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The Next Generation Capitalist
Dov Charney is showing that it 's possible to make a profit while paying employees a decent wage, and he's flipping an entire industry on its head in the process. Josh Sims talks to the man who made your favourite T- shirt.
easyJet Inflight
Josh Sims
May 2004

Dov Charney is no do-gooder. "I'm an industrialist. I'm not one of those liberal, non-profit, want-to-help-theworld, help-the-workers types. Forget it. All we do leads back to the self-interest of the company. I'm saying capitalism is better when it's committed to employment and cooperation. This is just manufacturing in a different way."

Charney is the lanky, hyper-manic, 35-year-old Montreal-born entrepreneur behind American Apparel, an LA-based T-shirt manufacturer. You may not know its products, though as it supplies almost half of the vast and diverse European screenprint market with 'blanks', there's a good chance you may have worn one. This year, the company begins its expansion across Europe and Asia, with a factory in China on the drawing board,and a shop due to open in London by the summer, followed by one in Berlin.

So far, so ordinary. The difference is that, launched just six years ago, American Apparel is already the third biggest T-shirt manufacturer in the US (after Hanes Corp and Fruit of the Loom) and one of the most profitable, a business that this year expects to touch the $160m turnover mark. And, more strikingly, it has achieved this position with an ethical stance that, says Charney, proves that it's possible to give comparable manufacturers with more bottom line-driven policies a run for their pesos and do the right thing at the same time.

According to the US department of Labour Statistics, the bulk of T-shirts sold worldwide - those icons of freedom made in Bangladesh, Honduras, Vietnam, Cambodia, Egypt, Mexico, El Salvador and China - are still likely to be made by women and children for the pay equivalent of less than a dollar a day.

In contrast, Charney's 1500 employees enjoy 'worker-positive' conditions of pay - around $12 an hour or more (twice the minimum wage) - employment rights, health benefits, safety protections, buses to immigrant rights rallies, massages and language lessons. Charney has also won a reputation for hiring workers blacklisted by other firms for protesting against poor wages or conditions. Rather than the T-shirt industry norm of subcontracting to anonymous offshore production, at the vertically-integrated American Apparel everything but the dyeing is done by teams of employees, which forestalls boredom and allows for a fast turnaround (a 25,000 piece order could be made in under two days). It's a business model in which Charney has 100% conviction. "Everybody's talking about outsourcing, but in many cases that's grossly inefficient, especially in clothing," he explains.

"When you pursue cheap labour it often removes the necessity to innovate and automate. I'm a freetrader, because I think I can compete with a prison in China because I have the ingenuity. We're committed to functionality and simplicity, which is where a lot of manufacturing was going before shore. By putting manufacturing offshore, the next step is you lose the product design, you gradually destroy the infrastructure of the industrialised world. Shut down a factory in London that's been operating for 50 years,y ou liquidate for say £1m, but to retool that factory may cost £50m. Everywhere offshore is going to be holding the cards, because manufacturing is everything." Ethical clothing has been available for decades now. The honest problem for the majority whose desire to look good has always just about managed to trump the desire to save the world, is that it has not been very good: shapeless, itchy, too worthy, too hippie. Charney's T-shirts are sharp connoisseur items, fitted, soft, tubular-knit combed ring-spun cotton; T-shirts that make you feel good about yourself in every way.They consider conscience where competitors have yet to, but also offer fashion in garments typically forced by price wars to be disregarded as sloppy, boxy commodity items unappealing to a slim Gen X shopper, women especially. It is an important difference Charney can leverage, charging more (double his rivals'wholesale prices) and thus paying better wages.

The son of creative parents, an artist and an architect, Charney was always encouraged to develop his own path. An ebullient character, he originally planned to become a journalist. Aged eleven he launched his own newspaper, encouraging other kids to write stories, taking pictures, selling advertising and distributing it around his neighbourhood (he now shoots and writes American Apparel's catalogue himself). But that's not all Charney would distribute: visiting his grandmother in Florida, he would return to the protected economy of Canada with job lots of the USmade products that couldn't be found at home,and became a playground peddler. The school was not impressed."I often had trouble there because my grades would suffer due to my 'extra-curricular' activities ," he says.

"I was selling so much at school, everything from sunglasses to diskettes, that they had to remind me it wasn't a shopping centre." But by then his trading had sparked a passion for quality T-shirts: "I was very enamoured by the Americanism of it all.

Those Hanes T-shirts made me feel like the man I wanted to be. Now I'm after being the next Hanes..." By the time he was 18, Charney was hauling Kmart blank Ts, screenprinting graphics (including bootleg Bryan Adams Ts) and selling them out of his Tufts University dorm room. Eventually he dropped out, and was selling so many Ts he decided to start manufacturing, so moved to South Carolina, and set up a small business under a brand called American Heavy.

With the business acumen, emotional support and couch of close friend Rick Klotz, who would go on to found the streetwear giant Fresh Jive, it seemed as though the timing was perfect for Charney: skateboarding and the rave scene was coming up; hip-hop and a new clothing language was about to boom... For seven years the duo "robbed Peter to pay Paul", as Charney puts it, commissioned knitters and dyers, cutters and sewers, and just tried to make great T-shirts.

But the timing wasn't quite right. While Klotz was already building brand capital, Charney had caught the tail-end of a pre-NAFTA (North American Free Trade Agreement) era, when whole towns were devoted to making T-shirts. With the market saturated and business on the wane, and many manufacturers moving offshore, Charney took to wandering the States for inspiration, enjoying the Miami Beach view of "all these chicks from Argentina and Venezuela, all wearing these little T-shirts and looking so sexy....."

It was Miami Beach in 1995 that gave Charney his big idea. Recognising a growing garment industry in California, Charney moved there to begin anew. The move was made easier when Charney joined forces in a deal with Sam Lim, owner of a cutting and sewing facility. With production capability in place, albeit after some minor difficulties "like the factory not being scaleable and running out of simple things, like electricity," the initial emphasis was on supplying Ts for the imprintable T-shirt industry. Again problems arose, largely a lack of customer loyalty and a relentless pressure on price, but this further convinced Charney that his theory of developing a niche position could be the future.

The theory was simple. T-shirts, emblazoned with campaign slogans, have long been a medium for a message. For Charney, the medium becomes the message. He may be in business to make money, but he does believe that his sales show there is a generation of baby boomers' children who want products driven by content, both in terms of fashion and ethics, rather than gloss. It's a lot of work, especially when up against giant competitors cutting corners in the pursuit of a profit and now beginning to imitate his style (if not his ethics). But Charney has a long term view. He's done the math.

"Look, we're at the dawn of another social- economic-political-sexual revolution. Counter culture is going to be big," he says, utterly convinced, utterly persuasive. "There's a population bulge of young people emerging right now and while I may not have the history of the establishment behind me, as a 35- year-old I'm well-placed to understand that. Work it out: if there were 200 million hippies in 1969, then because of the echo boomers, there will be two billion of them by 2007. And that means I've got it made."

"Everybody's talking about outsourcing, but in many cases that's grossly inefficient, especially in clothing. When you pursue cheap labour it often removes the necessity to innovate and automate. I'm a freetrader - I think I can compete with a prison in China because I have the ingenuity."