Description of the American Apparel’s Corporation
American Apparel is a leading basics brand for young adults and people of all ages, with both wholesale and retail divisions globally. The company was founded in 1989 by Dov Charney, a Canadian man with an interest in vintage American clothing and is known for cutting-edge advertising and product branding. Its operations adage “made in downtown LA” has contributed to significant brand awareness and a cult status worldwide. It is the largest sewing facility in North American with 5000 to 10000 employees. For American Apparel, many factors of the external environment pose a threat to the company, however, with slight alternations to the marketing strategy, can also create opportunities.
Problem Definition
American Apparel has a far different comprehensive strategy when compared to its peers. Its main strategy was to create a business structure that would allow it to be different from its competitors. The company’s management team knew that it would not only be hard but also expensive to outperform each and every competitor across all metrics and so their best chance would be to at least try to be unique and independent. However, the structure needed to support this strategy did not respond in an effective and as expected manner to the external environment where the company operates. This is apparent from the company’s marketing and advertising campaigns, the conducts of the CEO, and the manufacturing costs in America. The structure needed to support these activities created a company that was not able to respond effectively to the external environment. This has been American Apparel’s problem from the very beginning. All of the negative things that they have been experiencing such as the loss of jobs, lower productivity and therefore sales levels, are mere secondary complications of that problem.
Analysis
Structural Characteristics
Formalization
American Apparel Company and the subsidiaries are engaged to the highest business standards when it comes to forming and maintaining relationships with each other including the consumers, stakeholders, coworkers, suppliers, and employees. This intends that the company conducts their business according to all the applicable regulations as well as the laws and according to the highest standards of conducting business . The organization’s business code of conduct assists them through ensuring statements of principles as well as key policies and procedures that ensure that the conducts of their business are being governed appropriately. Apart from the ethical guidelines that accompany these codes, there are obvious regulations that affect the company and the foreign markets where they operate. Recently, there have been issues raised regarding the company’s policies and procedures. For example, there are new policies that warn against harassments; it has also instituted an anti-sexual harassment policy in its code of conduct. It is also not uncommon to see women in key management positions. The implemented policies create boundaries between workers, managers, and the company also prohibits relationships between employees and their managers. These regulations are implemented to ensure that workers do not experience any harassment at work and that the reputation of the company remains stable.
These facts essentially show the lapses of the rules and procedures that were implemented by the previous CEO. It would be wrong to suggest that the previous CEO did a poor job. It is just that there were a lot of things that he could have focused on, something which the current CEO of American Apparel successfully did.
Centralization
Most of the remarkable events in the company including its successes and failures can be largely attributed to the changes that the current CEO implemented. This is one of the direct evidences that the company has a high level of centralization. This means that central planning authority rests on the CEO and other people holding key management positions. This is opposed to a decentralized approach where employees are encouraged to participate in management and decision-making processes.
American Apparel’s Mission Statement
American Apparel’s mission statement is “American Apparel is the most passionate and innovative wholesale T-shirt manufacturer and distributor in the world. We are committed to leveraging art, design, and technology to produce garments of the highest quality, while pioneering industry standards of social responsibility in the workplace” . Their main slogan is “Made in the USA – Sweatshop Free”. They put a lot of emphasis on their social and responsibility-related initiatives as a corporation and as such a lot of their objectives have evolved around these responsibilities. They claim to have a smaller carbon footprint relative to their peers; they were virtually landfill free as of 2016 and they offset about 20% of their electrical usage by using solar panels. They have committed to reinvesting profits and time into supporting human rights for all and they managed to get a 100% corporate quality score in 2015.
This is largely a part of the company’s differentiation strategy. Their slogan tells most of the story as the term sweatshop mostly refers to companies operating offshore to take advantage of dirt cheap labor rates. The fact that they are against the employment of foreign workers for the sake of labor suggests that they are trying to be different. Their business is in the United States; this is mainly because of the quality of products produced there and the fact that it is easier to do business in the U.S. compared to other countries.
American Apparel Organizational Structure
Most companies rely on a simple organizational structure, one that relies on splitting the company into various departments each of which has various functions (e.g. production, marketing, and personnel management). This is where one of the tenets of American Apparel’s differentiation strategy comes in. American Apparel has a functional organizational structure. Staff members can specialize in a particular business area such as production or marketing and then follow a well-defined career path. This strategy is referred to within the company as vertical integration . Having a functional organizational structure has its advantages; one of which is that it makes the company easier to understand and manage. There are, however, clear disadvantages as well. For example, American Apparel’s managers have to tread carefully because this form of organization is prone to interdepartmental conflicts. This often leads to degeneration such as those evident in tribal warfare. Coherence and good communication-based strategies, however, can be an effective set of tools to counter these drawbacks.
