American Apparel struggles to make it in U.S.

Alicia Luisjuan checks a garment she's worked on at the American Apparel factory in Los Angeles, where 4,500 workers try to prove that clothes can be made for a profit in the United States.

LOS ANGELES -- Ofelia Lopez scrutinizes the hem on a hot-pink shirt fresh off the assembly line, making sure the stitching is just right. All around her, rows of workers rapidly attach sleeves, adhere labels, and churn out piles of garments.

Ms. Lopez, a Guatemala native, has worked in the apparel industry for 22 years. Now a team supervisor, she keeps a watchful eye on her group toiling on a vast factory floor, where the whir of sewing machines and the hiss of industrial steam irons drown out most other sounds.

This could be a clothing factory in Guatemala, China, or Vietnam. But it's in an industrial area of downtown Los Angeles, where American Apparel Inc. is engaged in an epic -- and, so far, money-losing -- struggle to prove that clothes can still be made for a profit in America.

The company's seven-story factory, a former Southern Pacific Railway freight depot, is the biggest garment-making facility in the United. States, according to an industry trade group. Here, 4,500 workers staggered over two shifts cut, sew, fold, box, and ship clothes to the firm's 253 stores and other clothiers worldwide.

American Apparel may be best known for its hip stores, racy ads, and controversial chief executive, Dov Charney. But this factory and the thousands it employs are what truly make the company stand out, said Sarah Y. Friedman, executive director of the National Association for the Sewn Products Industry. Few other U.S. clothing manufacturers employ more than a few hundred workers, she noted.

"American Apparel is very, very remarkable," she said. "Any time you have a retailer with thousands of employees still in the U.S. -- that is pretty remarkable."

At the helm is Mr. Charney, 43, an outspoken advocate for local manufacturing who founded the company 14 years ago. In a recent interview he acknowledged pressure from other company executives, board members, and consultants to move manufacturing abroad.

"I want to prove myself," he said, "and I want to prove 'made in America' is a smart business."

Mr. Charney conceded that finances could push it to start making some products overseas.

"To say that I'm never going to import from overseas would be unreasonable," he said. "At this time our business concept is to make everything here. But I wouldn't rule anything out."

A native Canadian who attended Tufts University in Boston, Mr. Charney started selling T-shirts under the label American Apparel in 1987 with seed money cobbled together from his father, family friends, former classmates, and parents of friends. He began his manufacturing operations in South Carolina before settling in downtown Los Angeles in 1997.

American Apparel has suffered nine straight quarterly losses. The company booked sales of $547.3 million in 2011 but posted a net loss of $39.3 million. Shares closed Thursday at 85 cents, down from their 52-week high of $1.13 last July 15.

There are American Apparel stores in Cleveland, Columbus, Cincinnati, and in Ann Arbor, East Lansing, and Royal Oak, Mich.

"There's been a lot of discussion about the importance of American companies employing American workers. But when it comes to fashion items, that doesn't necessarily resonate with shoppers," said Anthony Dukes, a business professor at the University of Southern California who has studied the retail industry. "There's not a lot of evidence to suggest that 'made in America' is a great model."

Marty Bailey, 52, is out to prove him wrong. The burly Kentucky native, who is the company's chief manufacturing officer, has seen both sides of the problem. His 28-year career includes 15 years at underwear giant Fruit of the Loom, where he oversaw factories in Kentucky, North Carolina, and Mississippi. When many of those factories closed, he supervised the firm's transition to manufacturing in lower-wage countries such as Honduras and Mexico.

Mr. Bailey joined American Apparel in 2002 and quickly set out to retool the retailer's operations. His key innovation, borrowed from his years at Fruit of the Loom, was implementing a "team-based" manufacturing method that upped productivity and -- he says -- positions the firm to make it in America.

Workers are divided into teams, with each responsible for sewing one style of clothing from start to finish. A team, made up of 5 to 20 workers with their sewing machines pushed together, starts with fabric that has been cut on the fourth floor. The first person sews the sleeves. The next may attach a zipper, and so on.

American Apparel's skilled work force can churn out 120,000 T-shirts in a day and quickly whips out designs.

The company's products cost more than its fast-fashion rivals' -- a simple cotton T-shirt can sell for $21 if it comes from American Apparel and as little as $8 if from Target. Mr. Bailey said superior fabrics and better designs justify the higher price tag.

In the factory, motivation is key: Employees are paid for each completed garment, at a "piece rate." Although everyone is guaranteed minimum wage -- $8 an hour -- factory workers typically earn $11 an hour, on average, and members of the fastest teams can earn $18. Supervisors clock their teams several times a week and devote time to training slow workers.

The company provides a welcoming workplace for its largely immigrant work force. There is a medical clinic staffed with a doctor and nurses. Factory employees get subsidized meals and free massages; masseurs in light blue American Apparel tops are sprinkled through the factory.

"They're all here because they want to earn, and the more successful they are, the more successful the company is," Mr. Bailey said.

Besides paying higher wages, the company has faced other drawbacks of managing a U.S. work force. Productivity slipped dramatically after the company was forced to dismiss 1,600 workers from its downtown factory after an immigration audit in 2009, Mr. Bailey said. The company had to hire and train thousands of new workers. It has tightened its hiring practices to ensure that all its employees are working legally.

Ms. Lopez, the team supervisor, jumped to American Apparel four years ago after toiling in other Los Angeles outfits, many with sweatshop conditions. She earns $12 an hour. "The pay is better here than at previous places I have worked," said Ms. Lopez, 43. "If you are a fast sewer, you can earn a good salary."