Can bankrupt American Apparel stay American?

As the hipster retailer struggles to turn around $340 million in losses, its new CEO insists it can stay afloat without resorting to overseas production.

Brendan McDermid/REUTERS/File
A man walks past an American Apparel store in New York in this file photo from June 19, 2014.

“American Apparel will live beyond my lifetime,” founder Dov Charney bragged to ABC just three years ago. “We’ll be a heritage brand. It’s like liberty, property, pursuit of happiness for every man worldwide. That’s my America.”

The love it or hate it hipster clothing store, which filed for bankruptcy on Monday, is scrambling to find a business model that will help it survive in an increasingly desperate market for young buyers’ dollars, particularly those few that still insist on being ‘made in America.’ American Apparel just might make it – but will it still be, well, American?

Paula Schneider, the fiercely US-based company’s CEO since Mr. Charney’s ouster in June last year over ongoing sexual harassment charges, reassured customers that the debt-for-equity deal struck with creditors would not push production overseas.

We will continue to manufacture in America,” she said. “That’s what the brand is. That’s what it’s about,” she told The New York Times this week.

American Apparel is based in Los Angeles, where it employs over 4,500 workers. Although most famous for its reliance on the assumption that sex sells, despite recent evidence to the contrary, the brand was first based on Mr. Charney’s conviction that he could sell patriotism to young, cool customers by emphasizing its sweatshop-free, made-here-at-home production chain.

Nevertheless, if “American Apparel” brings the flag to mind, it’s likely from ads where a patriotic t-shirt or bikini is draped over an otherwise barely-clad model. The brand’s racy advertisements have raised eyebrows, protests, and occasional bans for years, a strategy that seemed more distasteful in the wake of a slew of sexual misconduct accusations toward Charney, which led to his firing.

Ms. Schneider is tasked with finding a way to preserve the appeal of the company’s au natural models while helping the retailer grow up a bit, restoring its reputation from “chaotic to iconic” and swapping “nudity and blatant sexual innuendo” to “confident and naturally beautiful,” USA Today reports.

The stakes are as high as they come: can American Apparel simply survive after losing $340 million in five years, not turning a profit since 2009?

Business consultants warn that it may have to give up its all-American trademark to stay afloat.

It’s simple math, they claim: Minimum wage in California is $9 an hour, giving full-time workers roughly $1440 per month. If the same clothing were produced in Bangladesh, employees would take home just $68, according to the Los Angeles Times.

Los Angeles’ new minimum wage law, set to gradually increase pay to $15 by 2020, will only widen that disparity.

Thanks to those realities, more than 90 percent of Americans’ clothing is now made overseas, including garments from practically all of American Apparel’s competitors. But the retailer still thinks it can buck the offshore manufacturing trend.

Seventy-eight percent of Americans still prefer a US-made product to one made abroad, even if it costs slightly more – although only 25 percent would pay more than 20 percent more.

Add to that consumers’ increased interest in socially responsible purchases, like American Apparel’s sweatshop-free production, and perhaps their plan to stay on American soil is a harbinger of a “reshoring” trend, driven in part by rising labor costs in developing countries.

Even if Los Angeles' $15 wage law proves too tough for American Apparel, relocating within the US to cheaper regions might help it pull off a financial transformation, the L.A. Times suggests.

Reacting to news of the company’s bankruptcy, one Twitter user found a silver lining: 

Perhaps he spoke too soon.

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