California Apparel News

With a proposed merger to become final in 2007, American Apparel founder Dov Charney is revving up expansion plans to add more retail stores, grow a recently acquired knitting factory and hire more top executives.

“Half of all our revenue comes from what individual consumers buy from our stores,” said Charney, who launched the American Apparel retail chain in 2003 after starting his T-shirt company in 1997. Currently, there are 143 stores in 11 countries at the company, whose revenues in 2006 are expected to reach about $300 million. But after the merger with New York–based Endeavor Acquisition Corp. is completed in a deal valued at $383.5 million, Charney and his partners plan to double the number of American Apparel stores next year.

The retail division isn’t the only division poised for growth. In November, American Apparel bought a 160,000- square-foot knitting facility in addition to its manufacturing hub inside its downtown Los Angeles headquarters. The new facility, at 1020 E. 59th St., is staffed with 70 employees who work at the company’s circular knitting machines pumping out rolls of jersey and rib knits destined to become leggings, dresses and T-shirts. David Kim, American Apparel’s head of accounts receivable, said the company plans to increase its staff in 2007 to keep up with demand. This will cement American Apparel’s position as the largest domestically produced apparel maker in the United States.

Keeping with its employee-friendly, socially-conscious image, employees on the sewing floor of the vertically integrated manufacturer are set to benefit personally from the merger. About 2.7 million Endeavor shares will be given to American Apparel employees. “We’re planning to give 500 shares each to eligible employees. That’s about $4,450 per person,” Charney said. Some employees, such as part-time employees or new hires, aren’t eligible to receive the shares. The bulk of the shares will go to the company’s manufacturing employees.

Other changes will include an improved manufacturing infrastructure, automated production, improved quality, better software and better customer service for vendors and retail customers alike, Charney said. “The toilets might be cleaner, wages might be better, employees might have a piece of the company and vendors might be happier, and we’ll be making money for stockholders, too,” he said as he waxed philosophically.

American Apparel will also dedicate some of the merger funds to offsetting the price of its employee medical benefits. “Medical insurance is just killing me. The [merger] will help me maintain these kinds of things. It’s not cheap,” Charney said.

Charney, too, will benefit. He remains the company’s chief executive and retains at least 50 percent of the company’s stock, making him a multimillionaire whose fortune could be worth as much as $200 million after the merger. (Still, Charnery, who lives in Los Angeles’ Echo Park neighborhood, says he will pay himself a $1 salary for three years and has no plans to buy a new home.)

Currently, Endeavor’s shares are trading on the American Stock Exchange at about $8.50 to $9 a share. The deal, which became public on Dec. 19, allows American Apparel to become a publicly traded company without doing a formal initial public offering (IPO).

“This isn’t an acquisition. I didn’t sell the company,” Charney said, speaking from New York. “[Endeavor] will facilitate the merger, then dissolve and disappear.”

Charney said American Apparel’s racy corporate identity will not change, despite its new commitment to stockholders. “The capital that will be available to me will allow me to preserve our creative independence and freedom more than ever before,” he said. “I get to have my cake and eat it, too.”

In other words, the risqueacute; ads and even Charney’s non-conformist leadership style will stay. Three sexual-harassment lawsuits were filed against Charney by women who were former employees. Two of the lawsuits have been dropped. One is still pending. “I would rather deal with Wall Street than a private equity investor. Surprisingly, I think Wall Street will respect what we’ve built,” he said. “If [stockholders] don’t like what we’ve done, they can sell their stock, but I think the marketplace accepts American Apparel and appreciates it.”

Charney, who bristles at how he’s been portrayed in the media, said he isn’t afraid of making American Apparel an open book. “We make about 4 million pieces [of clothing] a month. We’re a growth story and a success story,” he said. Now Charney hopes everyone will look beyond the tabloid innuendo to see the savvy businessman who used T-shirts to influence fashion and create good local jobs when other manufacturers were sourcing overseas. “I’m very serious about my work,” he said.

Still, he says he knows he’ll need help running a public company. “I’m very proud of my current team. I hope they will evolve with me, and we’re all going to have to step up,” he said.

Soon American Apparel will begin to search for three or four top-level executives to help the current team compete on Wall Street. Charney is also tasked with finding four individuals to sit on the board of directors. Endeavor will supply another four, and a tie-breaking ninth member will be mutually agreed upon.