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Hard times in the land of gold onesies

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Vlad Chituc investigates the seedy underside of the struggling t-shirt titan

It’s not his proclivity for sleeping with employees, walking nearly nude through his 800,000 square-foot LA factory, or masturbating repeatedly in front of a reporter for the now-defunct Jane magazine that is threatening the career of fashion anti-hero Dov Charney, founder and chief executive of risqué-yet-impossibly-wholesome retail giant American Apparel. Instead, the fate of the Helvetica-laden brand of bright and unbranded cotton staples is being threatened by concerns a bit more pedestrian: falling sales, ballooning debt, and the risk of defaulting on an $80 million loan.

Unusually, for the CEO of such a large publicly traded company, Charney has made his personal narrative part of the American Apparel brand. Variously portrayed in the media as either a philanthropist or a libertine, Charney can at least safely be described as an eccentric. The son of a Harvard-graduated architect and an artist, Charney—a Montreal native and severe dyslexic—started manufacturing t-shirts shortly after dropping out of Tufts University in 1990. After seven years, he moved his business from South Carolina to Los Angeles, where American Apparel’s fame began to grow—along with its owner’s notoriety.

Charney has become notorious for his over-sexualized and somewhat seedy image, and has been the target of three sexual harassment lawsuits—all of which were settled before they could make it to court. In one instance, the plaintiff withdrew her accusation of sexual harassment and the case was dismissed. It was later revealed, however, that Charney had agreed to pay his accuser $1.3 million to drop her allegations. Bribery investigations were halted following the plaintiff’s failure to attend the hearing, and the settlement was dissolved.

Though it may be unheard of in any other industry, fashion seems to be the perfect home for such a stark representative of complete liberation. Unrepentant and unbounded by social rules, Charney is a jarring mixture of social justice and carnality who considers sexual relationships with his workers a First Amendment right. He regularly denies any allegations of sexual misconduct, and has justified an accusation of regularly using sexist epithets by insisting the status of slut as a word of empowerment and endearment.

It’s not just Charney that is a source of sexual controversy, however. The unconventional CEO photographs many of the models used in his advertisements, forgoing makeup and expensive production for a more natural and organic sexuality. American Apparel’s advertisements often feature, in various states of undress, a mixture of porn stars, random girls Charney finds on the street, and often times Charney himself, who personally appeared in advertisements modeling his brand’s famous y-front briefs.

Over-sexualization is not the sole source of advertising controversy. In 2007, American Apparel displayed two billboards portraying Woody Allen dressed as a Hasidic Jew in an iconic “Annie Hall” scene. The abstract billboards contained no advertisements, just the words “Der Haileker Rebbe,” which roughly translates as “the highest-level, extra-holy Rabbi” written in Hebrew along the top. Woody Allen pressed charges and won a $5 million payment from American Apparel for unauthorized use of his image.

Perhaps the most notorious controversy surrounding Charney came after the publication of a 2003 article that detailed Charneys frequent episodes of self-service and one instance of oral sex initiated by a female employee. The incidents occurred in the presence of the Jane reporter, who published reports of Charney’s actions, though stating that she made no objections to his exhibitionism and that the environment was always non-threatening and professional.

However, it’s not Charney’s PR troubles but rather the company’s rapid expansion that have put the t-shirt giant in jeopardy. Though it began by only manufacturing blank shirts for other companies to print and sell, American Apparel opened its first retail store in 2003. That year saw the creation of three such stores, with sixty-five more following in the next two years. The last three years have seen an explosive growth, with nearly 300 new stores opening domestically and abroad. This rapid and evidently unsustainable expansion contributed in large part to the massive debt that necessitated an $80 million dollar loan to the company by Lion Capital, a British firm with a reputation almost as questionable as Charney’s.

Though Lion has indicated a willingness to work with American Apparel to renegotiate the terms of the loan, analysts have suggested that Lion may be better served by cutting their losses; failure to produce earnings reports, as well as a class action suit from a prominent shareholder alleging misleading financial reports and a failure to comply with labor and employment regulations, has caused the New York Stock Exchange to threaten American Apparel with delisting—a clear red-flag for bankruptcy.

The numerous controversies and the company’s current financial troubles do not invalidate Charney’s history as an innovative and extraordinarily successful businessman. An ardent supporter of social justice, Charney claims to have the highest-paid apparel workers in the world. With nearly 97 percent of clothing in the U.S. manufactured abroad and imported, the fact that Charney employs only American labor is remarkable, especially considering how well his workers are treated. Manufacturers are paid between $13 and $18 an hour, more than twice the minimum wage in California before the 2008 wage hike. Workers also enjoy health insurance, English lessons, daycare, and subsidies on food and clothing.

An outspoken supporter of free trade and open borders, Charney has famously taken part in pro-immigration marches, and is responsible for the iconic “Legalize LA” and “Legalize Gay” ad campaigns. Though he is a leader in ethical business practices, at least from social justice perspective, Charney maintains that his sole motivator is not humane treatment, but profit. This, however, didn’t stop him from offering an impassioned response to recent Immigration and Customs Enforcement (I.C.E) actions, which Charney blames for his business troubles. Charney insists that a large portion of blame for American Apparel’s second-quarter earnings report, an unflattering document that caused company stock to drop nearly 27 percent on the day of its release, lies with the failure of the Obama administration to provide comprehensive immigration reform.

California employers are in a precarious position regarding immigrant labor. Penalties for employing undocumented workers are steep, yet all that’s necessary for a worker is documentation for the job. According to California state law, to request from a potential worker more than two forms of identification opens the company up to the possibility of a civil suit. Forged working papers then become a serious and undetectable problem.

Because of such forged papers, American Apparel lost more than 1600 workers—nearly a quarter of its manufacturing employees—to an I.C.E raid last September. The company has been struggling to recoup its losses since. As for the employees let go, they were forced to leave the company, but not the country, and, according to Charney, many moved directly into sweatshop labor following their termination.

Despite American Apparel’s substantial financial trouble, it seems unlikely that fashionistas will be forced to find a new outlet for cotton basics any time soon. wholesale and online sales have been steadily increasing and, together, they make up more than half of American Apparel’s total revenue. So while their current status as the Starbucks of clothing retailers may soon be a thing of the past, it appears that American Apparel tees will lend their neon hues to the closets of fashion-forward twenty-somethings for the foreseeable future.