American Apparel - Company Formation and Growth

Company Formation and Growth

American Apparel was founded in 1989 by Canadian Dov Charney, who had a long history with T-shirts and a fascination with American culture. It was during Charney's freshman year at Tufts University that the company took on the name "American Apparel" and began to experiment with screenprinting, importation and other parts of the apparel business. In 1997 after a variety of iterations, including a period of manufacturing in South Carolina, the company moved to Los Angeles. Charney began to sub-contract sewing with Sam Lim who, at the time, had a shop with 50 workers under the Interstate 10 freeway in east LA. Months later the two became partners. In 2000 American Apparel moved into its current factory in downtown Los Angeles where it continued to grow primarily as a wholesale business, selling blank T-shirts to screenprinters, uniform companies and fashion brands.

After its success as a wholesale brand, the company moved into the retail market. The company was ranked 308th in Inc.'s 2005 list of the 500 fastest growing companies in the United States, with a 440% three-year growth and revenues in 2005 of over US$211 million.

In late 2006 American Apparel announced a reverse merger, in which Endeavor Acquisition Corp., a special-purpose acquisition company founded in July 2005, bought the company for $360 million. The merger closed in December 2007, at which point American Apparel became a publicly traded company. As a result, Charney became the President and Chief Executive Officer of the publicly traded company known as American Apparel, Inc. He remained the majority shareholder.

It is also one of the few clothing companies exporting "Made in the USA" goods and in 2007 sold about 125 million dollars of domestically manufactured clothing outside of America. The company also promotes a number of progressive policies including immigrant rights and labor policies the company dubs "sweatshop free."

In 2010, American Apparel's auditors, Deloitte & Touche, resigned after informing the company that its financial statements for 2009 may not be reliable. The resignation led to investigation by U.S. Securities and Exchange Commission and the United States attorney’s office for the Southern District of New York. Subsequently in August, the company was threatened with being delisted from the New York Stock Exchange for failing to submit a quarterly earnings report. It faced lawsuit from some of its investors. Revenues declined, total debts rose to $120 million, and the company was in danger of defaulting on an $80-million loan from British-based Lion Capital LLP. Commenting on the loss of 1,500 workers due to concerns over illegal immigration (see below) Charney said "It broke our efficiencies and generated a situation where we were late delivering garments. It lost us an enormous amount of money. It cost us agility."

In April 2011, the company agreed to sell approximately 15.8 million shares of common stock at $0.90 a share to a group of private investors led by Canadian financier Michael Serruya and Delavaco Capital. The investors also received the right to purchase up to an additional approximately 27.4 million shares at the same price within 180 days, for a total investment of about $40 Million, subject to certain anti-dilution and other adjustments. In addition, American Apparel chairman and CEO Dov Charney purchased up to an initial approximately 800,000 shares at $0.90 a share, with a similar right to purchase up to an additional approximately 1.6 million shares.

American Apparel Inc., headquartered in Los Angeles, CA, is an unrelated company specializing in producing military uniforms.