American Apparel gives California Awful News in Response to Minimum Wage Hike

The downtown L.A. company began layoffs last week. So far, about 500 local employees have lost their jobs, said Nativo Lopez, a senior advisor with Hermandad Mexicana, which is helping workers in unionizing efforts. The company has about 4,600 employees in Southern California.

American Apparel emerged from bankruptcy in February and has been trying to move past a tumultuous two years that saw the ouster of founder Dov Charney, store closures and massive fire sales to clear unsold merchandise.

Manufacturing all of its colorful leggings, knit tops and accessories in Los Angeles has been a cornerstone of American Apparel, set in place years ago by Charney, a staunch immigration and fair wages advocate. After his firing, the company has been moving away from its roots by distancing itself from its outspoken former chief executive, toning down its racy billboards and now rethinking one of its fundamental tenets about how and where its products are made.

The company said only a fraction of its garments would potentially be outsourced, according to last week’s letter that was obtained by The Times.

But analysts said this was probably the company’s first step in leaving Los Angeles, at least when it comes to manufacturing.

“They’re headed out of Dodge,” said Lloyd Greif, chief executive of Los Angeles investment banking firm Greif & Co. “They are going to outsource all garments. It’s only a matter of time.”

American Apparel appears to be dropping the bad news a little at a time, he said, to gauge public opinion and also to prevent a worker revolt.

“They might be kind of testing the waters to see what the market reaction is,” Greif said.

For now, American Apparel will probably outsource manufacturing to a cheaper part of the country, such as the South, analysts said. Eventually, the company may well move much of its manufacturing overseas.

The main problem is that it’s difficult to pay workers decent wages — Charney used to boast that his sewers were paid $12 an hour on average — and still make money while selling pricey $30 T-shirts. Complicating matters is a hotly contested retail landscape full of fast-fashion chains that make their clothes abroad and sell them for a fraction of American Apparel’s prices.

When American Apparel first began manufacturing from its cavernous coral pink warehouse near the Arts District, it was heralded as a bold move that defied conventional thinking that U.S. retailers had to outsource to Asia to make their goods. Charney was championed as a visionary thinker, bringing thousands of jobs to downtown L.A. and a belief that “Made in America” was attainable.

On Tuesday, Charney characterized the latest moves as a betrayal of American Apparel’s foundation. He was ousted as chairman and chief executive after an investigation uncovered allegations of misuse of company funds and inappropriate behavior with employees.

Lopez, the labor organizer, said the general mood among workers is “doom and gloom.”

Organized labor has been one of the main moving forces behind the $15 minimum wage movement, and though some will benefit, the long term effects will be fewer jobs, more automation, more offshoring, plus other ways that manufacturers and employers can find to keep labor costs down.

White Castle restaurants are calculating how they can keep restaurants open, and what the impact will be with such a large increase in labor costs. They concede that prices will have to increase, which will mean fewer customers and more people eating at home. That will mean fewer jobs at the restaurant.

Chipotle restaurants also indicates that customers will have to pay more and get less in an effort to control costs. And some stores such as the Los Angeles Wal-Mart store in Chinatown will simply shut down due to the economic disconnect between the cost of labor and the value added by low level employees.

Smug politicians and labor unions believe they have pulled one over on the country by passing a law that is simply irrational but that panders to the narrow thinking and the uninformed beliefs of workers who have no idea how economics work and what it costs to run a company. And many left leaning politicians, especially those who have never worked in the private sector, believe that all a business needs to do is raise prices to compensate for increased labor costs in the same way they do with taxes.

But economic reality means that people have choices, and high prices will mean less business. In the case of American Apparel, the company will move much or most of production off shore in order to keep prices level and to retain their customers. But the cost will be the thousands of jobs that will be lost because of the ignorance and arrogance of the politicians who pushed through this unworkable plan. And what follows that will be more workers on welfare, and the same politicians whining for more tax dollars to support those unemployed workers. Good job, guys!




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