Introduction
All companies must adapt to their specific niche or they are doomed to failure. American Apparel is no exception to this rule. While some companies choose to address the variety of competitive players in the market through designing better products or by offering the same quality at lower prices, other businesses choose to use a single feature that defines the product that they are offering. For American Apparel, there is no evidence of higher quality than analogous brands, and the prices are quite high for the clothing they are offering; as such, the company’s main appeal for the general population is that all the clothes that are made by the company are made in America (American Apparel, 2016).
American Apparel was founded in 1989 by a man named Dov Charney, who would remain the CEO of the company for a number of years (Mohan, 2016). However, Charney— who was the public face of the company for some time— became known for being quite eccentric and even predatory, as he was accused of sexual harassment by a number of female employees (Mohan, 2016). The company has been under severe financial strain since 2009, and has recently filed for bankruptcy, which was accepted by the court; today, American Apparel is no longer traded publicly. Instead, the company has become a private company with stock and stake held only by the investors of the organization.
The history of a company like American Apparel is incredibly important to understand, because the company relies so much on the reputation of the brand for its place in the market. The recent struggles of the company will be examined in some depth in this discussion, and the overall functionality of the current structures will be determined. In addition, this discussion will investigate the general environment of the economic niche of the company, the market forces acting on American Apparel, and the strengths and weaknesses of the brand as a whole after this recent court decision.
Segments of the General Environment
The general environment in which a company exists is described by a number of key features. Most analysts accept that there are six segments of the general environment. These segments are demographic, sociocultural, political or legal, technological, economic, and global. Each of these different segments of the environment combine to affect the overall functionality of a company or organization within that environment. Technological parts of the general environment, for instance, affect almost all industries; however, technological changes in the general environment might affect one industry much more significantly than another. Whenever Intel designs a new processor, computer manufacturers are going to be very heavily and directly influenced; however, a clothing company like American Apparel might only be tangentially influenced.
American Apparel is very heavily influenced by the economic and the sociocultural forces in the general environment. The sociocultural forces are positive forces in many ways: American Apparel appeals to the ethical part of the population, as well as the nationalistic and slightly xenophobic part of the population. Although many people choose American-made goods for different reasons, there is a significant part of the population that wants goods that are not made in sweatshops. Some people want these goods because they want to support American labor; some want to avoid purchasing items that are made using unethical production practices, which are common in places like Asia and Mexico, where many other apparel companies have their clothing produced. However, when the CEO of the company was accused of sexual harassment, the sociocultural forces that so often work in favor of companies like American Apparel reversed their flow. In addition, when the general public found out that American Apparel could not pay its workers, there was general upset and unhappiness with the company (White, 2016; Mohan, 2016).
Economically, American Apparel has been struggling for years against other companies that are able to minimize their costs by using foreign labor to produce items (Koren, 2016; EDGAR Online, 2016). American Apparel has not been able to minimize the prices in the same way that other companies are able to because of the high cost of labor and production in the United States. In addition, employees are not paid as highly as they might otherwise be because the company has to find other ways to cut costs. The very business model that the company has relied upon to build their overall competitive structure has relied on the customer’s willingness to pay higher prices for their goods; however, when coupled with weakness in sociopolitical and sociocultural perception, the company easily loses ground to cheaper competitors.
Five Forces of Competition
There are five forces of competition that are generally accepted as the framework by which competition within an industry can be analyzed. These five forces, like the different parts of the general environment in which an organization operates, work in tandem on an organization. However, an organization like American Apparel feels these different forces in different ways throughout the lifespan of the organization as a whole. The five forces of competition are generally accepted to be the threat of new entrants, the threat of substitutes, the bargaining power of buyers, the bargaining power of suppliers, and the general intensity level of the competitive rivalry within the organization and the market (Porter, 2008). It is easy to see that each of these forces acts upon an organization, but certain forces have much more power over organizations than others.
