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Dov-Charney

Dov Charney Couldn’t Keep American Apparel, So He Restarted It

His new company, Los Angeles Apparel, was launched late last year as a wholesale business—just like American Apparel’s origins in 1989—selling blank basics such as T-shirts and sweatshirts.

(Bloomberg)—Dov Charney’s warehouse for his new company sits on a desolate street in South Central Los Angeles, about four miles south of American Apparel’s former downtown headquarters. He stands inside looking ragged under a few days of stubble, dressed in a white short-sleeve polo shirt, white pants, and white sneakers. It’s uncanny he’s here at all. Since his ouster from American Apparel in 2014 and subsequent failure to buy back the company he founded, Charney has repeatedly vowed with all of his old, oozing certitude that he would start all over again if he had to. It would be a company just like American Apparel—only better.

But American Apparel’s 2015 bankruptcy wiped out most of his net worth, so where would he get the money? Didn’t his tawdry past of sexual harassment allegations make him radioactive? And shouldn’t American Apparel’s collapse prove that making clothes in the U.S. is a fool’s errand?

Yet here he is, at 48, overseeing a startup with seamstresses and fabric cutters and boxes of T-shirts waiting to be shipped across the country. He’s on, he's riffing, he’s explaining the benefits of immigration, he’s envisioning a company that will someday hit $1 billion in revenue. (American Apparel topped out at $634 million in 2013.) “We’re building, grooving, growing,” Charney says.

“South Central is a great brand”

His new company, Los Angeles Apparel, was launched late last year as a wholesale business—just like American Apparel’s origins in 1989—selling blank basics such as T-shirts and sweatshirts. As he walks through a production floor humming with dozens of sewing machines, taking phone calls and answering questions from underlings, Charney lays out his comeback plan.

“We had six sewing machines, then 12 machines. It was a nail-biter,” Charney says. “It still is a nail-biter. That’s part of the chills and thrills of starting up a business. You’re always on edge, but I love it. The workers are happy. It’s exciting. We want to prove something.”

This new venture can fill the hole left by American Apparel’s collapse, as Charney sees it, offering the same advantages of his old company. Los Angeles Apparel can fill bulk orders faster than overseas competitors while delivering American-made goods that have cachet with customers. Charney is toying with a tagline that echoes his original company—“Made in South Central” vs. American Apparel’s “Made in Downtown L.A.”—even though the city officially changed the area’s name to South Los Angeles in 2003 to reduce associations with crime and the 1992 Rodney King riots.

“South Central is a great brand, great neighborhood,” Charney says. “L.A. is amazing. You’re in the core of the city and real estate is cheap. The only thing we’re fighting is the marijuana industry is taking over, too. They’re legit, but they need space.”

Even his customers are the same. Bob Winget started buying from American Apparel more than 15 years ago after Charney pitched him on higher-quality, soft-cotton T-shirts as the wave of the future. Winget, the chief executive officer of Cincinnati-based TSC Apparel, eventually bought $50 million of clothing from American Apparel each year. TSC now has a multimillion-dollar business with Los Angeles Apparel, selling the startup's clothes to concert producer Live Nation Entertainment and screen printers who previously purchased American Apparel.

“We had a lot of customers who loved the brand, so it’s been a pretty easy transition,” Winget says. As for Charney, whom Winget speaks to almost daily: “I told him a lot of people don’t get a second chance. He’s getting one, and he’s determined to make the most of it.”

During his years at American Apparel, Charney constantly courted controversy. The look of the brand in its marketing imagery was almost always provocative, featuring young girls in skimpy outfits or, in one episode that ended up in court, a photo of Woody Allen used without his permission. Charney embodied the sexually free edginess of the brand in his professional life. He conducted relationships with his employees that spilled into the press and culminated in a slew lawsuits and allegations of sexual misconduct, all of which were either dismissed or settled privately.

American Apparel’s board used that and claims he mismanaged the company to fire him three years ago. He tried to regain control by borrowing $20 million from a hedge fund to buy more stock. But that effort failed, and he was wiped out when the company filed for bankruptcy in October 2015.

It took him about a year from the bottom of bankruptcy to restart his renamed but otherwise familiar operation. Charney won't say how much revenue Los Angeles Apparel is generating, only that he expects to surpass $20 million in annual sales in the next 12 months. He left no more than a vague impression of how much money he’s raised, referring to investors and an asset-backed loan. There are now 350 employees.

“This is moving at a much faster pace,” Charney says, and if compared with American Apparel, “this is year eight.” Adding a consumer brand—much like what American Apparel expanded into, eventually expanding to 280 retail stores—is also in the works.

Charney’s old company isn’t just a ghostly presence and a template as he builds his new one; it has incorporated into every inch of his startup. American Apparel’s liquidation in January, during its second bankruptcy, made starting Los Angeles Apparel much easier. Gildan Activewear bought the company’s intellectual property and kept the American Apparel brand alive by integrating it into its existing wholesale business. TSC Apparel has remained a customer after the brand changed hands, at a much lower level. But Gildan didn’t buy any of the operations out of bankruptcy, freeing Charney to hire laid-off workers and use much of the same supply chain. He also bought a bunch of American Apparel property, including rolls of fabric, piles of computers, and light bulbs. In once instance, Charney says, a worker was randomly given the same sewing machine he used at American Apparel (his carved initials were the giveaway).

Stepping off the production floor into sparse offices reveals another familiar touch. There’s a conference room equipped with a cot, messy sheets, and a pillow. “I live in here, by the way,” Charney says. “I will not leave. This is my bed. This is my room. This is where I sleep.” He once did something similar in his American Apparel years, taking up residence at a malfunctioning distribution center.

All this backs up accounts over the years from people who worked with Charney, that he’s obsessed with his company and sees his personal life and work life as the same. But that blending helped lead to his downfall. So is he going down the same path at Los Angeles Apparel and hooking up with employees?

“That question is private, and it should be private,” Charney says. But is he being more careful this time around? “You always have to be cautious in the lawsuit society that we’re in, you know,” Charney says. “I love the company, and I love the people I work with. We’re very close and we’re holding hands and walking through the fire. We intend to be successful.”

It will be a familiar walk, whatever happens, even down to the building itself. The 60,000-square-foot warehouse space where Charney lives and builds Los Angeles Apparel was previously used by American Apparel.

To contact the author of this story: Matthew Townsend in New York at mtownsend9@bloomberg.net To contact the editor responsible for this story: Aaron Rutkoff at arutkoff@bloomberg.net

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