Los Angeles-based clothing retailer American Apparel LLC, one of the largest apparel manufacturers in North America, is said to be exploring a sale of the company, which was founded in 1989 by its controversial former chairman and CEO Dov Charney.
The company has reportedly hired investment bank Houlihan Lockey to handle the sale process, according to Reorg Research. In addition, “The 27-year-old teen retailer, which boasts on its Web site that its togs are ‘Designed, Cut and Sewn in Los Angeles,’ is making plans to pull up stakes and move east — possibly to North Carolina or Tennessee, where the minimum wage is $7.25,” the New York Post reported.
American Apparel’s manufacturing is based in a seven-story 800,000-square-foot factory in downtown Los Angeles, where it produces more than 55,000 different products and garments. The company also owns and operates its own fabric dye house, garment dye house, and knitting facility, all based in Los Angeles. According to The New York Times, in 2006 American apparel was “the single largest garment factory in the United States.”
The erstwhile fashion empire went “from being the coolest company on the block when it arrived in Britain in 2004,” according to The Guardian, which named American Apparel “label of the year” in 2008, to chapter 11 bankruptcy in October 2015, due to ongoing losses.
“The label’s progressive labour standards and high voltage ads made it notorious – from dorm room project to generation-defining brand,” says Dazed writer Julie Zerbo. “After settling in Los Angeles in 1997, Charney began to make waves, challenging the labour standards of the local garment industry by paying higher wages (two times higher than the standard wage at times).”
“American Apparel had a very precise identity to uphold: attainable aspiration – those hot, ‘real’ twenty-somethings that appeared in their images,” she added. “They took on larger competitors, such as The Gap, by catering to those experiencing logo fatigue. From early on, Charney eschewed logos – like the brand names his rivals were slapping on most of their t-shirts and sweatshirts.”
In December 2014, Charney was forced out after an investigation for misuse of company funds and inappropriate conduct with employees.
In January 2016, American Apparel rejected a bid reportedly valued at $300 million from Charney’s backers, Atlanta, Georgia-based family office and independent venture capital investor Hagan Capital Group, and Dallas, Texas-based early-stage venture capital investor Silver Creek Ventures.
In February 2016, American Apparel exited bankruptcy and is now privately owned by its creditors under a financial restructuring plan whereby the company converted $230 million in a debt-for-equity swap. The company’s new owners include Standard General, Monarch Alternative Capital, Coliseum Capital, and Goldman Sachs Asset Management. The investor group also reportedly arranged a $40 million loan to help it exit bankruptcy, and injected another $40 million in new debt and equity. The holdings of former American Apparel shareholders, including Charney, became worthless.
In February, Charney was said to be starting from the bottom again on a venture that sounds exactly like American Apparel, according to WWD. The new project is backed by Chad Hagan, president of Hagan Capital Group, who backed Charney’s bid to reclaim American Apparel. Hagan reportedly said the new company will make basics for men and women, will manufacture everything in the US, and will focus on wholesale in the early stages. “Sound familiar?” asks racked contributor Cameron Wolf.
“What’s important to us now is we’re able to form this new venture and put Dov at the helm and we’re going to do basics again,” Hagan told WWD. “We don’t want to just start with some funny, online brand. We’re going to do what Dov does best and then establish a robust e-commerce system.”
“We hope to create a brand that captures the attention of the world. It will be irreverent and authentic.” Charney revealed on PBS during a recent interview with Tavis Smiley about his upcoming entrepreneurial ventures in downtown Los Angeles. “Whatever the past is, it is. I’m moving forward and I’m going to build a world-class company right here in Los Angeles,” the 47-year-old Canadian-born artist and industrialist said.
“Long known for edgy, sexually charged advertising and store displays, the company lost its grip on the hottest fashion trends and basic retailing strategy, with stores selling the same goods year-round and factories churning out swimsuits in September,” according to USA Today. Paula Schneider, the new CEO, “has outlined a strategic path to rehab the company’s image through a mix of new marketing, products and store design,” it added.
Schneider is an advisor on private equity acquisitions, brand strategies, operations and growth, through her firm Paula Schneider Consulting, since 2013. She’s an experienced senior executive in the apparel/fashion sector, who previously served as CEO and director at Big Strike LLC, a portfolio company of The Gores Group. She’s a former director at J. Mendel, as well as president of Warnaco Swimwear Group and BCBG Max Azria, among others.
To understand why American Apparel has declined so spectacularly, take a stroll through Cambridge, Mass. by the Harvard campus, and you’ll notice that, “the store design is exactly as it was 10 years ago,” said racked contributor Elizabeth Segran. “It’s reminiscent of a factory, with stark white walls covered in metal racks and harsh overhead lighting. On the walls are enormous posters that capture the 1970s porn aesthetic: a woman in a sheer triangle bra suggestively stares at the camera on her hands and knees, a woman clad in nothing but legwarmers and panties looks more demure.”
“American Apparel’s risqué marketing suggested a raw, empowered sexuality when it first entered the scene. Now it’s inseparable from the troubling exploits of company founder Dov Charney, who was ousted (in 2014) after the board compiled a long list of strikes like sleeping with employees, walking around the factory naked, and masturbating in front of a journalist,” she added. “Another reason these stores are doing so poorly? What was once considered “hipster style” has gone completely mainstream.”