American Apparel Made in the good ol’ US of A: American Apparel is deeply proud of its Made in America labeling. Their “sweatshop-free” approach to labor, while admirable, has made controlling labor

American Apparel

Made in the good ol’ US of A: American Apparel is deeply proud of its Made in

America labeling. Their “sweatshop-free” approach to labor, while admirable, has

made controlling labor costs very difficult, putting them at a significant cost

disadvantage relative to their peers. A garment worker in California earns $1,440 a

month, versus a garment worker in Bangladesh making $68 / month, $90 in

Vietnam and $127 in Mexico. In 2009, American Apparel had to fire 1,800 skilled

workers after an immigration inspection uncovered questionable employee

documentation. As a result, the company had to scramble to replace these skilled

workers with even more expensive workers, placing additional pressure on their

Made in USA economic model.

SKU optimization and production forecasting: Half of their store offerings are

basics, which allows for less risk of obsolescence in terms of styles. While

highly beneficial for inventory management and demand forecasting, this means

that their quick response times due to their domestic vertical integration are less of

a competitive advantage for a meaningful portion of their business. The other half

of their product offerings include more “trendy” wear, including new product lines

like activewear and yoga pants.

The company uses team-based manufacturing in order to optimize productivity.

Workers are divided into teams of 5-20. Sitting in a shared space with their sewing

machines pushed together, they start with fabric that has been cut at another

station. The first person sews the sleeves, passes it on to the next person, who

attaches a zipper, and so on. The finished garment is inspected by a quality control

worker and then boxed up and sent to the distribution warehouse next door.

The right operating model also takes into consideration the intangible assets of a

company’s culture, values and management philosophy. While exuding a positive

outward philosophy of social and environmental responsibility, under founder Dov

Charney’s direction, the company had an unhealthy culture of loose corporate

operations combined with extreme micromanagement from Dov, which has led to a

sentiment of low employee empowerment and morale. On top of that.

ADMS1000 Summer 2024 School of Administrative Studies, York U. This document may not be shared under any circumstances.

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Its Business Model

Value Proposition: American Apparel operates in a crowded marketplace,

competing against the likes of Gap, Uniqlo and H&M. It has tried to avoid

competing on price by creating a unique brand image; its ad campaigns appeal to

an individualistic sensibility by shunning a highly slick, corporate aesthetic and

using “real” people with “naturally beautiful” looks as unconventional models.

However, recent poor financial results from retailers across the industry suggest

that the brand image of similarly youth-focused apparel companies might not be

enough for young shoppers to consistently pay premium prices for these items.

Sometimes, a t-shirt is just a t-shirt.

Target market The core customer is a 15-35 year old, fashion-oriented, middle-

upper income lifestyle shopper, which has historically been a highly loyal customer

(with close to 50% repurchase rate in 2013). American Apparel specifically targets

a certain demographic who is inclined to shop at a second-hand store to create a

vintage look. The clean design and unique look of its retail stores contribute to this

individualistic vibe. However, customer loyalty has been declining in the last couple

years as American Apparel has struggled with finding a business model that will

allow it to sustain its position in the market. The company needs to re-assess if its

message of patriotism and social responsibility is reaching and resonating with its

young, cool consumers.

The bottom line is that style preferences and cost consciousness have shifted

among its core customers, and American Apparel’s unique brand image may not

be enough to maintain this customer base.

Key Areas of Misalignment

Several of these issues have been alluded to above, but the key areas of

misalignment between the operating model and business model are:

Is Made in America economically viable moving forward?: The integral question is

whether Made in America is sustainable. Labor is the highest cost component in

garment making, and as domestic labor costs continue to rise, this operating model

becomes even more unsustainable. American Apparel can go one of two

directions: go offshore or mechanize its production. It could still pursue its

“sweatshop-free” approach, but abroad, by ensuring good working conditions in its

overseas factories. But is it still American Apparel at its core if it’s not made in

America? The other option is to mechanize: while human labor is inevitable in

ADMS1000 Summer 2024 School of Administrative Studies, York U. This document may not be shared under any circumstances.

Page 5

garment production, mechanized “sew-bots” could reduce the manual labor

component. This could then increase the need for domestic workers with more

advanced skills to program and maintain the machinery, which would allow

American Apparel to continue sourcing labor domestically.

Does the core customer care about Made in America?: As the marketplace

becomes more crowded, the integral part of the operating model – Made in

America – may not be enough to resonate with its youth-oriented customer base.

Additionally, the backlash against the provocative ad campaigns has turned off

some of its core consumer base. The company needs to assess how to re-capture

this base.

Are they primarily in basics or are they fast fashion? Balancing their SKU

management of basic items and constantly adding

new, fashionable items in response to new trends needs to be executed very

thoughtfully. Getting into fast fashion puts them in direct competition with H&M and

Forever 21, which have highly sophisticated demand forecasting and global

distribution capabilities. American Apparel needs to assess where and how to use

its vertical integration efficiencies to create a sustainable competitive advantage.

How to reconcile the brand image with the company culture? The socially

conscious focus of its sweatshop free wages and small environmental footprint is

not aligned with the provocative, controversial brand image it presents in its

marketing efforts, which both do not match the disruptive and chaotic internal

company culture. All three elements need to be reconciled for a cohesive branding

and company strategy.

American Apparel’s recent Chapter 11 filing serves as a rude awakening for its

management team. Rather than simply relying on its brand, American Apparel

needs to carefully assess its core operating and business competencies and

consider what will truly differentiate their product going forward.

************* End of case. See case questions below ***************

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CASE QUESTIONS (TOTAL 70 MARKS)

Answer the following case-related questions. Be sure that you apply the concepts, theories or

frameworks discussed in class and assigned readings. Make any assumptions or inferences you

feel are necessary.

Question 1 (10 marks)

Explain how American Apparel may be using the Classical management approach here and why

may it be effective? Use all examples from the case as part of your analysis. (10 marks)

Question 2 (15 marks)

Describe what type of structure may better suit the company American Apparel - traditional or

modern? Explain using all examples from the case as part of your analysis. (15 marks)

Question 3 (15 marks)

Define the meaning of a differentiation, business-level strategy. Is a differentiation strategy the

correct strategy for American Apparel to be using? Why or why not? Explain using all examples from

the case as part of your analysis. (15 marks)

Question 4 (20 marks)

Prepare a SWOT analysis of the company American Apparel. Explain using all examples from the case

as part of your analysis. (20 marks)

Question 5 (10 marks)

Explain why do organizations (or systems) sometimes fail at what they were intended to do? Where

has American