sorry if you’re offended by a girl wearing a thong, but we do sell thongs, so we have to show what it looks like.”
While Charney’s and American Apparel’s lawyers traded papers and barbs in dark courtrooms, Schneider’s cost-cutting provided Charney with an opportunity to mix his legal battle with a few of his favorite things: agitation for workers rights, flamboyant behavior and sunny Los Angeles days. In support of Charney, The Coalition of American Apparel Factory Workers United to Save American Apparel was formed, and — employing the Cesar Chavez-Dolores Huerta-era union battle cry “Si, se puede!” — spent much of 2015 protesting outside American Apparel’s headquarters, calling for his reinstatement and protection of the workers’ jobs.
Sometimes things got ugly, like when protesters bashed a Paula Schneider piñata. The events ultimately went on for months and dragged into years. On the day those factory doors finally closed in January this year, Charney was right there — just as he has been all along.
NO TAKEBACKS
By October 2015, American Apparel had little to show for its manufacturing, human resources or merchandising changes, and faced delisting from the New York Stock Exchange. Surprising no one, the company filed for bankruptcy.
For Charney, it was time to move off the streets and into the courtroom for his second try at regaining control of American Apparel. In January 2016, he sat on the witness stand in United States Bankruptcy Court, District of Delaware, and beseeched U.S. Bankruptcy Judge Brendan Shannon to bless his reinstatement.
By all accounts, Charney’s dedication to his company was evident in his passionate testimony, but — ever the free spirit — he didn’t always conform to courtroom etiquette. The judge at times asked him to quit “free associating.” American Apparel’s attorney, Scott Greenberg, even opted not to cross-examine him, saying only that Charney’s rambling speeches showed why he wouldn’t be helpful to the company’s turnaround.
“It takes people who don’t always have the right resumes,” Charney says of the creative and intuitive people that he believes successful retailers need. “[Many financial firms] want to end the company — they’re looking to package it and sell it. But when you talk to retail people they want to live in their company. They love their companies — the private equity firms can’t wait to get out. They want a pay day. They’re not looking to hang around or create something unique, or win accolades for their creativity. They’re measured by how much money they can extract from the business. They’re not interested in the customer; it’s not about authenticity. It’s like someone going to school just to get grades and they’re not there to learn anything. They’re missing the point.”
The money’s not talented, that’s the problem.
Dov Charney
When it came to his takeover bid, Charney didn’t neglect to bring reinforcements in the form of $300 million from private equity firm Hagan Capital Group and hedge fund Silver Creek. That figure topped the value range — between $180 million and $270 million — that the investment bank hired by American Apparel had estimated in court documents. But the board rejected it. In refusing to approve it, the judge said that Charney’s argument boiled down to the idea — insufficient, in his view — that American Apparel couldn’t survive without him.
Hagan Capital Managing Partner Chadwick Hagan said American Apparel was simply playing a game of keep away. “There was a lack of dialogue and negotiation,” he told the New York Times. “In my opinion, there was a freeze-out of anyone involved with Dov. I think they were trying to scare us away.”
The takeback attempt was a dead end, and Charney believed the company would suffer without him. “I feared, with good reason, that the new management, not understanding what made American Apparel successful in the first place, would attempt to corporatize and conventionalize the company at the expense of its creativity and values,” he warned in January 2016 in the wake of the failed $300 million bid to buy back American Apparel. “The board and new management did not appreciate that a vertically integrated domestic manufacturer had to approach business in a fundamentally different fashion. I felt that the company’s future was in serious jeopardy if they proceeded to run it like a traditional retailer. The sad reality is that American Apparel, the largest garment manufacturer in the United States, will not survive at this pace and I don’t believe the current management has the talent to bring it back to health.”
But not even Charney could have foreseen American Apparel’s nosedive so soon after his departure. “The money’s not talented, that’s the problem,” Charney says. “The money doesn’t create the value. Basically the hedge funds and the private equity firms — and it’s not all of them — they hire these consulting firms. What these guys do, they just come in, they raid the company — basically, the suits take over. But it hasn’t worked out in fashion, as far as I can tell.”
THE NEW AMERICAN APPAREL
American Apparel emerged from bankruptcy in February 2016 as a private company, no longer required to post its financial results.
Soon enough, it became clear that the brand would in fact have trouble surviving without Charney at the helm. By September 2016, the retailer was reportedly seeking a sale. By October, Paula Schneider was gone. In November, the retailer filed for bankruptcy for the second time in a year and found itself back in Shannon’s court — a victim of a lack of leadership, according to GlobalRetail Data managing director Neil Saunders.
