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American Apparel Is a North American Retailer, Manufacturer, and Distributor.

By:   •  March 27, 2019  •  Term Paper  •  3,400 Words (14 Pages)  •  878 Views

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American Apparel is a North American retailer, manufacturer, and distributor of fashion

apparel since 1998 based in Los Angeles, California. Dov Charney was the founder and CEO of

the business. He provided the company with extra advantage of responding quickly to market

changes and consumer needs as he had a strong business sense and vertically integrated business

model (Mehta, 2018, p.2). In 2008,” an independent research report placed American Apparel as

the Top Trendsetting Brand, second to Nike” (Mehta, 2018, p.3).

American Apparel mission is to “Deliver exceptional service to their retail and wholesale

customer by making garments that people love to wear without having to rely on cheap labor

"(Mehta, 2018, p.1 & p.3). American Apparel does accommodate to this as “every aspect of the

production of their garments, from the knitting and fabric to the photography of the product is

done in-house” (Mehta, 2018, p.2). Since the garments are made in house, this differentiates to

most large retailers as they would use machinery to create their clothes. They are able to “pursue

efficiencies as other companies cannot because of their overreliance on outsourcing” (Mehta,

2018, p.2). American apparel delivers exceptional service to their wholesale customers;

therefore, their growth strategy is a value. American Apparel vision is committed to high quality

products and about “passion, intensity, brand-free, sustainable, fair wages, solar power,

recycling, creativity and can-do spirit” (Mehta, 2018, p.1). These factors were stated by the CEO

and goes hand in hand of the mission. They focus on “building good online sales platform”

(Mehta, 2018, p.2). The company has a website with “12 localized online stores in seven

languages and services customers 30 countries worldwide” (Mehta, 2018, p.2). Their strength is

that they have a “broad appeal to consumers in various demographics,” (Mehta, 2018, p.2). Their

e-commerce website targets all demographics including women, men, children and babies.

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There are many challenges that American Apparel currently faces. One large challenge

that lead to a downfall was their termination of several employees in 2009. A federal

investigation had to be done as there were “irregularities in the identity documents of workers

when they had been hired by American Apparel (Mehta, 2018, p.3).” American Apparel lead to

not being able to complete orders on time and meet demand. This was due to the company

having to terminate 2,000 employees for immigration issues and during this time the global

recession had an impact. This was “so severe that the company could not fully recover.

American Apparel went from net profit of $1.11 million to a net loss of $86 million” (Mehta,

2018, p.3). Another challenge American Apparel faced was that they struggled in the competitive

market. American Apparel’s competitors are Gap, American Eagle, and Express. Due to them

making everything in-house, other competitors “had better financial power as well as good

access to reduced costs because of an outsourcing model” (Mehta, 2018, p.5). “The apparel

industry in general was highly fragmented and highly volatile” (Mehta, 2018, p.4). Besides

financial issues, another biggest challenge faced was CEO Dov Charney was accused of

misconduct based on sexual assault and harassment. American Apparel did not take corrective

action as “the board clarified that the firing was based on personal misconduct rather than

personal misbehaviour” (Mehta, 2018, p.5). To make matters worse, this happened during the

time the company was in a serious debt. “An interest payment of $14 million had to be paid.

Analysts questioned whether Charney’s exit from the company would trigger the default that the

company had been avoiding for so long” (Mehta, 2018, p.5).

The challenges American Apparel faced goes into analyzing the TOWS. One of the main

threats of American Apparel is they lost a large portion of their workforce in 2009. Another

threat is the competition. American Apparel has high competition from larger retailers such as

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APPAREL: DROWNING IN DEBT?”

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Gap, Urban Outfitters, American Eagle, and Express (Mehta, 2018, p.5). American Apparel has

other threats such as cost of raw materials, economic changes, negative public media attention,

and unstable sales growth over the last five years. The opportunities for American Apparel are to

increase retail expansion, reform their advertising, and become more compliant with government

regulations. The strategies the organization can use with competition is to expand product lines

or create products that the competition currently does not have. American Apparel can expand

into department stores. American Apparel has the strength of having a large demographic as they

are retailer of fashion apparel and accessories for women, men, children, and babies, strong

brand loyalty, and popularity of products (Mehta, 2018, p.2). The weaknesses American Apparel

has been controversial advertising, liability on CEO Dov Charney, and that the organization has

a large amount of debt. American Apparel should work with public relations on their image,

reduce their sexual advertising, and create a more positive image to help overlook CEO Dov

Charney flaws. American Apparel can create a vary style of advertising such as having family

friendly ads. Below you will see the TOWS Matrix:

TOWS Matrix: American

Apparel

Strengths:

1. Strong brand recognition

2. Large demographic

3. Second trendsetting brand

only to Nike

4. Popularity of products to

the young

Weaknesses:

1. Controversial and sexual

advertising

2. Lawsuits on CEO Dov Charney

3. Huge amount of debts

Opportunities:

1. Increase retail

expansion

2. Add outlet stores

Strategies

1. Create more retail stores.

2. Open discount stores

including outlet stores

Strategies

1. Reduce controversial

advertising

2. Create a more positive image

3. Prioritize loans

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3. Be compliant with

government for

legal workers

4. Reform advertising

...

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