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”.