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American Apparel: Manufacturing a comeback after years of scandal

Teen fashion chain American Apparel (APP) is in the headlines after ousting controversial founder Dov Charney. Retail veteran Paula Schneider officially takes the top spot January 5th and she's got a big job ahead of her. It's no small task considering American Apparel's reputation for scandal has been overshadowing its performance as a business for years.

Schneider's first task will be figuring out what American Apparel even is without Charney. Salacious advertising and a dedication to what Charney referred to as "no sweatshop" production created a business that still somehow has more than $600 million in annual revenues but almost as many lawsuits, accusations and tainted relationships.

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Like a grittier, dirtier version of Abercrombie & Fitch (ANF) American Apparel's ads have featured suspiciously young models wearing occasionally translucent tops and underwear. As racy as the billboards and store windows were they're nothing compared to the accusations against Charney himself. In 2011 four female employees filed a sexual harassment suit against the company. In 2012 Charney was accused in a wrongful termination suit of choking and rubbing dirt in the face of a former Malibu store manager.

Despite the controversy and fading fortunes of his company Charney has plenty of loyal fans. He started the company in his dorm room while still attending Tufts University and built it into a 10,000 employee operation. What's more Charney, a Canadian ex-pat, was fiercely committed to creating jobs in America.

Related: American Apparel names new CEO, officially ousts founder

Once a thriving industry in the U.S., apparel manufacturing has lost more than 750,000 jobs since 1990. That's 80% of the entire industry gone to either automation or overseas. During that same time Charney was building plants not just in the U.S., but in the L.A. area where labor is relatively expensive.

Most of American Apparel's products are cut, dyed and sewn by 7,500 employees at factories all located within 30 miles of each other in Southern California. The salacious ads may have caught the public's eye but in retail circles its this domestic manufacturing that really made American Apparel stand-out to industry insiders.

Charney's complicated legacy is illustrated by the fact that he was still with American Apparel at all, given that he was actually replaced as CEO way back in June. Since then he's been working as sort of a non-executive, defendant adviser. That awkward role may have gone on indefinitely if not for a petition signed by some 30 executives that led to Charney's apparently final exit announced on Wednesday. Appropriately enough, Charney's ouster led to equally vocal protests from his worker fanbase, many of whom are employed in those factories making an average of between $12 and $14 an hour.

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In her only public comment so far, Paula Schneider says she's focused on "getting up to speed". In terms of strategy she offers only that the company will remain "committed to continuing to make its clothing in the U.S.". It may not be Schneider's choice. Along with New York hedge fund Standard General Charney still controls more than 43% of company shares. Complicating matters further, American Apparel has lost more than $310 million in the last 5 years and has more than $200 million in debt; almost twice the company's total market cap.

Can the long dormant retailer regain its cultural relevance without losing the better part of its soul? Is clothing manufacturing still a viable industry in the U.S.? Let us know what you think via Facebook or send us a Tweet @YahooFinance.

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