American Apparel, as an organization, is more heavily influenced by the bargaining power of buyers and the competitive intensity of the economic niche than the other forces of competition. When compared to other clothing and apparel companies of similar quality, American Apparel has significantly higher prices; these higher prices are supposed to translate into greater ethical awareness on the part of the organization, and buyers are meant to value that ethical awareness in a dollar amount.
However, buyers are very capable and willing to make judgments with how they spend their money; many are unwilling to sacrifice the lower prices of other retailers for the American-made American Apparel brand. It seems particularly important that American Apparel stopped making a profit in 2009, at the height of the economic crisis: the American consumer looked at the brand and essentially determined that the price was not worth the quality of the garments that the company was producing (Mohan, 2016). This is, of course, an oversimplification of the way demand works; each individual buyer has his or her own reasons for failing to choose American Apparel goods. However, the overall trend became clear in 2009 and has yet to be reversed by the company. In short, the power of the buyers is currently the market force that is overwhelmingly dictating the future of the brand (Porter, 2008).
The other important force that is heavily affecting the American Apparel brand is the internal competition between different apparel companies. American Apparel hoped to establish competitive advantage with a unique product; however, the buyer was not convinced by the product itself, and the industry concentration is very high. There are many companies that are making analogous pieces of clothing, and American Apparel has struggled to differentiate itself in any significant way. Indeed, the strangely sexualized advertising that the company has become famous for has done little to set the company apart in an industry accused of using sexuality too heavily in advertising (White, 2016; Koren, 2016).
External Forces
There are many threats to American Apparel right now, especially in light of the current decision by the court. Investors might become less willing to work with the organization, as they are becoming a liability and have demonstrated a complete inability to turn a profit in recent years (Koren, 2016). The economic situation is also not ideal for consumers; American Apparel is well known for having higher prices than their competitors, which means that the customer will be generally unwilling to spend their hard-earned money when there are other options— cheaper options— readily available. In addition, the strong American-centered programming might turn away potential customers in the international sector.
There are external opportunities for the organization as well, however. The company has the potential to expand with the technological changes that are happening in the retail sector; RFID technologies and ApplePay provide new payment structures and systems that are easier for the customer. The organization also has the opportunity to provide more sale options, which could change the customer level of interest in the brand as a whole.
In addition, the economy seems to be recovering: people are more willing to spend money on things like fashion in a strong economy. The coming year might also prove to be a good time for American Apparel, as the company might experience nationalistic sentiment due to the presidential campaigns. There is no guarantee that the economy will continue to recover, but if it does, this is one of the external forces that will likely prove to be very important for American Apparel’s future earnings and profit.
American Apparel’s Strengths and Weaknesses
American Apparel, despite its current struggles, does have a number of important core competencies to fall back on. The company has the ability to produce relatively high-quality, mid-range clothing with an ethical market plan; it also has the ability to generalize this production capability and expand into other markets that require or desire American-made goods. There continues to be a movement in the American social sphere that focuses on American-made products, and falling quality levels from places like China have served to increase this demand (Koren, 2016).
The end goal that was created when American Apparel was founded—vertical integration and control over inbound processes— contributes to the value chain of the American Apparel organization. The company’s value lies in the fact that they are fully integrated throughout every step of the production process, which allows them to control each piece of the production process as fully as possible. The value chain could and should be utilized to ensure that American Apparel can take a strong market position, but it also means that the company must retain strict controls at every level of production.
Unfortunately, the greatest weaknesses of the company seem to have been in management in the past. There have been many instances of scandals involving the company, which has led to a reduction in faith in the company message on the part of consumers. The former CEO of American Apparel did significant damage to the global perception of the company when he was accused of harassment; in addition, the company’s haphazard approach to sexuality and sexuality in advertising has been called inappropriate and even pornographic (Koren, 2016).
