Long before President Trump, American Apparel was making America great again: making clothes in Los Angeles and selling them to the mass market. Now, American Apparel is closing up shop. It wasn’t a failure of American manufacturing. It came from something even harder to fix: bad management and bad laws.
Back in 1990, 938,600 Americans made clothes for a living, according to the Bureau of Labor Statistics. Today, that figure is 126,900. Just like the country’s other manufacturing workers, clothesmakers, spurred by NAFTA and China’s most-favored-nation status in the early 1990s, went to Mexico and Central America and then to Asia.
Americans grew accustomed to buying poorly made clothes for cheap. But even when clothes aren’t cheap, 97 percent are imported, compared to half in 1990.
American Apparel bucked that trend by giving consumers a choice. In 2003, the company opened its first store in Los Angeles. In 2004, it started selling online.
Despite the company’s outlandish offerings — metallic shorts? — its main product was basic high-quality wear: T-shirts, hoodies and underwear, made of good cotton and cut and stitched well. In a free market, informed buyers could support American jobs.
Now, the company is done. As Trump was being inaugurated and saving 800 manufacturing jobs in Indiana, American Apparel, most of its assets in liquidation, was laying off 3,477 manufacturing workers in Los Angeles. (Retail workers are losing their jobs, too.)
The good news is that AA failed for reasons that have nothing to do with American manufacturing. Like lots of retailers, it expanded too fast, going from one LA store in 2003 to 281 stores from Brazil to Israel in 2009.
It relied on expensive borrowing. When the company went public a decade ago, it warned investors of the potential “consequences of our significant indebtedness.”
American Apparel went from being a small, modestly profitable company in 2003, with $82.2 million in sales and $6.4 million in profit, to a bigger, less profitable company in 2009, with $558.8 million in sales and $1.1 million in profit. Interest costs ate away at its margin for error.
If you’re beholden to high-interest lenders, it’s best to manage your company professionally. Founder Dov Charney got himself embroiled in multiple sexual-harassment suits, among other problems, before losing control of the company three years ago.
The bad news, though, is that AA was hobbled in part because the country doesn’t support manufacturing. Even operating in Los Angeles and paying well above minimum wage with benefits, it had trouble cobbling together a workforce to cut and sew without running into immigration problems. In 2009, it fired 1,500 workers after a federal inspection.
Charney notes that American manufacturing works only in a dense urban area, because that’s where the workers and infrastructure are.
“Could you do this in Wyoming?” he says. “No, it’s cheaper to go to China. The stupidity of the Trump administration is that they are anti-immigrant and pro-made-in-the-USA at the same time.” This oversimplifies the point, but employers willing to pay skilled immigrants well should be able to do so legally.
Then, trade laws disadvantage American exporters. “I don’t believe in tariffs and I believe in entrepreneurialism,” Charney says, dismissing retailers who “go thousands of miles away to pay slave wages” as lazy and short-sighted. But, he adds, “it is illegal to export to Mexico” — or at least difficult — and “there’s more [tax] duty on made-in-USA clothes to Canada than there is to Europe.”
Charney says there are countless apparel makers who produce in America. In starting again with a new company, he’s trying to be among them.
But how to do it on a mass scale? “The automation of clothing manufacturing will take place,” he says, “to challenge the offshore slave model . . . Advanced manufacturing is going to take hold,” anchored by “machines which I plan to invent.”
Maybe, but someone will.
Smarter management and better technology means we won’t have Bangladeshi children locked in a factory making our clothes — the poorest people in the world making up for the richest people’s management deficiencies. “Sears has all access to all that offshore manufacturing and they’re [near] bankrupt,” Charney points out.
But it doesn’t mean that hundreds of thousands of Americans will find employment in a more efficient onshore system, as we need fewer workers to make higher-quality clothes that last longer.
Nicole Gelinas is a contributing editor to the Manhattan Institute’s City Journal.
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