American Apparel has told nearly 3,500 employees in Southern California that they may lose their jobs in January depending on the outcome of a likely sale to Canadian clothing maker Gildan Activewear.
The maker of colorful basics, which in November filed for bankruptcy for the second time, has notified workers at three American Apparel production facilities that they could be laid off Jan. 6, according to the California Employment Development Department. The message went to 332 workers in Garden Grove, 959 workers in South Gate and 2,166 workers at the company's sprawling headquarters in downtown Los Angeles.
If all of these workers lost their jobs next year, it would be a huge blow to Southern California apparel manufacturing, which has steadily declined over the years, analysts said. This year, American Apparel laid off at least 500 workers as it cut production.
"It's a big number," said Craig Johnson, president of consumer research firm Customer Growth Partners. "There are not a ton of U.S. large-scale apparel manufacturers left."
American Apparel said Monday that the state-mandated WARN notices were "purely a legal precaution" and that "layoffs are not certain."
Gildan Activewear, which bid $66 million to acquire American Apparel's intellectual property rights and some other assets, has indicated its interest in maintaining at least a portion of manufacturing in the U.S.
"We felt like 'made in America' is an inherent part of that brand," Garry Bell, Gildan's vice president of corporate communications and marketing, said in November. "It is our intent to continue that focus."
What remains uncertain is the final result of an auction of America Apparel's assets, according to a Nov. 17 letter sent to employees by Craig Simmons, the chief human resources officer.
Although American Apparel reached a sales agreement with Gildan, the bankruptcy filing allows for an auction in which other buyers could make competing offers, including for American Apparel's retail business. Gildan has no interest in 110 stores in the U.S. and 83 others around the world.
Gildan executives were taken on a tour of American Apparel's factories in Los Angeles as part of a "facility review process," the letter said. The Canadian clothing company may be interested in buying some of the manufacturing plants, "which would save jobs in the U.S.."
"The process that we have entered into includes an 'auction,' which is designed to make sure that American Apparel has the opportunity to select the right buyer (or buyers) for the business," Simmons wrote.
There is a chance, albeit an unlikely one, that another interested buyer may emerge in coming weeks, analysts said. Another bidder could potentially offer a higher price, but show less interest in domestic manufacturing.
Johnson said any buyer would keep at most a fraction of production in the U.S. — meaning some Southern California layoffs are likely. Production could also move to a lower-cost state such as South Carolina or Georgia.
"They may have a toehold" in the U.S., Johnson said, with some items or a couple of product lines produced in America. But most production will probably move to Gildan's manufacturing hubs in Central America and the Caribbean where it's "much lower cost than anywhere in the U.S.," he said.