Introduction . 2
Analysis .. 3
1) Structural Characteristics . 4
2) American Apparel mission statement 5
3) Organizational Structure .. 6
4) Porter’s Competitive Strategy . 7
5) The External Environment 8
6) Stages in the lifecycle, size, and control system .. 9
Recommendations and implementation plans 11
References . 12
1.Executive summary
The issue that the American Apparel’s organization is facing is that they have a very unique strategy to run the business more effectively than its competitors; unfortunately, this strategy did not meet the external environment needs. Therefore, they had to lay off hundreds of workers and retooling its production process in order for Our team would like to provide some recommendations that might be helpful to solve this major problem that this important organization have. Our group have come with several recommendations and implementation plans that could help this organization to return to its previous position of successful operations and customers satisfaction; our recommendation is to decentralized the organization's’ structure, increasing market research to understand what are the customers need, and outsourcing would help to increase productivity and efficiency in the organization.
2.Introduction
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 America with 5000 to 10000 employees. For American Apparel, many factors of the external environment pose a threat to the company, however, with slight alterations to the marketing strategy, can also create opportunities.
3.Analysis
3-1.Structural Characteristics
Formalization
American Apparel Company along with the subsidiaries is 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
(Bair &Gereffi, 2003).
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 - Paula Schneider of American
Apparel successfully did. Without any hesitation, AA’s operation has been improved via formalizing bonus incentive structure as a criteria tool for companies’ employees.
Centralization
Most of the remarkable events in the company including its successes and failures can be largely attributed
high level of centralization. This means that central planning authority rests with 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. Such form of company’s organization is very efficient for making business decisions, as managers and employees will strictly follow the company’s standards and mission statement with the aim of achieving the main aims. Thus, various kinds of business situations may be handled in a quiker way.
3-2.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” (American Apparel, 2016). 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. The dynamics of the apparel industry in the U.S are dramatically changing. The fast moving nature of fashion have led to increased innovation, competition, and changes in the operation of the apparel industry. The increased changes in the fashion industry require that fashion companies must sharply and quickly jump on trend as fast as possible and deliver to the consumers with quality at the same time ensure that they make profit. American apparel has invested in many stores across North America. Ideally, expansion should be followed up by intensive marketing, geographically segmented to ensure that the expansion worked in favour of the company styrategy. However, this became a challenge because of the company’s high debts.
3-3.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 (American Apparel, 2016). 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. It is the work of the top management to make sure that the activities of the firm are effective in delivering the highest level of profits even with minimal investments that may be made into the system. There exist some differentiation factors that can explain the differences in IT needs among organizations. One of the factors is the market that the organization serves since the market demonstrates the kind of technology required to reach the market. The other factor is the product or service offered by the organization since that determines the type of technology required. The product ensures that the entity can choose technology that guarantees success.
3-4.Porter’s Competitive Strategy Model
As mentioned earlier, 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. However, American Apparel mode of marketing its brand is one of the main reasons that have negatively affected its financial performance. Reports show that the company is known for its racy advertising for many years. This involves presentation of poorly or scantily dressed models, which led to generation of public concern on the image generated by the company. The method of branding for the company thus led to reduced sales as the customer target market is the young and the teenagers who are supported by their parents.
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. However, the strategy has not been successful at all aspects, as it has not brought stability to the company.
3-5.The external environment
Globally
American Apparel opened its first store in the trendy Echo Park neighborhood of Los Angeles in 2003. Two more stores– one in Montreal, the other in New York – followed that same year. Under the direction of Charney, it expanded to Europe in 2004, and in 2005, the brand opened 65 more stores. Today, they boast over 260 locations worldwide in 19 countries, including ones in Ireland, Belgium, France, Germany, Italy, Spain, Sweden, Switzerland, Israel, China, South Korea, Japan, Australia, Mexico, and Brazil, among others. The press has since noted the “dangerous trap of (American Apparel’s) retail expansion,” or what others have called “rapid over-expansion.” (Zerdo, J. ,2015).
