American Apparel Proves Companies Can Profit While Paying Higher Wages (VIDEO)

An American Apparel factory worker.

Inside the American Apparel factory. Photo from NPR 

As yet another overseas factory disaster leaves hundreds dead — and sheds a harsh light on the manufacturing practices of global multinationals — American Apparel’s controversial CEO, Dov Charney, proves there’s another way. Instead of racing to the bottom and forcing American workers to unfairly compete against unprotected, low-wage, third-world labor, the Los Angeles, CA-based fashion label keeps its factory on-site and pays workers a competitive wage.

“The era of cheap labor is coming to an end,” Charney told the Daniel Gross from the Daily Beast, when asked about the lethal factory collapse in Bangladesh that killed over 800 people.

Gross also reports that American Apparel’s average sewing worker makes $12 per hour, or $25,000 per year. While many may debate whether this makes for a living wage in an expensive city like L.A., they’re still earning well above California’s hourly minimum wage of $8.00 or federal minimum wage of $7.25. In addition, American Apparel provides employees with health insurance, a low-cost health clinic, onsite massages, subsidized public transit access, subsidized lunches, a bicycle-lending program. While Walmart and others try to downplay how their cheap products get made, Charney flaunts his company’s plant, encourages people to visit, and even posts video factory tours on YouTube.

American Apparel's ad encouraging people to come and explore their factory.

American Apparel’s factory in Los Angeles, CA. Photo from newadvertising.org.

Since the garment industry’s early days in the industrial revolution, its cyclical and labor intensive nature have made it particularly prone to abuses. In his interview with Gross, Charney explains the pressures and what must have been going through the heads of the managers in Bangladesh who put their workers lives on the line:

“If you’re in Bangladesh and you don’t put the merchandise on a boat by a certain date, you’re done. You’re out of business. You’ll do anything to get those goods out,” says Charney. That mindset encourages cutting corners and pushing employees and facilities to the limit, all while constantly looking for the lowest possible price, he says.

Furthermore, Charney acknowledges that treating workers well doesn’t bring in many customers:

“If you hope it’s a marketing tool, it never works,” he said. “That’s worth about 1 percent.”

Yet, American Apparel somehow manages to stay profitable … at least most of the time. Like many other fashion-related companies, they posted a $2.1 billion loss this time last year in 2012 … though they managed to squeak out a narrow 4.9 million profit in the last quarter. Yet, American Apparel still sells $600 million worth of clothing per year, has 249 stores in the U.S. and across the world, and — according to BusinessWire — has nimbly increased sales 4% to $138.1 million this quarter.

So, how does this work? Charney does believe that improving employees’ pay and working conditions boosts morale, and could also make company owners “feel better” about the industry. In addition, vertical integration — which gives companies complete control over the design, production, and marketing of their products and intellectual property — offers its own competitive advantages:

“You have to engineer products in such a way that it doesn’t require cheap labor. Maybe you remove a couple of buttons, and remove some details. It puts pressure on the white-collar worker rather than on the blue-collar worker.”

In other words, what worked for the pioneer auto maker, Henry Ford, can still work in America today. Developing top-of-the-line products with high mark-ups, made by well-paid, specialized workers is also proving successful for German manufacturers today. It also probably helps that much of Charney’s CEO compensation is tied to how well the company does. According to Fashionista, he got paid $2 million for 2012 — only moderately excessive by the standards of today’s top brass — and any further compensation is tied to performance indicators like sales and stock price. A factory tour video shows Jeremias, a sewing floor manager, enthusiastically describing the company and the work he and his group do. While this may seem like propaganda, there are at least 30 other similar videos starring workers who seem strongly identified with their company, while showing how they make everything from button holes to underwear.

While Charney is controversial for his outspokenness, raunchy ads with barely-legal looking models, numerous sexual harassment lawsuits, giving an interview while sitting on the toilet, masturbating during another interview with a female reporter, and hiring undocumented workers (in 2010, the company was forced to dismiss nearly a quarter of their workforce due to irregularities), American Apparel’s business model bears looking into. At least his factory is unlikely to collapse or catch on fire.

Here’s the video:

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Elisabeth Parker Elisabeth Parker is a writer, Web designer, mom, political junkie, and dilettante. Come visit her at ElisabethParker.Com, “like” her on facebook, “friend” her on facebook, follow her on Twitter, or check out her Pinterest boards. For more Addicting Info articles by Elisabeth, click here.