American Apparel: Where did it all go wrong?

In August, American Apparel announced that it was close to running out of cash and may not have sufficient liquidity necessary to sustain operations for the next 12 months. Its debt climbed by 32% to $120.3m during the second quarter and they estimates it will make an operational loss of $5m to $7m for the quarter to 30 June, compared with a profit of $7.3m in the same period a year ago. What that boring business talk translates to is: American Apparel probably won’t survive the recession. It got too big, too quickly.

Founded as a wholesale business in 1998 by Dov Charney, in 2000 it moved into retail, and by 2005 it was a hot brand featuring regularly in style sections. The Guardian had named it label of the year and in 2009 Charney was a finalist for Time’s 100 most influential people in the world. American Apparel, known for its cotton basics, sporty get-up and ridiculous price tags, justified its mark up with added value in two areas: more sex and less exploitation. And in the last 12 months, the company has taken a ferocious knock on both counts.

Charney’s perverse tendencies are hardly new news. The maverick Canadian entrepreneur apparently relishes his reputation as a pervert and a libertine. One industry insider calls him an “odious character about whom I have heard nothing but bad things, particularly concerning his recruitment techniques and the way he treats female employees”. There is, he adds, a “certain over-reliance on oral sex during interviews over assessing their retail experience”.

To count there are the three sexual harassment cases (all settled out of court), his tendency to walk through his factory in only underpants, conducting meetings wearing just a thong – or a sock, the masturbating in front of a reporter for Jane Magazine incident and the style of American Apparel’s advertising, which Sarah Ditum describes as “the fresh-faced sleaze of an intimate session at home with the digital camera. (“Oh dear, I’ve forgotten to wear a bra with my running shorts.”)”.

Last autumn the UK advertising watchdog banned an American Apparel advert for using a partially nude model, who appeared to be a young teenager. “We considered that the photographs suggested that she was stripping off for an amateur-style photo shoot,” the Advertising Standards Association said in its ruling. “Because the ad could be seen to sexualise a model who appeared to be a child, under the age of 16 years, we concluded that it was inappropriate and could cause serious offence to some readers.”

Robert Johnston, GQ associate editor said, “He comes over as such a sleazeball. Because their campaigns are slightly grubby, and he’s more than slightly grubby, it all conspires to be rather unappealing. The whole image of American Apparel was supposed to be: ‘Aren’t we good, making everything in the US and not using sweatshop labour?’ Yet every story you hear about Dov himself is so sleazy that all the goodwill their ethical values should create is squandered. His reputation would certainly make me think twice before shopping there.”

And then just how ethical is the ethical labour? Last year the police raided the LA factory and found 1,500 illegal immigrants working there – nearly a third of its workforce. Charney was warned about the raid by the authorities before it took place, and said he did all he could to get papers from all his workers. He could do nothing, he maintained, about the fact that so many turned out to be forged or fake. Despite that, all the illegal workers had to be fired and production suffered, saddling the firm with more debts. American Apparel deserved credit for trying to avoid the exploitative working practices which are endemic in fashion, but hiring people without proper papers hardly sounds like ethical business.

While it could be argued that Charney’s larger than life personality and the PR it generated only sharpened the edge of the brand, American Apparel admitted that like-for-like sales slumped by 16% this year. Whatever the reason for this decline there’s no denying that American Apparel are falling out of fashion.