AMERICAN Apparel has long been an unstable mix of good and bad qualities. On the one hand, there was the commitment to manufacturing in America, the resolute avoidance of sweatshops (something other youth-oriented clothing makers failed to practise) and the “sustainable” manufacturing processes. It boasts of having “the highest-earning apparel workers in the world”.
On the other hand, it has got itself into trouble in all kinds of ways. In 2009 the American immigration authorities found evidence that it was employing undocumented workers and forced the company to sack 1,500 people, which disrupted production. Its “edgy” advertising sometimes involved models who looked too young and were wearing too little. It also had to issue shares to pay down its debt, which contributed to the drop in their value from $15 in 2007 to $0.67 today.
And then there is the chequered history of its founder and chief executive, Dov Charney (pictured), who has been the target of several sexual-harassment suits (all of them dismissed or settled out of court) and who supposedly walks the factory floor in his underwear or less. Yesterday the company’s board sacked Mr Charney “for cause”, saying the decision “grew out of an ongoing investigation into alleged misconduct.” It appointed the firm’s chief financial officer as temporary successor.
With Mr Charney out of the way, the new boss can concentrate on selling clothes. But turning American Apparel around is not going to be easy. It has racked up net losses totalling about $140m over the past two years, some of which were the result of hiccups in starting up a new distribution centre. The biggest problem will be getting adolescents back into its stores. Overall, last year same-store sales were up 3%, which suggests there is life yet in the brand. But lately the portents have been grim: in the first quarter same-store sales dropped 7%.
For insight into what the problem might be, your correspondent turned to his 21-year-old daughter, who lives in London and has a keen interest in such issues. Her view is that American Apparel is “way overpriced for what it is”. She sees “no room for the brand to grow because they make exactly the same thing over and over.” TopShop, she points out, produces similar stuff for less money.
Admittedly, a focus group of one cannot provide a definitive diagnosis. But the analysis is suggestive. American Apparel is selling high-minded clothing with a high cost base, but seems to be getting little credit for it from its target market. Presumably, Mr Charney’s alleged shenanigans have not helped: they make American Apparel look rather like Benetton with behavioural issues. The new boss will have to figure out a different pitch to young shoppers.