Everything I Needed To Know About The American Economy I Learned At American Apparel

A story in Saturday's Wall Street Journal offers something of a preamble to the final chapter of the American Apparel narrative. There are companies that are more interesting and innovative than American Apparel, but none that captures the entire story of the American Economy, What The Fuck Happened Dept. so quickly and efficiently and dystopianly, like a hypersexed science fiction sex. Plus the CEO likes to curse, masturbate in front of reporters, and hire underaged cokeheads from whom I will no doubt be sent some more highly thought-provoking text messages of dissent. Herewith, a brief batshit tour through one of the most colorful corporate histories of our age!




In the heady era of dotcom fanaticism, Dov Charney founded the quintessential Old Economy company.

American Apparel is a mass manufacturer. The dawn of mass manufacturing is what enabled the rise of the working class, but by the 1980s America had decided manufacturing, what with its unions and their irksome habit of reminding the market that they are human too, was something less idealistic countries should deal with, and most factories in America had closed. This would not have been of concern to Dov Charney, a Tufts dropout reared in Montreal, had he not been reared North America's Protestant talent for investing in inanimate objects an extraordinary degree of esteem, as in, the T-shirt: Rebellion.

By the 1990s that talent, the knack for Want Creation, for appealing to the desire of people to buy things they don't need in some hope of proving they Are Someone, had begun to eclipse all other talents/knacks involved in propelling the modern American economy. The result was that no one was paying attention to how their T-shirts were made anymore. No one was paying attention because T-shirts were all being made, for pennies on the benjamin, 12,000 miles away. Llike Americans themselves the shirts had become bigger, thicker, rougher, coarser. Dov hated the T-shirts presently on the market. He did not find them sexy. After wading through a few different layers of detachment from labor, Dov found a factory in China to manufacture T-shirts to his liking, but nothing they sent approached his liking, in part because the factory sewing the T-shirts often don't communicate with the factories weaving the bolts of knit cotton. Perhaps the Chinese could simply not intuitively understand the nuances of How Dov Charney Felt A T-shirt Ought to Look; perhaps they simply did not care to, either way Dov decided something radical needed to be done.

Dov Charney found his efforts lionized in a positive, and weirdly prescient New Yorker piece by Malcolm Gladwell. It was the first of many more media stories that would make mention of Dov's "boner."

He opened a factory in the Los Angeles garment district. He decided his factory would weave its own textiles in addition to the more common business of sewing shirts. Dov's command over the intricacies of needle-spacing and fabric finishing and the various manufacturing quirks that represent his "artisan's sensibility" was well-documented in a 2000 Malcolm Gladwell piece in the New Yorker.

2000 was the era of the "New Economy," Gladwell chose to profile American Apparel because, like Dov and most Candians, he likes to think of himself as a rebellious thinker. Don't we all? Dov had started an "Old Economy" company.

We live in the age of the entrepreneur, who responds rationally to global pressures and customer demands in order to maximize profit. To the extent that we still talk of Gloversville—and the glove-making business there has long since faded away—we talk of it as a place that people need to leave behind. There was Lucius N. Littauer, for example, who, having made his fortune with Littauer Brothers Glove Co., in downtown Gloversville, went on to Congress, became a confidant of Presidents McKinley and Roosevelt, and then put up the money for what is now the Kennedy School of Government, at Harvard University. There was Samuel Goldwyn, the motion-picture magnate, who began his career as a cutter with Gloversville's Elite Glove Co. In 1912, he jumped into the movie business. He went to Hollywood. He rode horses and learned to play tennis and croquet. Like so many immigrant Jews in the movie industry, he enacted through his films a very public process of assimilation. This is the oldest of American stories: the heroic young man who leaves the small town to play on the big stage—who wants to be an entrepreneur, not an artisan. But the truth is that we always get the story wrong. It isn't that Littauer and Goldwyn left Gloversville to find the real culture, because the real culture comes from Gloversville, too; places like Washington and Hollywood persist and renew themselves only because Littauers and Goldwyns arrive from time to time, bringing with them a little piece of the real thing.

Dov Charney's father Morris, an architect and housing inspector from Montreal, backed the business when in 1998 he decided to open his first factory in Los Angeles, according to the Journal. (Morris, whose brother Moshe Safdie was a much more famous architect, seems to have been an active advocate for the proper maintenance of public buildings.) Charney also had a Korean backer named David Kim.

Within a few years American Apparel was the largest apparel factory in the country. The biggest surprise was probably that he didn't have to price the T-shirts any differently. Americans were so used to paying way too much money for T-shirts — because of logos or brand names or symbolism or sheer price insensitivity — the ones made by $12-an-hour tailors working under strict California labor laws did not have to cost bulk customers more than $3 or $4, and all the rock bands and small fashion labels could attach their symbolism to Dov Charney's softer, better-fitting T-shirts with a comfortable markup.

The founding innovator got bored with producing supply and fascinated by producing demand.