Porter’s Competitive Strategy Model
Based on the analysis using Porter’s Competitive Strategy Model, American Apparel uses a differentiation strategy by mixing art, design, and technologies to lure in customers. In this business model, all stakeholder groups benefit—the customers, workers, and shareholders, among others. For its employees, for example, the company provides wages and benefits that are higher than industry averages. It also produces products that are cheaper and higher value—something which the customers greatly appreciate. As a result, the employees and customers create a vicious cycle where American Apparel profits and those profits trickle down to its employees and customers.
Another effect of the company’s differentiation strategy is the fact that it created a more positive image for the company for its stakeholders. It managed to make the public develop this image that suggests that the company is not just after the profits but actually cares about the people and groups it works with.
The External Environment
Global
American Apparel operates the largest garment factory in the U.S. They are vertically integrated, eliminating the use of sewing subcontractors and offshore labor. The company’s first retail store was opened in 2003; it now has over 260 stores worldwide across 19 countries. American Apparel is known for its products being manufactured solely in the U.S. It has a history of bankruptcy in 2015; this was largely a result of debt mismanagement and complications brought about by numerous lawsuits .
Technological
Technology has so far been led to a booming fashion industry. Latest manufacturing tools, equipment, and even robots have led to higher production efficiency ratings and lower operating costs for companies. This can be translated to higher levels of survivability for fashion industry firms, especially the startups. This, however, comes at the expense of employees as more and more manufacturing firms make use of advanced machineries as a replacement to human labor.
Demographic
Demographic trends are important for a fashion industry firm, especially if this firm only caters to a specific demographic group. This kind of risk, however, does not apply to AA mainly because its products are versatile; it caters mostly to young people although there are products that are intended for other demographic groups as well. In terms of pricing and quality, AA is also versatile.
Socio-cultural
Social and cultural trends are important just like demographic trends. The design of the products, for example, can be highly correlated with the prevailing socio-cultural trend. The goal is for AA to be able to adapt to the existing socio-cultural trends so that its products would continue to exhibit good sales performance. In fact, this goal is universal for all fashion industry firms. They have to adapt to the changes and trends in their respective environments.
Political and Legal
Politics and legal systems impact the fashion industry’s performance dramatically. In AA’s case, for example, its recent bankruptcy filing has been the result of a mix of debt mismanagement and consequences of lawsuits filed against it . In terms of politics, however, business friendliness would be the most directly impacting factor. The U.S. so far is one of the friendliest countries for businesses and it is a good thing that AA operates mainly in the U.S. despite the fact that its products are marketed worldwide.
American Apparel’s Stages in the Lifecycle, Size, and Control System
In analyzing American Apparel, it was determined that the company is in stage four of the life-cycle—the elaboration stage. This stage is where an organization must retain its relevance in the industry through reinforcing competitive advantages and creating new products to fill changing consumer needs. American Apparel is fully focused on executing their turnaround strategy since they have filed for Chapter 11 Bankruptcy and also changed their CEO. Their new CEO, Paul Schneider, has evidently been committed in making changes within the company. The company has dismissed hundreds of workers and retooled its production processes . This is clear evidence that the company is in the elaboration stage.
The fact that the company filed for bankruptcy in the past shows that it failed at some point in this elaboration stage; however, it is still struggling to go back up. The company overcame the crisis by introducing new products, one that would be easier for the market to patronize and is more versatile. It also focused on bringing down the cost of its operations. It has been revealed by Li (2012) that the company is planning to outsource some of its manufacturing processes in an effort to reduce expenses. However, the company may not be able to use the slogan that suggests that its products are purely made in the U.S. anymore. Then again, survivability is more important and it definitely seems that this adjustment is important for the company to overcome its crises.
References
American Apparel. (2016). American Apparel Vertical Integration. https://www.americanapparel.net/contact/vertical.html.
American Apparel. (2016). Mission Statement.
Bair, J., & Gereffi, G. (2003). Upgrading, uneven development, and jobs in the North American Apparel Industry. Global Networks, 143-169.