Technologicall
In an increasingly competitive fashion market, it is important a company be more innovative than other competitors. Technology is changing how the fashion industry makes decisions. With real-time analytics they give actionable data that many companies currently use to make purchases and merchandising decisions (Rajesh, 2016). Technology has turned the entire fashion industry upside down – making all types of fashion more accessible to a large spectrum of consumers, but also more of a challenge for designers and retailers when it comes to competition (Style blog, 2015).
Consumers are able to search and buy whatever they need online through their phone. For suppliers; sales, trend research and inventory management can be done from almost anywhere, and the decision-makers can see what’s working and what doesn’t in real time. Technology has changed the fashion industry forever. For example, social media such as Instagram and Facebook whether to provide a coupon or temporary events like ‘hashtag’ to elicit consumers’ shopping desire.
Demographically
People are sensitive to trend-chasing and a fashion trend spread quickly through social media and magazines, and TV since technology has developed. Therefore, Retailers in fashion industry move quickly to catch the newest fashion trending. As catching quick changing fashion trend, they designed to make you feel “out of trend” after one week. Once upon a time, there were two fashion seasons: Spring/Summer and Fall/Winter. Fast forward to 2014 and the fashion industry is churning out 52 “micro-seasons” per year. With new trends coming out every week, the goal of fast fashion is for consumers to buy as many garments as possible, as quickly as possible.
People of modern society have enjoyed fast food recently, and so the fashion industry. Such as H&M, ZARA, and Forever 21 is growing fast in the industry and their business models are dependent on the consumer's’ desire for new clothing to wear – which is instinctive if the clothing falls apart in one wash. “A store like H&M produces hundreds of millions of garments per year,” author Elizabeth Cline says on NPR.“ They put a small markup on the clothes and earn their profit out of selling an ocean of clothing.”
“You see some products and it is just garbage. It’s just crap,” says Simon Collins, dean of fashion at Parsons The New School for Design, on NPR. “And you sort of fold it up and you think, yeah, you’re going to wear it Saturday night to your party — and then it’s literally going to fall apart.” (Whitehead, S., 2014).
According to Matera “we look forward to 2016, bold stripes, layered T-shirts under a dress, exposed shoulders, pajama dressing, bright bags, low-slung pants, shirting stripes, marled knits, slippers, statement earrings, and embellished bags are going to hit it big in 2016” (Matera, A.,2015). As expected what would be trendy in 2016, We can see there these items are sold in the fast fashion stores at the moment. Consumers are putting less of their paychecks towards clothing purchases. But that doesn't mean they don’t love a new outfit. Instead, many seem to care less about owning it outright, which has given rise to a new Subsector of retail: clothing rental and trade.Now, a number of companies are finding white space for renting everyday clothing and work wear (Reagan, C., 2016).
Socio-cultural
There has been a large demand for the fashion industry to make a stand against unethical treatment of employees and the environment. In the recent years, there has been a rising concern about how the company treats their employees, how ethical company is. Social networking has a huge influence on people interacting with the fashion industry, and the most common sites that people looking for are likely Facebook or Twitter (Fisher, E., 2016).
Political/Legal
For the apparel industry in Canada, there are four regulations which are Children’s sleepwear: Flammability Requirement Guidelines, Consumer Packaging, and Labelling Act, CA Identification Number, and Flammability of Textile Products in Canada. These legislations protect the consumers’ safety and provide rights to the government.
3-6.American Apparel’s stages in the lifecycle, size, and control system
Lifecycle
Since December 2015, American Apparel is officially out of bankruptcy at the moment and changed to the new CEO Schneider, she has been trying to get back the company. In analyzing American Apparel, it was determined that the company is in stage four of the life cycle – the elaboration stage. This stage is an organization must retain its relevance in the industry through reinforcing competitive advantages and/ or creating new products to fill changing consumer needs. American Apparel is fully focused on executing their turnaround strategy since they have been in the bankruptcy chapter 11 and changed to the new chief executive officer, Paula Schneider.
How did AA overcome this crisis in the elaboration stage?
