Fast Fashion's Challenge: Making Money With 'Made In The USA'

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In the world of fast fashion, two U.S.-based companies loom large: Forever 21 and American Apparel. Both are based in Los Angeles, but the two could not be more different.

American Apparel proudly boasts that the clothes it sells are "made in the USA." In contrast, Forever 21 subcontracts with factories all over the world.

Dov Charney, American Apparel's Canadian-American founder and CEO, has a reputation. "I knew from a very early age — in elementary school — that I was going to rub some people the wrong way," he says.

His company's models are often close to naked in ads at bus stops and in magazines. He has faced a variety of harassment suits, sexual and otherwise, and has had some serious trouble with Immigration and Customs Enforcement. Charney, 44, claims irregularities with worker documents once forced him to lay off more than one-third of his staff.

Do Won Chang, founder and CEO of Forever 21, is 58, Korean-American and devoutly Christian. Every Forever 21 shopping bag is stamped with the Bible verse John 3:16.

Chang has also had his share of legal trouble. There have been waves of worker disputes over labor conditions that lasted years at a time and even boycotts. Chang has also been charged with design theft for stealing styles from other designers.

In an interview with CNN, Chang said he really had no interest in fashion; he just wanted to make money. And he has done a good job of that; relying heavily on manufacturing overseas, Chang projects $4 billion in sales this year.

If American Apparel was not made in U.S.A., we would not exist today. ... It doesn't make sense to drive to Vietnam to pick up a T-shirt.

In contrast, American Apparel expects its 2013 sales to weigh in at around $650 million — and this is expected to be a very good year.

Meeting Demand Direct From An L.A. Factory

Perhaps Chang is just a more successful businessman, but it's hard to resist the question: Does it actually make sense, financially, to make clothes in the United States?

"If American Apparel was not made in U.S.A., we would not exist today," says Charney. He doesn't pretend to be Forever 21, but he has built and run a successful business, starting with T-shirts.

"It doesn't make sense to drive to Vietnam to pick up a T-shirt," Charney says. By boat, it takes at least a month to get T-shirts shipped in.

For Charney, that's too long. So instead, he drives to the seven-story American Apparel headquarters in downtown Los Angeles. From his top-floor office, Charney and his staff figure out what's selling well and quickly, then fill in the sewing managers one floor below.

The quick process means the company's supply has a much better chance of matching demand. The American Apparel factory is so nimble, it can get 1,000 T-shirts out the door in a single day.

Back at Forever 21, Linda Chang, the daughter of Forever 21's Do Won Chang, says she speaks for her father when she applauds American Apparel's vertical integration — economic speak for doing everything in-house. But Forever 21 is different, she says.

Its prices are even lower than American Apparel's, she notes, and the company offers a wider range of garments and styles. "And we use a combination of overseas and local factories to deliver this to our customers," she adds.

So, why can offering a variety of garments inexpensively only be achieved by manufacturing overseas?

Making Money By Making Knits

Frank Bober, CEO of Stylesight, which keeps fashion companies abreast of trends, says it's all about the type of product the companies are selling. Bober has been in the industry a long time — long enough to know the difference between knitwear (T-shirts, leggings and sweatshirts) and wovens (dress shirts, blazers and jeans).

And knits, he says, are the key to making money by producing stateside. "Knitwear is the only area, because it's so machine-driven, that can actually still be made profitably in the U.S.," Bober says.

Back at the American Apparel factory, you can see why. Knitwear for T-shirts comes off the machine in tubes, rather than flat bolts. "You'll see if you look at our T-shirts, a lot of them don't have a seam, or they only have one seam," says Emily Nerad, the American Apparel tour guide. "It's because that fabric is already in a tube. And then the sleeves and the finishing are sewed on."

The company's secret to profitability is simply more knitwear, meaning more machines, fewer hands. American Apparel can turn out its 1,000 T-shirts a day because it takes less work than other types of garments.

American Apparel can make a maximum of only 100 dress shirts a day and subcontracts out for its sweaters. And it used to make women's blazers but stopped. "When you start to get into a women's blazer or a full fashion women's cashmere sweater, you just don't have the hands," Bober says.

Made In America ... And Jakarta?

But Charney is currently expanding his American Apparel product line. "I've already proven that that's possible," he says. Charney has plans for made-in-the-USA military uniforms, doctors' scrubs and hospital gowns, and he has a brand new, $5 million warehouse — with plans to fill it.

"There could be some products that could be made elsewhere, anywhere in the world," Charney says. "And it may come a time when my view of America may include Mexico City or Tokyo or Beijing or Jakarta."

That might be one way to do it, but Charney's view of America is likely a lot more flexible than his customers' views.