Somewhere along the line I think Dov got greedy and/or envious of his customers and friends in the industry, the rock bands and indie fashion labels. He wanted to be a brand as well, to create demand and desire and iconic symbolism. He wanted his iconoclasm and rebelliousness to be noticed. So he began opening retail across the country, manufacturing trendier items and masturbated in front of a magazine reporter. He staffed his new retail business with the cutest youngest coolest kids, kids immersed as he had been in the nuances of the ephemera and nothingness — the drape of a shirt, the taper of a pair of jeans, the razor-cut arrangement of the tendrils — that had come to represent the "rebellious" school of American coolness. To expedite his staffing choices he even retained the services of a friendly coke dealer in the Lower East Side. If there is a Cliff's notes guide to Dov Charney's interpretation of that which was truly cool, it was doing coke on the Lower East Side.

Dov also made his own lifestyle and practice of taking employee concubines a centerpiece of his marketing strategies, keeping apartments throughout the country for the wild parties that doubled as photo shoots for company ads, and to house the employees who best represented the company image. The possibility of getting evicted from one of the apartments at any time kept favored employees' standards in line — not that anyone knew what the standards were. There was no handbook. It was all visceral.

The company grew way too fast, driven by momentum and the geometric growth prospects of the demand business.

Charney opened 187 stores in the space of four years. The process was almost comically hurried, sloppy, and exacerbated by the presence of all the cokeheads and the employee turnover that resulted from coke, low wages and a severe detachment from anything that felt like labor resulting from the fact that work was intended to serve as an extension of a "lifestyle," which left hours upon hours open for pointless alliances and rivalries to form. He got sued for sexual harrassment a few times, a consequence of having sex in the office and, in the absence of rigorous quantifiable achievement standards, often favoring employees he had fucked, was fucking, had some complex about fucking.

At the height of the real estate bubble Dov picked his real estate in the riskiest, most foolhardy fashion, spending millions to refurbish high-profile urban locations that were neither outfitted to handle retail stores nor generally owned by landlords that might give him a good deal on a leases elsewhere.

For driving desire and demand to the company's wares the cool kids who staffed the stores and starred in Dov's gigantic billboards were just as important to the company's sales as the factory workers themselves, but they were not remunerated as such, generally because businesses find it easier to deal with young unskilled recreational drug using hipsters as a consumer than as a human resource. The low wages translated to high rates of shoplifting and employee theft. The first fellow employee I ever liked got fired for stealing from the till.

After trying to make up for its sloppiness with momentum, the company encountered its cash flow problems with a combination of sloppy accounting standards and the perception of momentum. It was tough on the poor Chief Financial Officer!

In early 2005, chief financial officer Mark Schlein died unexpectedly of heart failure, and Mr. Charney and others say a replacement wasn't found for a year. An interim CFO was later hired, though Mr. Charney only remembers that "he had gray hair and quit after a week." Mr. Charney delegated bookkeeping to a few younger staff members and continued to open stores.

Problems developed. According to a chronology of the company's financial history provided by American Apparel executives to The Wall Street Journal, U.S. Bank, a Minneapolis-based bank that was backing American Apparel's growth, urged Mr. Charney to secure additional financing amid the company's rapid store openings.

Dov started telling everyone at the company — my manager, for instance — he was going to have to "go to NASDAQ" if they didn't get sales up. No one else knew what the fuck this meant because no one was older than 23. (At 24 my old manager was replaced by a 17-year-old high school dropout. Don't believe me? She was Editorial Assistant Maria's boss, too.) But I was pretty sure most big investment banks would took a look at our meager sales growth, coupled with the inconvenient fact that American Apparel was a manufacturing firm, not just a retailer, with all the associated debts and upkeep costs that might scare off shareholder unused to such risks, and say "Not so much." Desperate, Dov hired an intern who had gone to business school. His name was Adrian, and he was charged with devising a plan to save the company from a ruinous cash crunch a la Bear Stearns or Enron.

Which is when the real financial wizardry came in.

Adrian found a guy named Jonathan Ledecky who had just pulled off something interesting: he'd gotten a bunch of investors to pretty much write him a $200 million blank check he then took public on the American Stock Exchange, so speculators could trade his shares on its shares before he even did anything with the money. Luckily for Dov, Ledecky decided to buy American Apparel, thinking it might be a good fit for the types of big financial funds that need to buy into nebulous concepts like "Corporate Social Responsibility," which American Apparel, by treating its predominantly Mexican base of factory workers so well, still, despite everything, very much espoused. Thus American Apparel became a publicly traded company using the unaudited 30%-inflated earnings statements someone had been pulling out of their asses.

And Ledecky saved the day!

Dov Charney was now worth more than $580 million! He had to hire a new CFO, however. The new CFO found that American Apparel had "no sense of American accounting standards." Join the club right?

In an interview with the Wall Street Journal, Dov referred to the CFO as a "loser."

Earlier: American Apparel Is All It's Coked Up To Be

Why Retail Breeds Sexual Harrassment

Related: Living On The Edge At American Apparel [Business Week]