Since the former CEO Dov Charney got fired, Paula Schneider, who is the new CEO has shown about improving the company’s work environment, and get it back to the business of being a beloved clothing brand. Schneider plans to steer the company in introducing new merchandise mixes, growing the brand’s e-commerce business, developing new ads and marketing initiatives, reorganizing store locations, and getting rid of excess inventory.
According to Schneider, "I’m involved in putting together a strategic plan that encompasses the entire company: designers,retail, tech, marketing, everything. In the plan, I ask the employees about their roles and where they see the company going. Then, they’re involved in the process, and it makes it easier for me because I’m so new. After being here for six weeks, I can’t find every missed opportunity or weak spot — but they can, because they’ve been here longer. We have this live, working document that everyone can contribute to so everyone can be heard. It’s not a top-down process, but it’s a bottom-up process."
Schneider got the most pressing about having an opportunity to improve in planning and forecasting, which is the question of what are we going to make and when do we want it delivered in the stores? and also an opportunity of capturing more of the psychographics of the millennial customer (Darwin, L., 2015).
They also have formally partnered with startup Postmates to offer consumers on-demand delivery(within the hour) of basic clothing. This new service will be offered in 79 American Apparel stores throughout the United Stage, spanning 31 metropolitan areas. American Apparel can manage their orders and deliveries via the application and iPad provided by Postmates. “ American Apparel is improving its omni channel consumer experience via Postmates by becoming their first major fashion retailer to offer ‘on-demand basics’,” American Apparel Digital Officer Thoryn Stephens said (Dickey, M. R., 2016).
They have updated its code of ethics less than a month after firing controversial CEO Dov Charney – a move that could help improve the apparel chain’s tattered reputation as it considers a possible sale or a turnaround
(Kell, J. ,2015). These changed top management style, services, innovation by institutionalized R&D, and thinking like a small company contributed to overcoming their crisis in the elaboration stage.
Why were they not able to successfully revitalize?
They had poor top management style which led to bankruptcy when Charney was the CEO, his sexual harassment, legal fees which were $3.6 million for the second quarter of 2015, too much debt; the company had long-term debt of $234.9 million as of June 30, 2015, much for its racy advertising as its U.S-manufactured clothing for many years, and continued losses were the cause of unable to successfully revitalize (Garcia, T., 2015).
What stage of the decline process are they in and why?
According to three factors of cause organizational decline, they fell into the environmental decline and vulnerability. Ever since Schneider had been appointed as the new CEO, many changes have been brought both internally and externally, such as emplacing delivery services. These factors caused the company to go from the "organizational decline stage" to the "crisis" stage, with the company having to declare bankruptcy. These changes seem like they are in stage of the decline – blinded.
Size of American Apparel
Large size of an organization defines as competing globally, which they have over 260 stores worldwide in 19 countries, have the resources to be a supportive economist, be able to get back to business more quickly, giving employees a sense of security, standardized, and stability in the market. These some of large company’s characteristics present American Apparel as a large size of a company.
Control system
There are three strategies of organizational control and this company is using both clan and market strategy.
Clan control describes characteristics as shared values, commitment, traditions, and beliefs, to control behavior.
According to Schneider’s interview, it’s the most creative place you will ever work; it’s sort of like the Wild West. It’s interesting because different people can give their opinions and there’s so much opportunity to be involved. Also, the beauty of having our own in-house manufacturing is an incredible asset. If we put something out there that we think is great and we see that it’s a hit in stores, then we can turn around and make more of it and be back out in the stores by the next weekend. We can be quicker than anyone, and nobody has this opportunity but us" (Darwin, L., 2015).
She is explaining how they encourage employees’ productive, creative, and respect each personnel. Her belief of the company makes clan strategy and be more productive. "People are going back to basics. With our business model, we have a basic business that goes day in and day out, and still remains an edgy brand."
American Apparel is built upon advanced basics in fashion; you know if you go in there you’re going to find your hoodie or your black skirt. There are these iconic pieces that we will always carry (Darwin, L., 2015).
Schneider statemented how they stay competitive and it shows American Apparel has been focusing on making basic clothing. For example, Tennis skirt is being one of popular clothing in the company, whereupon their competitive companies began to copy the skirts and sell. However, the copied skirts of quality and fitting style are lack to be competitive with American Apparel. Their competition of skirts shows that they are incomparable.
