The Business of Fashion
Agenda-setting intelligence, analysis and advice for the global fashion community.
Agenda-setting intelligence, analysis and advice for the global fashion community.
LOS ANGELES, United States — Dov Charney is once again on the edge of something exciting and in the middle of a shitstorm. At first, he refuses to even say the name of his former company, mouthing "American Apparel" across the room as if speaking about a dead, scandalised relative. It's an indication that he has perhaps, finally, moved on, or least that's what he wants people to believe. But to what?
Charney lives and works in a 20-room mansion high upon the hills of Silver Lake. The Garbutt House, as it’s known, was built in the 1920s by Frank A. Garbutt, a magnate with interests in everything from oil to film, and a well-documented fear of natural disasters — earthquakes, floods, fires — that compelled him to build the house primarily out of concrete.
Charney, the founder of American Apparel and owner of the property since 2006, has changed relatively little. The marble flooring and gold fixtures remain, accented with furniture spanning the middle of the last century as well as a selection of tchotchkes, including a curio cabinet cluttered with ceramic and crystal figurines. Throughout the past decade, the property has served as a homebase for Charney and his inner circle and, more recently, Airbnb guests: a suite with a private entrance is currently listed on the short-term rental site. Today, it also serves as the unofficial headquarters of Charney’s new start-up where he plans to, in many ways, recreate the business he built at American Apparel, the basics brand he started as a Connecticut boarding school student in the late 1980s and, after years of turmoil, left in a cloud of controversy in 2014.
He calls his bedroom the “war room,” where an array of documents, notes and correspondence are tacked up on the walls and stacked in piles around a circular marble bathtub in an adjoining washroom. An intern, wearing one of American Apparel’s best-known silhouettes, the mini circle skirt, sits at a desk shooting off emails. Another team is huddled in the dining room at the front of the house. More staff members occupy the mansion’s many other rooms: a six-year American Apparel veteran organises piles of product in the living room-cum-showroom, while a product developer — Candy is her name — fixates on a pair of leggings.
Charney weaves in and out of the spaces in the house, up and down the stairs, constantly receiving texts and phone calls and ‘pings’ on Facebook Messenger. The 47-year-old only joined Facebook a year or so ago, but he loves it for corresponding with employees working in his South Central, California factory. “Here, you gotta see this,” he says, pulling up the app on his phone and showing off a conversation with a factory worker. “In here, I can even call him…” And just like that, he is back on topic. Charney has a unique ability to go off on what are sometimes minutes-long tangents, only to suddenly refocus on the matter at hand.
Dov Charney | Photo: Elizabeth Weinberg
As always with Charney, there is plenty of ground to cover. The name of Charney’s new venture is still undecided, but he’s already producing garments tagged with the label “Los Angeles Apparel Company.” (He has also published a photo essay with the title “That’s Los Angeles,” although he says that is not necessarily what the brand will be named.) “We plan to sell as a stockist [to the] screen printing industry,” he says. “And, secondarily, to consumers, through an online store, which we don’t have established yet. And through a number of bricks and mortar stores. We might do a number of different brands.”
His intention is to build this new company in a similar fashion as he did American Apparel, but at an accelerated pace. For the first decade or so of its existence, American Apparel was not a consumer brand. Instead, it dealt exclusively in the decorated apparel industry, or the business of selling t-shirts and other basics embroidered with some novelty or, more often, simply printed with a graphic, to other companies. Justin Bieber concert “merch” is decorated apparel; so is a sweatshirt adorned with a sewn-on felt Christmas tree that lights up. “We’re already selling it, but only to close companies that are keeping it under wraps,” he says. “We’re generating some sales but it’s all beta testing; 5,000-piece orders.”
American Apparel, in its current iteration, began in 1997, when Charney relocated to Los Angeles. “I was just making t-shirts on a wholesale basis, you know, as a jobber initially,” he says, using industry slang for an apparel company that sells to other businesses rather than the public. “Only when I came to LA in my 30s...that’s when I blew it up as a brand.”
Much of that brand identity had to do with where the clothes were being manufactured. While a genuine movement touting “Made in America” goods has emerged in the past decade, the late 1990s were all about embracing overseas manufacturing.
“People have a lot of perspectives and reasons for wanting to manufacture here. For [Charney], it was more about creating employment and fair wages and good working conditions,” says Michael Williams, founder of the men’s style site A Continuous Lean. “He never even made it the main marketing point of what he was doing, and yet he did it in a really major way. He was genuinely concerned about people and creating jobs.”
