Even after American Apparel Inc (OTCMKTS:APPCQ) filed for Chapter 11, the company’s CEO Paula Schneider stated that management do not intends to shift manufacturing operations from U.S. to foreign soil. The reorganization that will come ahead will enable company to keep production in the Los Angeles.
Expressing her views on the matter, the CEO added that this is what makes American Apparel a distinct firm and an entity that needs to be prospered and be saved. Against the management view, many analysts believe that company has no choice and it would be imprudent not to be shifting soon. Lloyd Greif of Greif & Co. said that there is too much focus being put on having products made in the U.S. The company needs to make a decision if they want to endure this tough time.
American Apparel management has consistently highlighted the advantages of manufacturing in Los Angeles. With the production based in the U.S., the company easily promotes its sweatshop-free wages for workers on billboards. Also, it has ample flexibility to respond to ongoing trends in the market and launch new products to retail outlets quickly. There are nearly 4,600 manufacturing and sewing workers in Southern California.
The existing conditions
The labor costs in Los Angeles are noticeably higher compared to other nations known for apparel production. A garment worker who devotes 40-hour week earns at least $1,440 a month in the U.S. compared to $127 in Mexico, $68 in Bangladesh and $90 in Vietnam. The minimum wage in California is $9 an hour compared to $12 an hour some years ago.
Either way, it is an unsustainable situation for any firm that has incurred heavy losses. American Apparel Inc (OTCMKTS:APPCQ) net losses have amounted to almost $384 million in nearly six years. Revenue has declined for four consecutive quarters. The manufacturing model to keep the production in the U.S. can prove a costly affair for the company.