In case you haven’t heard, things aren’t going well at American Apparel Inc., one of L.A.’s largest private-sector employers. The red flags:
- A “going concern” warning issued by its accountants in the August 10K filing.
- Dramatic reduction in production worker hours across the board. At one point, the company employed 5,500 in Los Angeles; it’s now less than half that number.
- The company has relinquished more than 50 percent of its leased factory space at corporate headquarters in the heart of L.A.’s industrial district.
- A radical management change. Current management has its allegiance to Wall Street financiers, not local backers as was once true. (The Los Angeles Community Development Bank gave the company its first permanent working capital loan.)
- Default on more than $200 million in bond debt.
Lots of ink’s been spilled over the company’s pending bankruptcy. Almost all of it focuses on a corporate novella of greed, intrigue, sexual escapades and oversized egos – especially that of American Apparel’s founder and entrepreneur extraordinaire, Dov Charney.
But like the old ’60s song, Mrs. Robinson proclaims, “Laugh about it, shout about it when you’ve got to choose – ev’ry way you look at it, you lose.” And lose Los Angeles will – lots of well-paying jobs for poor people. The loss of these jobs is far more serious than the “celebrity” coverage the media focuses on.
A study funded by the Pew Foundation estimates that for every manufacturing job lost there’s a cost of $25,000 a year in public expenditures and lost tax revenues. In American Apparel’s case, that cost would exceed $87 million a year. More than 80 percent of its workforce is classified as low to-moderate income; the population most in need of public services when they lose their jobs. This same study points out that if a city can somehow manage to save jobs already created, the cost of the financial incentives required averages $2,000 for each job.
The L.A. garment industry has been particularly hard hit by job losses since 2001. The Wall Street Journal reported that apparel manufacturing jobs dropped from 80,000 that year to 43,831 in 2014. American Apparel workers will not have an easy time finding new jobs.
All the tools are in place to save these jobs. Here’s how:
- The company’s overpriced bond debt could be recast with far cheaper money from the Treasury’s New Markets Tax Credit program.
- Debt restructuring assistance is authorized under the city’s Lay-off Aversion Program funded by the Labor Department.
- The Sears building still sits empty in East Los Angeles and the company has previously looked at purchasing it. The property could provide a more affordable permanent home for the company.
- The company has amassed millions of dollars of state hiring credits that carry forward for years, making it attractive to investors.
- A number of strong, creditworthy financial consortiums have stepped forward and expressed an interest in buying the company, should existing management want to sell.
The rumor at City Hall is that American Apparel’s current management team is not returning phone calls from the offices of the mayor and governor. This might be because current Wall Street-oriented management and their financiers are far more used to a different model of doing business, one that looks to outsource labor off-shore. The “Made in America” model that has accounted for American Apparel’s historic success is not what they’re used to.
That doesn’t mean they can’t be persuaded to change their minds. The fundamentals in terms of branding, retail distribution and consumer acceptance are still in place for a turnaround. It’s in the public interest to do just that; if not with the current management team, then with any number of other bidders who understand the potential of the company and are seeking to pick it up at a bargain price. City support of the bidder who plans to save L.A. jobs could tip the scale at this critical juncture. It would be a much better alternative to bankruptcy.
Instead of the fix, everyone is fixated on the drama that has unfolded on Alameda Street and all the shenanigans of the company’s former chief executive. That no longer really matters. The conversation needs to shift to the irreplaceable manufacturing jobs for skilled workers that are now at risk. That’s the real legacy of the company that Charney built.
These jobs need to be saved and that’s where the focus should be now.
Bruce Dobb is a partner at Concerned Capital, a boutique investment house in downtown Los Angeles that helps businesses find government incentives. Concerned Capital helped secure American Apparel’s first permanent working capital loan from the city.
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