“On the management front the company seems to have stumbled from one crisis to the next, with the resignation of Paula Schneider as CEO leaving it rudderless at a time when it most needed direction,” Saunders wrote in an email to Retail Dive at the time. “While the bondholders, which took control deserve credit for rescuing the company, their intention appears to have been for American Apparel to tread water while they searched for a buyer. In a market as fast paced as fashion, this was always a risky option for a business that actually needed a long term turnaround plan.”
SNAP DECISION. Charney takes a selfie as a woman in the background works a sewing machine. “For me, the path is to pay workers $15 to $20 an hour and compete in the worldwide market,” he says. “It’s not the only business design; that’s my business design.”(Credit: Dov Charney)
Charney believes his arguments — about fashion, about manufacturing, about retail, even about his importance as CEO — were vindicated as American Apparel presented plans to pay its creditors pennies on the dollar and shutter all its retail stores. By early 2017, the company was entertaining bids for its intellectual property rights from the likes of Amazon and Forever 21 — but not, to many people’s surprise, Charney.
This time around, Charney was nowhere near the court in Delaware. Although he had always left the door open to regaining control of American Apparel, Charney seemed over and done with the whole affair, telling Retail Dive at the time that he’d have to see an asking price and assess considerations like inventory before even giving it serious thought.
By then he was teasing the press about his new venture. Charney’s resources — his time, energy and money from investors — were squarely focused on the city of Los Angeles, where he was starting up a new factory and making the same kind of basics that American Apparel is famous for. But it still clearly pains Charney that American Apparel’s board played hardball with him — only to abandon American Apparel’s customers, workers and shareholders after helping themselves.
“I couldn’t have imagined that they would go bankrupt as quickly as they did, and then after they went bankrupt, I could never have imagined that they would go bankrupt again,” he said in a conversation with Retail Dive about a month after Canadian T-shirt company Gildan Activewear Inc. bought American Apparel’s intellectual property for $88 million. “And when they started to go bankrupt again, I could never have imagined that they just would’ve sold the brand and walked away from the brand.”
While Gildan’s price paled in comparison with Charney’s bid from the year before, the transaction also meant a further dismantling of his vision. The purchase included no stores because Gildan had no interest in the company’s retail side. All of American Apparel’s stores are now closed — the end of an era for the brand.
END OF DAYS. When American Apparel’s factory doors finally closed in January this year, Charney was right there — just as he has been all along.(Credit: Dov Charney)
For the first time, a lot of American Apparel’s clothing won’t be made in the United States. After selling the company’s Los Angeles factory, final layoffs at the factory and its headquarters began in January. Charney was there for that, too.
In an email to Retail Dive, Gildan spokesman Garry Bell said that while the company is committed to continuing some manufacturing in the U.S., many American Apparel customers demand lower prices — which, Bell insists, requires leveraging Gildan’s cheaper operations abroad.
“It is clearly obvious that there exists a loyal American Apparel customer who loves the fabrics, great styles and the distinct marketing, but is looking for a better price to compete with the multiple other brands of similar products not manufactured in the USA,” he wrote in April. “It is to service these customers that we are launching a grouping of products that will leverage our existing manufacturing operations. The strategy is quite simply to offer the best of both worlds to each of those core customers.”
That’s not how Charney sees the loyal American Apparel customer. For him, the “American” of “American Apparel” is more than where it’s made. For an immigrant enamored with America’s multi-cultural ethos, American Apparel was not just an ethical garment maker, but a cultural ambassador. “This brand became part of the American culture, especially in larger cities, especially in New York or London or Tokyo, where people aren’t buying clothes just to survive, where people are thinking about issues, and how things are made and where they’re made,” he says.
LOS ANGELES APPAREL — THE REAL ‘AMERICAN APPAREL’ ?
These days, Charney is still busy with his camera, but now he’s pointing his lens at the city of Los Angeles itself — a place that Jack Kerouac in On the Road called “the loneliest and most brutal of American cities.”
For Charney, though, it’s a sunny place defined by its people, especially hard-working immigrants. In his eyes, it’s an urban streetscape uninterrupted by corporate America, dominated by low-slung buildings with hand-painted signs. In Charney’s L.A., featured in the photographs he’s taken to tease his new venture, there are pharmacîas and no CVS stores, hot pink mannequins on small lawns in front of mom-and-pop clothing stores — and no Macy’s.
The city is home to Charney’s new venture — the aptly named Los Angeles Apparel.
