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.
Page 4
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