4.Problem definition
American Apparel is currently at the blinded stage of the organizational declining stages. It is the first stage of organizational decline. At this stage, internal and external changes threaten long-term survival and requires the organization to tighten up. (Daft & Armstrong, 2009, p.321). American Apparel has a unique and different company strategy than its competitors. it did everything possible to differentiate itself from other clothing manufacturers. It has been successful for many years until they recently faced an issue; The structure needed to support this strategy did not respond well and in an effective manner to the external environment; which is apparent from its advertising campaigns; the previous chief executive officer's conduct who was ousted as its chief executive because of his sexual misconduct and misuse of company money; and the manufacturing costs for manufacturing in America. The structure needed to support theses activities created a company that was not able to respond effectively to the external environment.
According to the issue this company is currently facing, we found that Weakness in this company lied in its previous CEO (Charney); he has faced several sexual harassment lawsuits and has an extremely eccentric personality (known to arrive in meetings wearing nothing but boxers) - also questioned for his business decisions, plus for the extremely controversial advertising campaign. Threats in this organization are that Investors, especially Lion Capital, may become less willing to assist American Apparel in rebounding; If they demand payment for loans, American Apparel may be forced into bankruptcy.
American Apparel also has Deficiencies. One is their weak online sales, this could be because of lack of promotion or the wrong kind of promotion of their website and apparel. They were actually kicked off Facebook for their hyper-sexualized advertising strategy. They also did not seem to focus enough resources on this avenue of sales or enough positive resources. Another Deficiency is their unsuccessful expansion outside of the U.S. They only opened a few stores in large markets such as Europe which did not build enough awareness of their brand so they could gain momentum in these markets.
5.Recommendations
Decentralize the organizational structure is one of the best ways that we recommend at this point; Because of Dov Charney’s unethical culture and negative public image, decentralization can help to empower employees to have more autonomy to make their own decisions and to make decisions quicker and more efficiently. It helps the organization to react effectively in situations where quick actions could mean the difference between gaining and losing a customer (Chris, 2016). American Apparel should define what mission statement they, to be something they are honestly passionate about it.
The second recommendation is to increase market research division to understand the customers better and to keep up with trends, make better business decisions and maintain their company’s competitive edge. American Apparel also needs to improve their brand, to understand what characteristics and traits customers associate with their brand. It also collects data on consumer reaction to the product including its look, design, colors, qualities and other variables (Mallika,2016).
Outsource is the other recommendation of American Apparel. It can help increase productivity and efficiency
in the process thereby contributing to the company, and release employees’ energies and enable them to focus on
building American Apparel’s brand, invest in research and develop higher value products.
Inventory control is an important process that can check and monitor the inventory activity of a company. It
Maintains an accurate record of inventory with the supply chain. American Apparel products their own goods, the
company should certainly know how many clothing in each color, size or design. If American Apparel cannot control the variable, it is impossible to properly manage the business.
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.
Chris, J. (2016) The Advantages of a Decentralized Organizational Structure. Small Business.
http://smallbusiness.chron.com/advantages-decentralized-organizational-structure-603.html
Dickey, M. R. (2016, May 21). American Apparel offering on-demand delivery via Postmates partnership. Retrieved June 13, 2016, from http://techcrunch.com/2016/03/21/american-apparel-offering-on-demand-delivery-via-postmates-partnership/
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Fisher, E. (n.d.). American Apparel Marketing Report. Retrieved June 13, 2016, from https://zh.scribd.com/doc/176858659/American-Apparel-Marketing-Report
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Mallika, K. (2016).5 ways to improve your business with market research.
https://www.bdc.ca/en/blog/pages/5-ways-improve-business-market-research.aspx
Matera, A. (December/January). These Are the Trends Everyone Will Be Wearing in 2016. Retrieved June 13, 2016, from http://www.glamour.com/story/2016-fashion-trends-to-wear
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https://www.entrepreneur.com/article/273353
Reagan, C. (2016, May 17). More consumers saying: Why buy clothing when you can rent or trade it?
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