'Made in America' goals come with a catch

A young woman lounges on her knees and forearms. She wears a provocative expression and tight red American Apparel booty shorts. The advertisement's headline: "Made in USA - Sweatshop Free."

The ads sell a racy image, but just as crucial to the retailer's identity is the American aspect of its apparel. As ousted CEO Dov Charney campaigns to regain his job, a bigger question hangs over American Apparel Inc. and the entire garment industry:

Can a company make its clothing in the U.S. and still make money?

Although Los Angeles-based American Apparel, which has four stores in the Philadelphia region, reaped a record $634 million in sales last year, the retailer hasn't turned an annual profit since 2009.

"The business model is at a crossroads," said Anne Olderog, director of brand-consulting firm Vivaldi Partners Group.

American Apparel was a trailblazer in the made-in-USA movement. Companies were shifting manufacturing overseas in the 1990s when Charney opened what became the largest garment-sewing factory in the country, employing thousands.

But in 2009, American Apparel was forced to fire 1,800 skilled workers after an immigration inspection uncovered questionable employment documents. A rocky start last year to a distribution center caused costly shipping delays.

"The financial challenges at the company had nothing to do with our cost of manufacturing in Los Angeles," Charney said. "The made-in-Los-Angeles element is the path of least resistance, and ultimately results in the lowest cost and highest value for the customer."

For clothing makers, the lure of foreign shores boiled down to cheap and experienced workers who could quickly turn around new designs. Trade agreements eliminated duties and other restrictions that had once boosted costs.

Since 2003, the number of apparel-manufacturing establishments nationwide has dropped nearly in half to 7,075, data from the Bureau of Labor Statistics show. American garment companies hemorrhaged nearly 800,000 positions since 1990.

Only 2.5 percent of the clothing purchased by U.S. consumers last year was made in the U.S., down from about 56 percent in 1991, according to the American Apparel & Footwear Association.

But slowly, U.S. clothing production is gaining. That tiny share of U.S.-made apparel inched up half a percentage point from two years earlier - the first time domestic manufacturers have won back market share, the group said.

The turnabout is gaining steam partly because of a consumer backlash to poor safety records and substandard working conditions abroad. American consumers also are increasingly wary of mass-produced items and instead want unique, artisanal goods made sustainably at home, marketers say. More than eight in 10 are even willing to pay a premium for it, Boston Consulting Group says.

Some manufacturers say they're investing in U.S. production because they want more control over quality. They point to rising expenses at overseas factories and increasing transportation costs.

U.S. costs still exceed the rates offered by bulk producers abroad. Massive Asian factory complexes can handle a single garment order from start to finish, while the U.S. supply chain sprawls across a scattered network of specialist contractors. And in categories such as sweaters or embroidery, few American firms have the machinery or expertise to succeed.

There's also a shortage of skilled apparel workers, who are aging out of the system, switching careers or being stymied by citizenship rules. Often, they aren't up to date with the automated pressing, multi-unit sewing machines and more that make foreign factories efficient.

Still, a projected 200,000 garment-manufacturing jobs could return to the U.S. over the next decade, according to industry consultants. For example, Ralph Lauren pumped $142 million into expanding a factory in High Point, N.C.

Said John Martynec, senior vice president of manufacturing for Brooks Brothers: "I know deep down there's a viable industry for made in USA, and not just for domestic consumption. There's value in making these products to be exported as luxury items into emerging markets."