CHARNEY’S LOS ANGELES. The diverse and sprawling city that Charney — and his new venture — call home. “There’s people from everywhere here,” he says.(Credit: Dov Charney)
Not much is known about the company right now. In the early stages of his new enterprise, Charney is hesitant to talk too much about it. But he does say he has investors lined up, the factory is running, and there are 400 workers.
“Right now, my focus is on creating quality products that millennials, Gen Z, Gen X — even all of us — want,” he says. “I sold $5 billion of apparel from 2004 to 2014, and I intend to sell more in the next 10 years. I had to restart with a couple of sewing machines, and every day it’s wake up, grab the coffee, photography, web design, product design, strategy, marketing strategy, distribution strategy, technology, advanced manufacturing, recruiting, financing. This is my day.”
When talking to Retail Dive, he received word of a 5,000-unit order. “I’m like the marijuana industry,” he says with a laugh. “Some people want in and some people want out. We have supportive banks, too, we’re well financed. We’re able to borrow money, we have trade support, and we have equity.”
L.A. Apparel is already selling to TSC Apparel, which Charney says is one of the top three screen printers in the lucrative wholesale business that serves rock-and-roll, corporate and school merchandisers — the very business in which American Apparel began and always thrived. In fact, the upstart company’s premium shirts are already competing against Gildan’s American Apparel goods.
I sold $5 billion of apparel from 2004 to 2014 — and I intend to sell more in the next 10 years.
Dov Charney
Charney sees an opportunity for Los Angeles Apparel’s customized, small-scale production to meet the needs of e-commerce apparel retailers that value sustainably made, high quality, locally produced goods, but struggle with inventory and distribution. “We’re going to sell to retail partners that have a need for smaller-batch, artisanal garments,” he says.
To avoid over-production, some of those smaller players go as far as crowdfunding their inventory, waiting for a minimum order from their customers before they even contemplate production, he adds. “Because of the inventory risk, which is a big problem… We’re going to be in a position to produce anything and everything.”
“How many times does a company produce something ahead of time and they would have rather changed it at the last minute, but they couldn’t?” Charney says. “The next thing that domestic manufacturing allows for is testing and refinement. All of those cost savings or opportunity gains — or the avoidance of opportunity losses — is why domestic is better. You can’t do it all over the United States because we don’t have the workforce, but you can do it in Los Angeles.”
Charney wants to prove that he can manufacture in the U.S., pay good wages and still build an apparel empire. “Everybody’s relying on sweatshop labor — and I’m not. I’m not saying I’m an angel, but the entire foundation of my business doesn’t rely on 60 cents an hour,” he says. “I want to make Los Angeles proud. My goal is to disrupt the notion that we can’t make great products without relying on cheap labor.”
If American Apparel was the embodiment of America’s sophisticated, urban ideal, Los Angeles Apparel is the embodiment of that city’s ideals as Charney sees them — and a vestige of the best America.
“That’s why I named the company after the city — because we embrace its values,” Charney said. “There’s people from everywhere here.”
WORK IN PROGRESS
Given his skewering in the press in recent years, it may be surprising how many observers believe Charney’s prospects are good. “He’s going to be great again,” the California Fashion Association’s Metchek tells Retail Dive. “I have tremendous faith in him. Because he’s an innovator, and he knows his product.”
Such optimism springs from the high quality of his garments and the way American Apparel catapulted onto the fashion scene. But Charney’s troubles are never too far away.
PRODUCT AND PRODUCER. Charney believes that for a new generation of young consumers, there’s a meaningful connection between their clothing and the people who make it, and they are willing to pay more for it. (Credit: Dov Charney)
It’s hard to tell whether Charney himself believes his past could haunt his new company. “I had a controversial reputation,” he admits. “Some of the controversies were interesting, like promoting gay rights and immigrant rights or fighting for immigrants or fighting for authenticity and good wages.”
While Charney never wavers in his assertion that the sexual assault and harassment claims against him were baseless, he knows that the sexualized branding and the allegations against him fused into a perception that damaged him. “My advertising was so powerful and it elicited so much response that some of the power was reflected back on me in a negative way and that was caused by meritless lawsuits,” he says. “Unfortunately, the media has a financial interest in alleged scandal, too. The media loves it because they need sex. By the time it trickles down to the middle media — the Reader’s Digest version of the media — it’s already considered fact. And that’s what happened to me. But sex is also a driving force as to why individuals buy clothing. It’s not the only force, but it’s a force.”
You’re not going to escape our sexuality from a narrative about a clothing company.