In 1993, 6.4 billion garments were manufactured in the US and more than half of what was sold here was made here. That number dropped sharply after the implementation of the North American Free Trade Agreement (NAFTA) in 1994, which coincided with the increased sophistication of (more affordable) overseas manufacturing. In 2015, only 2.7 percent of clothes bought in the United States were made here (although that number has been rising marginally over the past six years). Charney made a case for local manufacturing long before it was hip to do so. “A lot of people saw him and what they were doing and the scale at which they were approaching it… he was the counterpoint to the rhetoric that ‘Made in America’ was impossible,” Williams adds. “He threw that all away.”
The other, equally significant component in American Apparel's rise was sex. From the early 2000s, the brand's provocative advertising — which ruffled feathers perhaps not because of the content, but because of the rawness of the photography and realness of the models — garnered plenty of controversy as well as admiration. Stylistically, the company's high-flash underwear shots and topless poses, combined with the use of Helvetica type, gave off a faintly pornographic, 1970s hipster sheen that was hugely influential. There were, in fact, actual porn stars featured in some advertisements, alongside company employees and traditional models, many of who were — or appeared to be — very young. Some called it child porn, an accusation also repeatedly thrown at another highly successful brand marketer, Calvin Klein, first with regards to a 1980 campaign featuring crotch shots of a 15-year-old Brooke Shields.
“My photographic aesthetic won over the contrived aesthetic,” Charney says. “I used to call [traditional advertising] the dead look. What is she doing? If someone has a Hasselblad [camera] pointed at you, you’re not doing this." He drapes himself over the couch in a fainting position, eyes rolled up to the ceiling. "I created a new aesthetic,” he goes on. “Challenged norms. Challenged perceptions of beauty.” The combination created a movement that was at once both anti-establishment and elitist. “[American Apparel] was designed for well-educated consumers,” he says. “It wasn’t designed for the suburbs.”
“It’s kind of unfortunate that I lost control of what I had,” Charney continues. “But worse things have happened. My ancestors were slaughtered in front of their homes. What did I lose? Like, a company? Okay? Start another company, kid.”
The company hit its height in sales on the cusp of my illegal ousting, which violated principles of corporate democracy. It was a fascist play. It was a crime.
The reasons why Charney, indeed, had to start another company are manifold, but they are rooted in allegations of misconduct, mismanagement and the weight of his big personality — almost cult leader-like in his magnetic appeal — on his first business. There is no denying that Charney was at the core of American Apparel’s success, but he made poor decisions along the way that, many argue, made it difficult for the company to move forward with the founder at the helm.
Charney's public troubles began in 2005, when three sexual harassment lawsuits were brought against him. In November of that year, a federal judge dismissed one of the three cases at the request of the plaintiff. (At least two of those cases have been settled, according to a 2011 report by The New York Times.) But the executive's controversial reputation was growing, thanks in part to an article published in 2004 in the now-defunct Jane magazine, in which Charney masturbated in front of reporter Claudine Ko. While the Jane article remains branded in the minds of many as emblematic of the controversy that engulfed the American Apparel founder, a representative for Charney pointed out that "Ko has already affirmed in many interviews her time with Charney was consensual and enjoyable. At this point, Ms. Ko and Charney have both moved on and have maintained a mutual respect for one another."
But for all the negative, or at least disturbed, press on Charney, there was an equally fervent group of followers that admired his utter disregard for the status quo. “We’re probably in the most conservative time in the US since McCarthy,” he says. “You say one wrong thing as a politician, celebrity or actor, and it’s like, boom.”
At the same time allegations of personal misconduct were bubbling up, Charney received praise for his commitment to manufacturing in the US, paying garment workers a living wage and creating new jobs for immigrants. But it wasn’t just his focus on domestic manufacturing that earned him supporters. The “direct-to-consumer,” vertically integrated model he championed at American Apparel was celebrated in the business world and is increasingly popular today. What’s more, his approach foreshadowed the breakdown of the apparel system because of its over-reliance on seasonal goods and promotions. Charney was doing “buy now, wear now” and “see now, buy now” long before anyone had even coined these terms.
