July 26 - American Apparel has signed a multi-year partnership with EBay Inc to create a full online lifestyle shop as part of the retailer's efforts to tap new distribution channels.

The American Apparel SXSW Model Search campaign

The company, which has faced problems ranging from covenant breaches to immigration probes of its workers to shareholder litigation, expects the venture to become a "multi-million dollar" business within the first year, it said in a statement.

"There are more than 30,000 searches for American Apparel on EBay each month and right now those customers are not buying from us directly," American Apparel Chief Executive Dov Charney said in the statement.

The store is slated to open in September and will offer a full assortment of products chosen by American Apparel, including hoodies and T-shirts.

Shares of the American Apparel -- known for its racy advertising -- closed at $1.03 on Monday on the American Stock Exchange. EBay shares were up 1.5 percent at $34.33 before the bell.

(Reporting by Abhishek Takle in Bangalore; Editing by Prem Udayabhanu)