Sew what? American Apparel founder Dov Charney wants to de-emphasize the fact he doesn't use sweatshop labor; he's just trying to sell a better T-shirt.

FROM his downtown Los Angeles office, Dov Charney, founder under of American Apparel Inc., tries to show that garment manufacturers don't need sweatshop labor. His operation designs, cuts and sews T-shirts, sweat suits, underwear and baby clothing. He pays workers an average hourly wage of $12.50 plus benefits, far higher than the $2 to $3 norm in downtown sweatshops. Charney says his ability to oversee nearly every, aspect of his operation allows for rapid changes in design and order volume. He even recruits models and shoots the photos for the company's advertising. He also tries to ensure that worker morale is high. But he's also run into criticism for resisting unionization efforts. Charney projects that his operation will generate revenues of $150 million, up from $80 million last year, as he expands his wholesaling operation to major retailers, with plans to add 30 stores to the nine already open.

Question: Who are your major customers and where do the T-shirts wind up?

Answer: Screen printers. They sell them to churches, strip bars, schools, corporations, stores and restaurants. Sometimes clothing manufacturers also buy the garments, change the labels, embellish them and they wind up at Barneys and Fred Segal. They are everywhere. We're making 800,000 T-shirts a week.

Q: How do you thrive in an Industry where most manufacturers have their goods made in China?

A: It's very hard because there is an economic bias within the banking community and the entire business community against owning your own machines and dealing with workers on a face-to-face basis and dealing with workman's comp and medical insurance and the potential liabilities of lawsuits. Any one worker could take the entire company down.

Q: So how do you do it?

A: We offer transparency. It stabilizes the company in ways that other companies can never claim. That honesty we offer to the workers comes back to where we have the most efficient workplace. We can make a decision to buy a machine and amortize that cost over three or five years, unlike a subcontractor that works hand-to-mouth.

Q: What would the banks rather see you do?

A: They'd rather you open a line of credit for a one-shot deal and pull the goods in from China than have you buy knitting and sewing machines and do it here. But look, the average T-shirt costs 55 cents to make, with direct labor at $12.50 an hour. You take it to China and maybe you can cut that down to 5 cents. However, being in China--the elongated supply chain, the different time zone, the language barrier, the fact that you can't supervise production in a way you ordinarily could, the extra time it takes to react to different impulses of demand, the fact that you can't do shorter runs--all of those things involve a cost. I believe that my intangible costs are lower than my competition.

Q: Don't locally based sweatshops have the same advantages, without the $12.50 per hour labor cost?

A: That's true. To get the very best people is not easy. But because we pay more, we do get them. When I call up one of the Mexican television stations and say we're hiring, we get lineups of hundreds downstairs. If someone is hiring 500 people in your community, that's news.

Q: How did American Apparel get started?

A: There were several phases. The first phase I was importing American T-shirts into Canada and selling them to street vendors. Then I moved to South Carolina and was manufacturing over there. Then in 1997 I moved the company to L.A. I was outsourcing everything, but when I came to California, I started really focusing on vertical integration. I took on a partner who was a contractor. Today, from yarn to the consumer, I'm controlling all phases of production. I do not cut and sell any garments outside my company.

Q: What are your workdays like?

A: I'm never really working because I love what I do. I am always thinking and fantasizing about the company. I look at clothing in flea markets. They have used clothing so I can see what clothing looked like 30 years ago. I study the way furniture is moving.

Q: You're expanding into an adjacent building to take up a total of 800,000 square feet of space. What are your hiring plans?

A: Once the dust settles, we'll have 3,000 people. Right now it's 1,900 to 2,100. We've hired hundreds of people in the last few weeks. I've got 100 retail employees in New York City. We're going to open 30 to 35 (new) stores a year (in the U.S. and Europe) a year from now.

Q: You use people off the street as opposed to professional models for your advertisements. How do you approach them?

A: I say I own a company, here is my card, call me, we'd like to photograph you--$50 an hour, that's what we pay. Seventy-five percent of the people end up calling back. We try to find models that are real people. They are 15 to 40, sometimes older. They look better than perfect because no one wants to be with a doll. They want to be with a human being. We get people who look like our customers so our customers can empathize with the sensuality, sexuality and appearance of the models.

Q: You advertise heavily the fact that you are sweatshop-free.

A: I think it is a secondary appeal and I'm getting a little bored with it myself. It's too PC. It's like--big deal. I'm de-emphasizing it. There are other companies that pay crappy wages that are winning awards for their financial performance. I want to create a new platform for the future. It's less about sweatshop-free because that sounds like charity. It's more about a program of efficiency that dwarfs full capitalism and creates the new form of capitalism.

Q: You have come under fire from the Union of Needle-trades, Industrial and Textile Employees for being a nonunion shop.

A: First of all, we support our workers' rights to appoint a union to represent their interests. If my workers wanted a union, they would have one. We even offered the union an election. They declined it, because they would have been embarrassed by the results. People discovered it involves dues and would institutionalize many elements of the workplace. Hey, if my paying good wages and treating workers well frustrates the union's efforts, that's not my problem.

Q: So there aren't any anti-union efforts at American Apparel?

A: No. To me, an anti-union effort is about frustrating workers rights to unionize by firing workers or limiting their job opportunities or threatening to close down a factory. The concept of a union is a check against greed on the part of the employer. If I really wanted to be motivated by greed alone and pay the lowest possible wage, I wouldn't be working in this factory. To say, "Let's appoint a union to represent the workers even further" may put into disequilibrium the delicate balance that I've created between all the parties.

Q: What's the downside of unionization?

A: In many ways, unions are an obstacle. If you ask 1,000 CEOs worldwide if they thought a union would be an obstacle to the company, I think the majority would say it's a risk. You're putting your trust in a third party. The union could be good, the union could be bad, they might negotiate in good faith, bad faith. What's better is we earn the trust of each individual worker and we go to the trouble to earn that trust.

Q: Earlier this month, Sweat X went under. They said they did not leverage their union-made status enough.

A: That's exactly what's wrong with the union's vision and that's exactly why the company failed. They focused on their social ethics rather than focusing on their products. The union should have looked at the United States auto industry. They didn't make it when they pitched the spiritual cause of "Made in the USA." It's nice to buy a made-in-the-USA car but quality comes first. Capitalism comes first. I'm going to beat Hanes and Fruit of the Loom because I make better products. Either I'm delusional or we're going to change America.

INTERVIEW

Dov Charney

Title: Chief Executive

Company: American Apparel Inc.

Born: Montreal, 1969

Education: Choate Rosemary Hall, Wallingford, Conn.; three years at Tufts University 

Career Turning Point: Making decision in 1995 to manufacture T-shirts

Most Admired People: Robert Green, author; and Henry John Heinz, founder of H.J. Heinz Co.; for their business insight

Hobbies: Reading, photography

Personal: Single, no children