American Apparel also has a number of important strengths that should be investigated and utilized: the company makes excellent clothing, and has created a number of jobs within the American economy. These are significant strengths, and the company should continue to utilize these strengths. The vertical integration of the company means that the company has to keep very little inventory; it is able to fill the needs of its stores easily because it controls all aspects of production. In addition, the company has the ability to be politically active in a number of trendy and popular political campaigns, including programs that support gay rights and immigration reform. These programs appeal heavily to their target demographic (Koren, 2016; White, 2016).
The most important thing that must be done for the overall development of the company and the brand is a revamp of the company image. There is already a strong identity associated with the brand, but the brand name has been tarnished in recent years. Changing the brand image and brand identity using advertising, PR, and customer outreach is incredibly important for the future of the company. The company has a problem with branding: the clothing is too expensive, and the company has been unable to fulfill the “ethical” image that they initially tried to present. A changing advertising structure and PR strategy will address these problems for the company.
American Apparel recently had the opportunity to accept an offer by the former CEO—Charney wanted to buy back the company, and offered the current CEO $300 million to purchase the company so he could reaffirm his position as head of the company. However, the current CEO turned down the offer, recognizing that Charney is likely not going to be popular with the consumer right now. Instead, the company is focused on transforming some of their assets into liquid capital, and has a structured bankruptcy settlement. It seems that, despite some of the financial weaknesses the company has displayed, American Apparel is committed to their business plan and to ensuring that the company’s goals are met.
Discussion and Conclusions
American Apparel, as a brand, faces significant struggle in the coming years. The company has faced seemingly endless scandals, one after another; in some of these situations, employees were not paid, while in others, the CEO was behaving inappropriately with female employees (White, 2016). Because the company has built its brand name on the idea that they are somehow more ethical because they don’t use sweatshop labor, these news stories were quite detrimental to the economic health of the company as a whole.
When a company chooses to build its brand image on ethics and ethical standpoints, that company must be able to maintain that ethical high ground in nearly every instance— a company like American Apparel, which has failed miserably in a number of cases, is making economic and financial success much more difficult (Koren, 2016). This has indeed played out in the current economic situation that the company finds itself in: because it has not made a profit since 2009, American Apparel had to exchange nearly $230 million in outstanding debt to its creditors in the form of liquidation, equity transfer, and so on (Koren, 2016).
Some sources within the company suggest that the newest bankruptcy ruling will be a positive step forward for the company; however, there is a long way to go in rebuilding the financial strength of the clothing manufacturer in the eyes of the potential clientele. Despite the struggles faced by American Apparel, there are still potential futures in which the company can recover from this crippling debt and the restructure mandated by the courts. However, the company must retreat back to its roots to do so, and must continue to focus more heavily on restructuring the company to emphasize its strengths, rather than to expose its weaknesses.
References
American Apparel. (2016). American Apparel - SEC Filings. Retrieved 6 February 2016, from http://investors.americanapparel.net/sec.cfm
EDGAR Online. (2016). EDGAR ONLINE - AMERICAN APPAREL, INC - SEC FILINGS . Retrieved 6 February 2016, from http://yahoo.brand.edgar-online.com/default.aspx?cik=1336545
Koren, J R. (2016). For American Apparel, now out of bankruptcy, it's 'the start of a new day'. latimes.com. Retrieved 6 February 2016, from http://www.latimes.com/business/la-fi-american-apparel-bankruptcy-20160206-story.html\
Mohan, P. (2016). Former CEO Dov Charney Bids $300 Million To Buy American Apparel [Updated]. Fast Company. Retrieved 6 February 2016, from http://www.fastcompany.com/3055359/fast-feed/former-ceo-dov-charney-bids-300-million-to-buy-american-apparel
Porter, M. E. (2008). The five competitive forces that shape strategy.
White, M. (2016). Why American Apparel Workers Didn't Get Paid Last Week. MONEY.com. Retrieved 6 February 2016, from http://time.com/money/4179808/american-apparel-misses-payroll/
