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What went wrong with American Apparel

The failure of American Apparel have nothing to do with American manufacturing, opine a few experts. Like lots of retailers, it expanded too fast, going from one store in 2003 to 281 stores from Brazil to Israel in 2009. It relied on expensive borrowing. When the company went public a decade ago, it warned investors of the potential consequences of significant indebtedness.

American Apparel went from being a small, modestly profitable company in 2003 to a bigger, less profitable company in 2009. Interest costs ate away at its margin for error. And now American Apparel is closing shop. Despite the company’s outlandish offerings — metallic shorts — its main product was basic high quality wear: T-shirts, hoodies and underwear, made of good cotton and cut and stitched well.

The bad news, though, is that American Apparel was hobbled in part because the US doesn’t support manufacturing. Even operating in Los Angeles, and paying well above minimum wage with benefits, it had trouble cobbling together a workforce to cut and sew without running into immigration problems. In 2009, it fired 1,500 workers after a federal inspection.