American Apparel was once one of the fastest-growing fashion brands in the United States, a company valued at around $1 billion at its peak. Within a few years, it had lost nearly all of that value, filed for bankruptcy twice, and been reduced to an online retailer after its retail stores and Los Angeles headquarters were shut down. The company was founded by Dov Charney, who borrowed $10,000 from his parents in 1989 and dropped out of school to start a wholesale t-shirt business in South Carolina. After about eight years without much traction, he moved the operation to Los Angeles, where the brand found its identity.
American Apparel t-shirts stood out for being tighter and more fitted, featuring simple styles without prominent logos, and, most importantly, they were manufactured domestically. A significant part of the company’s advertising emphasized that its clothing was ethically made in America without sweatshops. At its peak, American Apparel employed around 10,000 workers who were paid higher wages than the industry average and received benefits like medical insurance. Over its first decade in Los Angeles, it became the largest t-shirt manufacturer in the country, expanding into clothing for men, women, and children.
By the end of 2007, the company’s stock market valuation reached roughly $1 billion. That marked the moment when things began to unravel. By 2015, the stock was trading at less than $1 per share and in danger of being delisted from the New York Stock Exchange when the company filed for bankruptcy. About 13 months later, it filed for bankruptcy again.
That second bankruptcy marked the unofficial end of the brand as it had been known. Its intellectual property and some assets were sold to Gildan, a t-shirt company that American Apparel had previously identified as one of its main competitors. All retail stores were closed, the Los Angeles headquarters shut down, and the brand became an online retailer that no longer manufactures exclusively in America. Several major factors contributed to the company’s decline.
One of the earliest was aggressive expansion. American Apparel started as more of a middleman connecting manufacturers and retailers, but it soon began manufacturing its own clothing. In 2003, it began opening its own retail stores, starting in Los Angeles, followed quickly by dozens more across the country and in 20 other countries. By 2009, just six years later, it operated over 280 stores that accounted for most of its sales.
Around that time, Charney said he believed the company could ultimately reach 600 to 800 stores worldwide. The company invested heavily, some of it borrowed money, to expand its presence and become more vertically integrated, describing itself each year as a vertically integrated manufacturer, distributor, and retailer. Whether or not the company was internally prepared for such a complex operation is debatable, but its fragility meant even small complications could become major setbacks. The year 2009 is widely seen as the turning point.
There had been signs of trouble before then, but that was the year the company’s growth phase ended and sales began leveling off. It was the first year comparable store sales were negative, meaning each store on average sold less than the year before, and the last year it opened more stores than it closed. The recession at the height of the Great Recession was an obvious factor, as people were shopping less. In March of that year, American Apparel was in danger of defaulting on one of its loans.
To avoid bankruptcy, the company sold 18% of the business to the private equity firm Lion Capital for about $80 million, helping to stabilize operations and reduce debt. In May, it paid $5 million to settle a lawsuit from director Woody Allen for using his image on a billboard without permission. In September, it was forced to fire about 1,600 employees who were not authorized to work in the United States, a significant portion of its workforce. Competition also played a major role.
During the recession, fast fashion companies like H&M and Forever 21 offered a rapidly changing selection of lower-quality, cheaper clothing, often made possible by outsourcing production to countries with lower wages. American Apparel was nearly the opposite, manufacturing 100% domestically and paying workers abnormally high wages, making it difficult to compete during a weak economy when consumers were seeking lower prices. The company began reporting losses each year, which forced it to borrow more money to keep operating, leading to higher interest expenses that worsened the losses. By its first bankruptcy, the company’s debt had reached an all-time high of $311 million.
The company’s marketing also became a major point of controversy. American Apparel was associated with aggressively edgy, realistic advertising. The company claimed many of its models were not professionals but friends or employees of the company, depicted in natural, unglamorous settings. The approach helped the brand stand out, but many argued the advertisements were too sexual and crossed into being distasteful.
Some featured adult film stars, and others were banned in the United Kingdom. The company developed a very explicit sexualized image, one complicated by its eccentric CEO. Charney himself may have been the single biggest factor in both the company’s success and its failure. He started the company and served as CEO for 25 years, and it would never have existed or become a global brand without him.
However, there were numerous allegations against him. Multiple sexual harassment lawsuits were filed against him in 2005 and again in 2011. One lawsuit accused him of conducting job interviews in his underwear. The following year, he was accused of choking someone who worked for him and then using a gay slur.
Charney has denied all of the serious accusations and has never been legally found guilty of anything. But in 2014, the board of directors fired him from the company he had created. The board stated that he was fired for violating the company’s sexual harassment and anti-discrimination policies, as well as for misuse of corporate assets. Charney was upset by the decision and filed multiple lawsuits against the company, also attempting to buy it back, but his bid was rejected.
He later started a new company called Los Angeles Apparel, which followed similar principles of domestic production and higher wages for workers. In 2022, he personally filed for bankruptcy, although that did not affect the new company. In the end, American Apparel became a case study in how a promising company can collapse under a combination of aggressive expansion, difficult economic conditions, tough competition, controversial marketing, and leadership issues. The common theme behind its decline was risk.
Had the company taken a more conservative approach, relying more on its products and being patient, it might still exist in its original form. Instead, it survives today as an online brand with a mixed legacy.