LOS ANGELES _ With edgy marketing, an audacious founder and quality clothing sewn in Los Angeles, American Apparel was held up as a rare success story in U.S. manufacturing at a time when many in the garment industry were racing overseas.
But after years of turmoil, American Apparel is selling its brand in a bankruptcy auction to Canada's Gildan Activewear _ ending its 20-year-run as one of the country's biggest garment makers and the employer of about 3,500 factory workers in Southern California.
Gildan agreed to pay $88 million to buy the brand and some manufacturing equipment. The company had no interest in American Apparel's 110 U.S. stores, and opted not to assume leases on its distribution center and production facilities in the LA area, Gildan spokesman Garry Bell said.
"This was always about buying assets out of bankruptcy," Bell said. "The reality is this wasn't a purchase of an ongoing concern."
American Apparel bucked fashion industry trends when founder Dov Charney opted to manufacture most of the firm's cotton basics in Los Angeles.
The company's colorful garments and provocative advertising caught on with young fashionistas. Charney was also a vocal supporter of immigration reform and worker rights, touted the company's "Made in USA _ Sweatshop Free" motto on billboards and print ads throughout the country.
But the company has faltered in recent years. Troubles started after American Apparel began taking on massive debts to fuel its store expansion; at its height, the company had about 230 stores worldwide _ many of them underperforming.
The board in 2014 voted to oust Charney as chief executive and chairman, citing allegations of sexual misconduct with employees and misuse of company funds. That set off more than two years of turmoil that tainted its brand and distracted its management from turning around the business.
Despite filing for bankruptcy for the first time in 2015, American Apparel failed to shed enough stores, which continued to be a financial drag on the company, analysts said. The board also failed to make drastic changes, such as moving more manufacturing offshore, as Charney continued to fight his ouster both in the courts and in public.
"This company has been a dead man walking for over two years," said Craig Johnson, president of research firm Customer Growth Partners. It's "a casualty of gross mismanagement at the top and missing-in-action board governance."
American Apparel's sale comes as U.S. manufacturing has become a key economic issue for President-elect Donald Trump _ and a focus of prolific tweeting that has already spurred some companies to cancel plans for offshore factories.
Gildan hasn't ruled out making some American Apparel products in the U.S., especially given the current focus on local manufacturing, Bell said.
The company operates manufacturing hubs in Central America and the Caribbean, where it manufactures most of its wares. It does have some plants in the U.S., including yarn-spinning facilities in North Carolina and Georgia. The only finished goods that Gildan makes in the U.S. currently are socks.
"The political climate in the U.S. has made things very fluid for a lot of companies," Bell said. "We will evaluate all these options."
Analysts said Gildan may make a small fraction of American Apparel items in low-cost states where Gildan already has existing production facilities. However, Gildan will probably not stay in California, especially with the minimum wage set to rise to $15 an hour in 2021, analysts said.
"They do have a plan, and that plan doesn't involve U.S. manufacturing and certainly not Los Angeles manufacturing," said Lloyd Greif, chief executive of investment banking firm Greif & Co. who is not involved in the deal. If they make any in America, it would be at most "a token amount."
Bell said Gildan did not consider taking over American Apparel's headquarters in downtown Los Angeles. That building is decades old, and Gildan does not have one factory that is older than 12 years, he said.
A Delaware bankruptcy court judge still has to approve the deal Thursday. Bell said he expects the deal to close in early February. For now, American Apparel has a 100-day lease to keep its stores open, he said.
