American Apparel, which emerged from bankruptcy in February after a bruising battle with its founder, may move its manufacturing out of California, according to multiple sources who spoke with the Los Angeles Times.
The apparel retailer runs its largest factory and its headquarters out of Los Angeles. While design teams and executive leadership are likely to stay put, some factories are already shutting down for what sources told the L.A. Times could be in preparation for a move sometime before 2018.
Moving manufacturing to a state like Tennessee, North Carolina, or South Carolina, which have minimum wage requirements no higher than the federally mandated $7.25, would provide significant savings, especially once California’s minimum hourly pay rises to $15 in three years.
From the beginning, in 1989, now-ousted American Apparel founder Dov Charney insisted on selling American-made products, a signature that has gone a long way in differentiating the brand among its fans. Current American Apparel CEO Paula Schneider says she recognizes the importance of the company's Made-in-USA ethos, saying that its bankruptcy restructuring efforts would help keep the company’s Los Angeles factories open.
But U.S.A.-based manufacturing is expensive compared to most manufacturing overseas, and some retail analysts have said that the differentiator is a luxury that American Apparel can no longer afford. That puts the struggling company in a bind.
"Their brand is too heavily predicated on the U.S. manufacturing," Josh Arnold, an equities analyst and contributor to financial site Seeking Alpha, told the Los Angeles Times last year. "They have backed themselves into a corner. I don't think there is any circumstance that would make that change happen.”
Even a move away from Los Angeles would be a blow to the company’s vibe. And a move within the U.S. may not save that much in the long run, considering that the federal minimum wage could also rise in coming years.
In the short term, the company remains in dire straights, according to the New York Post. The retailer had only $9 million in cash on hand as of March 31, according to court filings accessed by the Post, less than half of what it had in the prior three months.