Dov Charney
Charney won’t say much about the marketing approach for Los Angeles Apparel, except to say that it will broadly resemble American Apparel’s. “I’m not saying that it will have the same high temperature, but it will be authentic,” he says. “The workers are part of it, the culture of Los Angeles is part of it. But human sexuality is part of the reason that people wear clothes. You’re not going to escape our sexuality from a narrative about a clothing company.”
Whatever consumers choose to believe about Charney, there’s no doubt he has an outsized reputation at this point — and that’s something he’ll have to deal with one way or another.
There’s “always a fine line” when it comes to the personal behavior of visionary company founders, according to branding expert Martin Lindstrom. He compares Charney’s conflation of his personal life and brand with that of billionaire entrepreneur Richard Branson, whose hot air balloon crash imperiled his space flight ambitions. “At a certain point, people couldn’t separate those components anymore and they were disgusted rather than intrigued,” Lindstrom says. “The only thing Charney can do now is to change tack — and to change tack is incredibly difficult.”
MADE IN L.A. Los Angeles Apparel now employs 400 workers compared to 10,000 at American Apparel’s peak. “Still a good fighter like always, Dov, my boss,” one of his employees writes in Spanish on his Facebook page. (Credit: Dov Charney)
We’re now in an age where politically correct brands will suffer with many consumers when it comes to immigration policy, LGBTQ rights, feminism and the progressive ideals that the Trump administration stands against, according to Lindstrom. And that is on brand — and therefore a lucrative opportunity — for Charney.
“I think he will have a fantastic future if he comes out with very strong views, where he’s very unapologetic, where he speaks to communities that are aspirational,” Lindstrom says of Charney. “He will go through a political shit-storm, but if he can handle that storm, he will have a very bright future. He should stick with his core and what he believes in. Yes, he’s been hit, and people will bring out some of the old ads. But right now, there’s a need for people with strong opinions, and he should absolutely stick with that and he’ll do very well. At the end of the day — he could take Trump’s agenda and completely reverse it, and he will have 50% of the United States.”
When it comes to retail, Los Angeles Apparel’s eventual foray will come at a time of upheaval in apparel sales. Fast fashion has disrupted traditional apparel brands and retailers by imitating styles from the runway and getting them onto store racks well before designers themselves make new collections available. But Charney wants no part of fast fashion’s recipe for success — and believes that consumers will pay more for better, less disposable clothing.
A BORDERLESS WORLD. Charney’s affinity for immigrants goes back decades, according to his father. Many of the employees at his new venture also worked at American Apparel. (Credit: Dov Charney)
“Maybe you pay a few dollars more, but if you value it by the number of wears, fast fashion might be expensive,” he says. “I’m going to make my career purpose to confront fast fashion and to beat fast fashion.”
While Los Angeles Apparel is in many ways his answer to losing his first enterprise, he says there’s more to it than that. Charney believes Generation Z — the generation whose oldest members are just about now turning 20 — is ready for him. “These Gen Zs and millennials are kind of going through the rubble of the big business economy and asking, ‘Where did the personal economy go? Where did the florists go, where did the stationery store go, where did quality go? These are the things that they’re searching for as everyone got Walmart-ed out.”
“More and more young adults don’t want to be tricked by fast fashion. Especially Gen Z isn’t interested in overconsumption, and they don’t want to have brands on their clothing,” he says. “Of course they want a great pair of running shoes, they like a great bicycle, they like a very good smartphone. Functionality is critical. I’m wearing a sweatshirt today. It’s cold outside — makes sense — it’s just exactly what I need… I made it. But even if I hadn’t made it, I would still wear it. I love it.”
I can have a multi-billion dollar business if 1% of society appreciates what I do.
Dov Charney
It’s a chilly February morning in South Central Los Angeles as he talks to Retail Dive over Facetime, and the sunlight streaming into the cavernous Los Angeles Apparel factory behind him casts only a faint shadow. Dov Charney — as he has been for decades now — remains obsessed with superior yarn quality and manufacturing processes and dedicated to the meaningful connection between product and producer. As he always has, he’s betting his livelihood on the assumption that there are enough people in the world who will buy his product, his brand — and his story.
“I believe in my workers, I believe in domestic manufacturing. I believe in fair wages. I believe in quality and craftsmanship,” he says. “Like a Volvo 240, you know, something that lasts — I think that’s what an element of the market wants. I’m not looking to satisfy all buyers. Walmart or Target or Amazon has to appeal to everyone. I only have to appeal to a very small segment of society. I can have a multi-billion dollar business if 1% of society appreciates what I do.”
The Buisness of Fashion
