Since its founding in 1997, American Apparel Inc. has been a darling of L.A. County apparel manufacturing. With its sweatshop-free image, the company has so far been able to convince consumers and retailers that an all-American T-shirt is worth a few extra bucks.

Last year, American Apparel hired 700 machinery operators, and it hired another 200 in January while other shops have been closing down. Its downtown L.A. facility, with 1,600 equipment operators, is the largest sewing plant under one roof in the U.S.

But the end of quotas will bring heavier competition. Bringing a pair of jeans produced in China into the U.S. costs about $5 less per unit than it did before Jan. 1. That means competing brands or retailers sourcing production from China are even more competitive.

“We’re not totally insulated, I don’t know if we’re escaping it or avoiding it for the moment,” said Marty Bailey, vice president of operations. “We absolutely have to understand that the playing field isn’t level now as far as manufacturing here versus importing. You balance it through quality, delivery, service.”

American Apparel has also upped the ante by embarking on a retail expansion. After opening its first store in 2003, the company now has 36 in the United States, 14 in Canada and five in Europe. About 12 percent of American Apparel’s revenues come from its retail stores, and the company’s payroll has ballooned to nearly 3,000 from 200 in 2002.

This puts American Apparel in direct competition with much lower-priced retailers for men’s T-shirts, for example. They cost $15 at American Apparel, while a Cherokee-branded product can be bought at Target Corp. for between $7.99 and $9.99, or at Wal-Mart Stores Inc. (Faded Glory) for $6.77.

While the retail operations mean a risk for American Apparel by requiring massive amounts of inventory on hand in stores and warehouses, Bailey said they also allow for “sudden delivery” of rapidly changing fashions to the stores from its centralized operations.

“I keep 10 million pieces of finished goods on hand at all times,” Bailey said. “If somebody calls at 5:30 this afternoon (Wednesday), I’m going to ship today so they’re on shelves by the weekend. I can’t do that unless I have lots of inventory.”