American Apparel, the troubled US clothing manufacturer and retailer, has an “urgent need” for experienced quality control inspectors at its factory in Los Angeles. It also needs industrial sewing machine operators, mechanics, pattern-makers and a fabric plotter/marker.
The job listings on the company website promise “some of the highest wages in the apparel industry”. But they also reflect a crisis in the group’s unique made-in-downtown-LA business model that has been a central part of American Apparel’s rapid expansion.
Under Dov Charney, its 41-year old chief executive, the company has created a global chain of more than 280 retail stores in 20 countries in only seven years.
Its public profile – which rivals brands with sales far above its 2009 revenues of $558m – has been raised by controversy over Mr Charney’s style, which has included talking openly about his own views on sex in the office, and promoting the sale of sexually explicit magazines in the company’s stores.
Wendy Liebmann, of WSL retail consulting, says the brand “did what no one else did” by specialising “in everyday casual wear all based upon stretchy material and T-shirts,” with “a brand that stands for easy, casual, sexy, in-your-face”, under its “made in downtown LA” tag.
In spite of facing doubts over the funding of its highly leveraged business, the company weathered the worst of the downturn that followed the Wall Street collapse of 2008. Initially its sales held up better than many competitors and, in April last year, it secured an $80m long-term financing deal with Lion Capital, the private equity fund.
But American Apparels’ fortunes have deteriorated sharply since it was required last summer by US immigration inspectors to dismiss about 1,500 workers in Los Angeles – or about a quarter of the workforce – because they lacked proper work documents.
In March its shares fell sharply after it warned that it could not give earnings or revenue guidance for the current year because of factors including “the substantial impact of the reduced manufacturing efficiency”.
Preliminary first-quarter results, delivered in May, showed its quarterly loss had risen to $17.6m from $3.9m. Comparable sales at its stores fell 10 per cent, in part because of product supply shortages. It carried $83.3m in debt at the end of 2009, and is paying annual interest of 17 per cent on the $65m it owes Lion Capital. Its shares, trading at $4 a year ago, have dropped to less than $1.50.
Mr Charney told investors in May that the company would return to profitable growth and return to “a positive place”. But a statement last week on the company’s second-quarter performance said it expected further losses from lower sales and higher costs, including higher manufacturing outlays.
Deloitte & Touche, which was brought in as auditors after the deal with Lion Capital, resigned last month, saying that it was seeking information from the company that could affect the accuracy of its 2009 results.
The company has repeatedly acknowledged shortcomings in its internal financial controls, such as a lack of adequately trained accounting staff in its international business. And, last week, it warned it would again be unable to file its second quarterly results on time, the eighth delayed filing since it went public in a reverse merger in December 2007. It has yet to file audited first-quarter results, bringing it to the brink of being delisted.
The company’s management has played down its problems, with Mr Charney stressing its pursuit of sales growth through new products. It has started selling more “preppy” looking products, such as $58 button-down shirts, and a $62 crew necked sweater, alongside its “hipster” basics.
But moving beyond the simple T-shirts, leggings and underwear will also involve more direct competition with rivals such as Urban Outfitters, J. Crew and Gap, which have developed, low-cost offshore supply chains, and who have greater economies of scale. “Now, all of a sudden, they change their competitive set,” says Ms Liebmann.
Howard Davidowitz, a veteran retail consultant and investment banker, says the company needs a further inflow of funding to stabilise its finances.
Such a move could be accompanied by Mr Charney standing down, as any interested party may well want a higher degree of control than Lion’s arrangement. Mr Charney owns 53 per cent of the stock and, while Lion holds warrants that could give it control of 18 per cent of the company, it is required to vote with Mr Charney on board decisions.
However, Mr Davidowitz adds, “the company may lose a lot [from a departure] because the creativity that they have could come from all this craziness”.