“I don’t believe in fast fashion,” he says. “If it’s a good running shoe or a good t-shirt… it should last four or five years. Do you have to have a new iPhone every year? Not really. Some people are really comfortable with an [iPhone] 5,” he reasons. “They were trying to fool the consumer with a new Cadillac every year. But European design… Mercedes 190, 300, some of the classics in Europe — it was about something that could last for a while. You’re buying into value. Of course you want a new one from time to time, but they’re not building in this obsolescence. The [apparel industry] built in obsolescence.”
Charney links the shift in the fashion system, perhaps unsurprisingly, to the rise in overseas production and the arrival in the US market of European mid-market brands, which run on the collection system. “Diesel started it. The American fashion mill — middle price fashion — was commoditised. Levi’s, Russell, Champion — brands that don’t change all the time. Levi’s, of course, would have new styles: White Tab or Orange Tab, 531 or 505. I’m not saying that Diesel or all these brands from Europe did any harm, but when they inserted themselves into the basics business, it created massive insecurity,” he says. “Coupled with taking things offshore... offshoring, by the way, requires collections!”
Offshoring, Charney contends, forces companies to over-develop collections, because it’s more difficult to refine designs during the product development process. Designers can’t be as sure about the final result, so they have to take more gambles. Brands that produce overseas develop more SKUs in the hopes that five out of, say, 20 are popular enough to sell at full price. “I don’t care how talented [the designers developing the line] are, they’re going to make mistakes,” he says. “They start at this high price and whatever doesn’t sell they put on sale. The cost of markdowns is in the trillions.”
Offshoring can also result in lower wages and poor working conditions. “You go behind the curtains, and everyone is in this 20-cent sweatshop. It’s not even fashionable. It’s unfashionable. Kids wouldn’t even buy clothes if they knew how they’re made,” he says. “It’s too ugly. It’s not fun. It’s not even cool. The artists behind these brands are sustaining apartheid of sorts.”
"There is something to be said in that he is identifying a cultural flaw in organisations," says Edward Hertzman, founder of trade publication Sourcing Journal, of Charney's philosophy. "But it's not so much a factory selection process. Zara does business close to home in Europe and in Bangladesh. The bigger issue is that consumers today have caused the shift. We have become so deflationary as an industry that despite upward prices in production cost, product has become cheaper. This has caused a rush to the bottom. How do you do that without going overseas?"
Dov Charney | Photo: Elizabeth Weinberg
To be sure, Charney’s reasons for manufacturing goods in the US stand apart from many of the companies that have followed in his footsteps. It’s less about American pride, per se, and more about the benefits of manufacturing locally: tighter quality control, the ability to more quickly iterate design and the freedom to quickly expand and contract inventory. “Here are some solutions: bring the manufacturing back into the corporation instead of all these brands giving the work to Li & Fung,” he says, referring to the Hong Kong-based global supply chain manager. “They have these monolithic manufacturing companies that are completely just disjointed and separated from the design guys, you know? Designed in California but made in whatever. Apple tried to pull this... I’m not saying there aren’t cheap wages [overseas], but the cost of markdowns is too high.”
Charney says his proof of concept can be found in American Apparel’s 25 years of sales increases, save for one. “In 10 years, I generated five billion [dollars] in sales and over 2.5 billion dollars in gross profits and a quarter of a billion dollars in EBIDTA (earnings before interest, taxes, depreciation and amortisation). The company hit its height in sales on the cusp of my illegal ousting, which violated principles of corporate democracy,” he says. “It was a fascist play. It was a crime — a securities crime being investigated by the government right now.”
The events leading up to Charney’s dismissal are both complicated and convoluted. They began with a series of lawsuits brought against him or the company. Former employees sued Charney for personal misconduct. Woody Allen also sued American Apparel for using an image from his film “Annie Hall” in an advertisement. Meanwhile, American Apparel, which had gone public via a 2006 reverse merger with blank-check company Endeavor Acquisition, was facing financial turmoil that Charney says was related to a July 2009 immigration probe by US Immigration and Customs Enforcement. The investigation found that approximately 1,600 of American Apparel’s 5,600 Californian employees did not have the correct immigration papers to work in the US. In turn, American Apparel laid off 1,500 employees with the intentions of helping them secure the correct paperwork.
“The point when we lost was the immigration. We had to borrow a lot of money to keep rolling with all that debt,” he says. “It was not a raid. It was an I-9 audit by the government. We were found to be compliant with all immigration laws, but we had to let go and rehire thousands of people. This was the only challenge. Otherwise, this was one of the greatest brands that came out of the US in a decade, or multiple decades. It was a fantastic brand. Sure, there were ups and downs. But we could’ve continued going.”
