American Apparel wants you to be hip and comfortable inside and out. It designs and makes logo-free T-shirts, tank tops, yoga pants, and more for men, women, and children -- and does it all from its California factory, rather than exporting labor overseas. Brands include Classic Girl, Standard American, Classic Baby, and Sustainable Edition, among others. American Apparel runs some 250 retail stores in 20 countries. Known for its no-sweat factory and the fair treatment of its workers (including up to $19-an-hour for manufacturers), American Apparel was teetering on the brink of insolvency until it received an investment in 2011. Its controversial Canadian CEO Dov Charney founded American Apparel in 1998.
Along with its network of retail stores, American Apparel operates a wholesale business that supplies T-shirts and other casualwear to distributors and screen printers. The company also sells its apparel and accessories directly to consumers through its www.americanapparel.com website and 16 e-commerce portals that serve customers in 30 countries. American Apparel makes its products in California. Its downtown Los Angeles facility houses its executive offices and many apparel manufacturing functions, such as cutting, sewing, warehousing, and distribution. Knitting operations are conducted both in Los Angeles and Garden Grove, California. Its fabric dyeing and finishing facility is located in Hawthorne, California. American Apparel operates its business through four segments: US Wholesale, US Retail, Canada, and International.
The retailer opened five new stores in 2011, including three in the UK, as it shuttered 29 others across its stores portfolio. While the company's retail network has dwindled as it works to turn its business around, American Apparel has kicked off an international expansion strategy that requires less of a financial commitment. Through a collaboration with Myer Store Group, the retailer in 2012 began to focus on opening shop-in-shop locations inside flagship Myer department stores in the Australian cities of Sydney and Melbourne. Besides these 700-sq.-ft. floor spaces, American Apparel has had its foot in the door Down Under since 2008, when it opened its first store in Adelaide. It's also focused on extending its retail reach in the US and increase its store footprint in markets throughout Europe and Asia.
Sales and Marketing
American Apparel's target market is young metropolitan adults age 20 to 32 who live and work in major urban markets and have a disposable income. The company's largest markets are New York, Los Angeles, London, and Paris. American Apparel is known for its bold and controversial advertising. Following a lawsuit brought by filmmaker Woody Allen, American Apparel agreed to a $5 million settlement in 2009. Allen, who had been seeking $10 million in damages, accused the retailer of unauthorized use of the director's image in an ad campaign that used billboards in New York City and Los Angeles.
Thanks to efforts to expand its wholesale customer base with non-distributor clients, American Apparel in 2011 increased its net sales nearly 3%. The US Wholesale segment, which includes its domestic e-commerce business, grew due to the introduction of a new wholesale catalog and new wholesale products that attracted a more diverse customer base. These net sales gains were helped by American Apparel's international segment, as well, which delivered higher sales from online and retail sales channels and favorable foreign exchange rates. These results follow financial hurdles in 2010. American Apparel logged a 5% sales decline during 2010 due in part to rising costs of yarn and fabric, manufacturing inefficiencies caused by training new sewing operators, and longer production times due to more complex clothing styles.
To reshape its strategy, the company named former Blockbuster CFO Tom Casey as acting president (reporting to Charney), and it is working with private equity firm Lion Capital to select other top executives. In early 2011 American Apparel also received a timely rescue investment from a group of Canadian investors led by Andrew DeFrancesco's private equity firm Delavaco Capital and Michael Serruya, the creator of the Yogen Fruz chain and ice cream giant Cool Brands. The American Apparel deal gave it up to $40 million, which included about $14 million immediately, in exchange for shares at 90 cents apiece. The T-shirt maker plans to use the funds injection to breathe new life into its manufacturing and distribution operations. With the investment, Charney believes the company can make $100 million in pre-tax earnings a year.
Charney is American Apparel's largest shareholder, owning some 43% of its stock. (Charney had been under an employment contract to continue as the company's president and CEO through the end of 2010.) Lion/Hollywood LLC owns another 20% and Goodman & Company Investment Counsel Ltd. holds a nearly 13% stake.
The apparel maker has been beset by declining sales, a crackdown on undocumented workers at its 800,000-sq.-ft. factory in Los Angeles, liquidity problems, and an investigation by the US attorney's office in New York related to the company's abrupt change in accounting firms. As a result, the clothing maker laid off about 25% of its factory workforce (about 1,500 employees) in 2009 in Los Angeles following a probe launched midyear by US Immigration and Customs Enforcement (ICE) authorities. The company, which employs many Hispanic immigrants in its factories, faced thousands of dollars in penalties for hiring ineligible workers. – less