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American Apparel Part II: Weighing in on what happens now




People walk past an American Apparel store in downtown Los Angeles, California on January 27, 2016.
People walk past an American Apparel store in downtown Los Angeles, California on January 27, 2016.
MARK RALSTON/AFP/Getty Images

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Yesterday on the program, we spoke with Dov Charney, founder and former CEO of LA-based American Apparel.

The clothing company built its brand on a message of American manufacturing and fair wages. After years of problems, it began laying off workers on Monday as it prepares to shut down operations.

The board of American Apparel removed Charney in 2014, after a series of sexual harrassment allegations, compounded by charges of fiscal irresponsibility.

He negotiated a return, only to be removed again.

During the first part of the interview, where Libby Denkmann asked Charney about the sexual harassment allegations. Here's what he had to say:

CHARNEY: There hasn't been any sexual harassment allegations since January of 2011. So 2012 went by, I was rehired. The company disclosed in [2010 to 2014] that the sexual harassment lawsuits were frivolous and were baseless. And this was all signed by the board members that purported to oust me.

In response to the interview, American Apparel sent us this statement.

The Company incurred millions defending and settling dozens of lawsuits from many different employees and models against Mr. Charney on allegations of sexual harassment, sexual assault and racial discrimination; the Company was still arbitrating and settling these claims for months after Mr. Charney was terminated for cause in December 2014.

Denkmann also spoke to Charney yesterday about the board’s claims with company debt incurred under Charney’s direction. He responded:

CHARNEY: The company was performing. It was turned around. There was no indication that we couldn't afford the debt that we had. In fact, we were able to raise $30 million 40 days prior to my ousting by way of a security sale. . . .This was a huge success. There was no issue relating to the debt. That's fiction.

American Apparel also issues this statement on the subject of debt and the company:

The Company has not turned a profit since 2009, five years before Mr. Charney’s termination for cause. The company incurred millions in litigation costs associated with the sexual assault and harassment charges against Mr. Charney – coupled with a severe debt burden of $250 million directly stemming from Mr Charney's agreements with creditors – which led to the Company’s first bankruptcy filing in 2015, very shortly after his termination.

Now Charney says he has a new brand of clothing in the works and hopes to rebuild what was lost with American Apparel. In the second part of his interview, he talks about his new company and possibly recruiting American Apparel's laid-off workers. Denkmann also weighed in with CNBC special correspondent, Jane Wells, who's been following the story.

Here are some interview highlights:

From the second part of our conversation with Dov Charney

Tell us about what you're planning next?

CHARNEY: What I'm planning to do, is to continue and create a new company. But it will really be the old company. I'm gonna carry on the spirit of what was. I'm setting up camp in a very large facility in South Central. I don't want to disclose exactly where yet. The inspiration will be Los Angeles. Can we afford $15 [an hour]? Absolutely we can.

There's a website called thatslosangeles.net where I started posting photographs of the inspiration. The authenticity of the city. We believe in manufacturing in the city, not [outside of the city core]. 

How many people have you hired from American Apparel? How many people do you plan to hire?

CHARNEY: I've already hired 75 people. Some of them were hired on a part-time basis. And I plan to hire thousands. . .I need to fight my way back in. . . with my [team] and re-establish what was but bring it to another level. 

From our conversation with CNBC Special Correspondent Jane Wells, who's been following the story:

What do you think led to the downfall of American Apparel?

JANE WELLS: [Dov Charney] was part of the problem with his lifestyle and his, still, refusal to accept that he did anything wrong in terms of his relationships with subordinates at his own company. But the other problem is that the company moved forward and grew by taking on more and more debt. Yes, he talked about things that were cash flow positive or gross profits, but that doesn't mean profitable. The company was drowning in debt and I don't know if there was any way that he could have turned that around while still paying a living wage and producing clothing in Los Angeles. 

Would American Apparel have survived if Charney had stayed?

WELLS: I'm not a business or economic expert, but I think the problem is, they kicked him out. They are the bad guys. They took the company to bankruptcy not once, but twice. They sold off the assets. . . If he had stayed. . . I think the company still would have gone under, but then it would have been on him, and not on them.

Charney is trying to build a new brand that will be made in L.A. What do you think the prospects are for him moving forward? Will he be able to hire employees from American Apparel and will he be able to hire more people?

WELLS: I think he'll be able to hire people. When I interviewed him in 2012, there are clearly people there who adore him and are so grateful for the opportunity to be able to do this sort of work for a livable wage. It's a very noble, wonderful thing if you can make it happen. Listening to the StartUp podcast from this season, which follows him as he tries to launch this second business, there's a sense of a cult-like following, in essence, with some people.

To listen to the second part of our interview with Dov Charney and our discussion with Jane Wells, click the blue player above.

*Note: The interviews above have been edited for clarity.