Charney was first suspended in June 2014 amid allegations of “disturbing information that suggested misconduct” on his part, which he denies. "There are people who will tell you that Dov's reputation was a real drag on the company. There were people and firms unwilling to do business because Dov ran the company," board of directors member Allan Mayer, a principal partner at prominent communications firm 42West, told CNNMoney in 2014. "Since we announced the decision, we've been contacted by mainstream, top of the line institutions that have not been interested in supporting us [in the past]."
And yet, despite the obvious challenges around keeping Charney close, the company chose to rehire him as a consultant. In July 2014, he brokered a deal with the hedge fund Standard General — then best known for its takeover of Radio Shack — which bought a large portion of the company’s shares in exchange for Charney’s voting rights. Charney says he recruited Paula Schneider, who joined in December 2014, to become chief executive. “[Standard General] said, ‘You wear a mask, you run the company. You hire a puppet. A CEO. Whoever you want. Just make sure she’s a woman.’ They say, I gotta have a woman. Who do you think? Paula Schneider. I say, ‘Look Paula. I’m the boss. You’ll become the president, I’ll become the CEO.’ She says, ‘Got it, got it.’”
But a year and a half after replacing interim boss Brubaker as chief executive, Schneider exited American Apparel, the company confirmed last week. Her Linkedin page is now devoid of any mention of the time she spent as its official leader. Schneider has been replaced by general counsel and chief administrative officer Chelsea Grayson, a lawyer whose specialties, according to her own Linkedin profile, are “mergers and acquisitions, distressed mergers and acquisitions, private placements of equity and debt securities (both issuer and venture capital fund representations), joint ventures and strategic alliances and importation and distribution transactions.”
Back when Schneider joined the company, Charney says he was offered a substantial amount of money to stay on: 13 million shares in severance and a salary of $850,000 a year, plus bonuses. He says the deal morphed on several occasions and, at one point, the offer was a salary of $1.6 million a year without shares. But by the time Schneider officially came on board, Charney was already weary of Standard General’s intentions. “I said, ‘Paula, this is a fraud. I’m buying them out,’” he says.
On December 12, 2014, Irving Place Capital approached American Apparel/Standard General about a possible takeover — which Charney supported — putting in an indication of interest at $1.30 - $1.40 per share. Two days later, Charney was officially dismissed. “They said they were going to turn it around. They said the best days were going to come. ‘We got rid of the problem,’” he says. By October 2015, the company had filed for Chapter 11 bankruptcy protection. In January 2016, Charney rustled up another offer — this time for $300 million, backed by an investor group that consisted of Hagan Capital Group and Silver Creek Capital Partners — but it was once again rejected.
The business is dead now. It's gone. It will never come back. It is not going to resurrect. It's not going to have a happy ending. They destroyed it.
“[Standard General] made a deal. They also owned bonds. They were going to get the whole company. Of course, the board was controlled by the hedge fund. So [Schneider] basically supervised the giving away of the company to the bond holders,” Charney says. “They got confirmed in March of 2016. And fuck, it’s only September. They didn’t even last the spring and the summer. And the thing is up for sale.”
Ultimately, Charney blames Luttrell — who ended up replacing him before second interim CEO Brubaker’s arrival — and Standard General for conspiring against him. He says that during the summer of 2014, former financial officer Luttrell had already devised a plan to sell, hiring investment banking firm Peter J. Solomon Company to facilitate the process. “They presented the concept to me; they said, ‘We can get you $100 million.’ I said, ‘$100 million sounds great, but I love my company.’” (In June 2015, Charney filed a lawsuit seeking $100 million in damages amid accusations of fraud and defamation, including the release of a video of Charney dancing naked to potential investors.)
“The point where we lost control of the enterprise was the result of a securities crime. This is not off the record: they committed a crime. They committed a securities crime because they could not have got past my share block. John Luttrell wanted to sell,” he says. “I think the business was doing phenomenally well. I would die to have it back at the state it was and take control of it. I went through the recession of ‘92, ‘95, ‘02 and ‘08. I went through four major recessions and got through all of them. They tried to hijack the business. They broke the law. They should be brought to justice. But I don’t know if I have the funds and the power to do it.”
It was one of several lawsuits that emerged during this particular period. In early April 2015, a former employee, David Nisenbaum, sued the company for wrongful termination, accusing Luttrell of religious discrimination. Nisenbaum also said that Luttrell “fumbled a bond financing round and mishandled the opening of a distribution center in La Mirada, costing the company millions of dollars,” as first reported in The Los Angeles Times.
Now, after a decade of lawsuits, government investigations, buyout offers and bankruptcy, American Apparel is looking for a buyer. However, Charney is adamant that it will not be him. “The business is dead now. It’s gone. It will never come back,” he says. “It is not going to resurrect. It’s not going to have a happy ending. They destroyed it.”
Charney, working diligently from the “war room,” seems happy to start over once again. Several current American Apparel employees, still loyal to Charney, have taken on shifts at his factory. Some have written checks for $2,000 or $3,000. While his new company secured a $10 million line of credit, it has only secured a small amount of funding.
“We’ve raised a little bit from a couple of friends. The workers have written checks to the new enterprise. The factory workers want me to get back on my feet,” he says. “I mean, not me, but us. They’ve almost come exclusively from American Apparel. They pooled money together. I put in whatever I could scavenge around. Ex-employees have contributed. People are putting up money. People are donating their time and whatever. We’re putting this together.”
There are certainly plans for more significant funding, although Charney is not ready to talk about this just yet. He has, however, once again opened himself up wholly to the press, a practice that has sometimes played in his favour, sometimes not. “John Stuart Mill said the truth always rises to the top, you know. So I’m going through that process,” he says. “The way the media is designed at this particular time in human history, we couldn’t even have this conversation nine months ago. There was too much hysteria.” Now, though, as he builds another brand from scratch, Charney is strategically positioning himself once again. The biggest push will be his participation in the next season of Gimlet Media’s popular "StartUp" podcast, where he is expected to make a significant announcement in October 2016.
Today, though, Charney's main focus is getting the product right, from the label design — which is set to feature the weight of the material so that merchants can choose more precisely — to the fabric development. He is adamant his new techniques and styles are kept under wraps until the collection launches, fearing the eyes of competitors. But in a preview of the current product line, this reporter can confirm the garments are forward looking in their concept and design. While Charney's aesthetic doesn't waver, he is also not in creative stasis. There are fabric innovations, silhouette shifts and wash techniques that will attract the eye of an "educated" consumer once again.
There are also things he is doing differently. He’s made changes in his process that address the biggest criticisms facing American Apparel’s business: that there was too much inventory, too many SKUs and the brand became better known as a place to score revealing Halloween costumes than reliably provocative basics. “The overexpansion of that concept was the kiss of death,” Hertzman says. “There is only a select group of people that will pay a premium.”
In order to create product that appeals to that select group of people, “We’re going to work very hard to keep the creative employees more [involved in] the manufacturing,” Charney says. “I’m training people, because that’s where you learn the trade. So many kids know how to sell. They know how to market, but they don’t know how to make.”
Secondly, he’s working to shrink overhead around manufacturing. “The workers who sew single needle will be cross-trained and vice versa,” he says. “Because of the movement for higher wages, which I agree with, they will need to be more productive during their work day,” he says. “They have to be given more authority to make decisions. To monitor their own quality.” There are other tactics being implemented, which Charney wants to keep proprietary for competitive reasons, that he believes will help further streamline the manufacturing process.
He’s also giving his workers an opportunity to take on a more active role in the running of the business. “They will be employee-owners. A lot of them had stock at AA,” he says. “But now it’s a more fundamental part. They’re here from the beginning. They’ll be given shares from the beginning. They’re going to be much more in tune with what’s going on in the company and have a much greater role in the decision making processes.”
Finally, Charney is opening himself — and his company — up to the power of technology. “Let me tell you what has dramatically changed since my first iteration. The bottom line is that we didn’t have access to big data,” he says. “We can tell what people are trying to buy before it exists. We have context.” He’s embracing enterprise software, too. “In the past, you built your custom enterprise software,” he says “Now, you have much more seamless software. There are a lot of solutions in enterprise software to streamline the administration of commerce and manufacturing. I’ve only been using Facebook for a year. Before I was like, ‘Fuck Facebook. I’m not doing social media; that’s for girls.’ Now I’m like, ‘post.’”
But whatever Charney’s intentions for his next act, he is clearly not driven by money, or even revenge, but an inability to give up. “I don’t care if we’re not big,” he says. “I don’t want to build my own albatross.”
Editor's Note: This article was revised on September 26, 2016. A previous version of this article misstated that Dov Charney's factory was located in Vernon, California. This is incorrect. The factory is in South Central, California.