Expert answer:Discussion Board Assignment American Apparel Strat
Solved by verified expert:From the attached case study, address the following:What is the basic strategy needed to move the company in a new direction based on environmental analysis and company values?Which KPIs effectively measure success of the strategy? Explain how/why these KPIs align with the identified strategy.Discuss any other relevant metrics that would effectively measure the success of the strategy.Which department(s) will have the main responsibility for implementing the strategy?********** Example of another students submission based on the instructors response*************** American Apparel – Discussion Board Assignment – American Apparel StrategyAmerican ApparelTOWS AnalysisThreats1) Other Brand Competitors (American Eagle, etc.)2)Poor growth of salesOpportunities1) Pushing brand further into new markets with websites and stores2)Becoming complaint with government with undocumented workersWeakness1)Debt2)Bad reputation from previous CEOWeakness/ThreatsThe company will have to focus on its debt and the reputation of the former CEO. By developing a branding approach corporate wide. They also will need to focus on the profitability of internet sales and store sales.Weakness/OpportunitiesAmerican apparel will need to focus on its core in HR practices to ensure that the company is compliant with the government. Key area of focus on sales and expanding they product line to include more sizes.Strengths1)USA made product2)Pays fair wages3)Good infrastructure4) Website potentialStrength/ThreatsEstablish a brand and presence in the market with its mission. Infrastructure is there to move the company in the right directions and could help with produce to overcome its poor sales growth.Strength/OpportunitiesCurrent marketing strategies have pushed the envelope and with the infrastructure the brand can move forward into new markets adding more product lines to plus size. American apparel will can use its fair wages to hire eligible workers within the USA.***** Must be written in APA format. Use double
spacing, 12-point Times New Roman font, and one-inch margins. All references must be cited in APA format. Please use the worksheet attached.
aa.pdf
aa_supplement.xlsx
worksheet_template.docx
Unformatted Attachment Preview
For the exclusive use of M. Phillips, 2017.
W16208
AMERICAN APPAREL: DROWNING IN DEBT?1
Anupam Mehta wrote this case solely to provide material for class discussion. The author does not intend to illustrate either effective
or ineffective handling of a managerial situation. The author may have disguised certain names and other identifying information to
protect confidentiality.
This publication may not be transmitted, photocopied, digitized or otherwise reproduced in any form or by any means without the
permission of the copyright holder. Reproduction of this material is not covered under authorization by any reproduction rights
organization. To order copies or request permission to reproduce materials, contact Ivey Publishing, Ivey Business School, Western
University, London, Ontario, Canada, N6G 0N1; (t) 519.661.3208; (e) cases@ivey.ca; www.iveycases.com.
Copyright © 2016, Richard Ivey School of Business Foundation
Version: 2016-04-14
On April 3, 2014, the cash-crunched American retailer, American Apparel, Inc., needed to pay $13.4
million2 in interest and other debt repayments. With a net loss of $106 million in 2013, a substantial increase
over its net loss of $37 million in 2012, the company had been struggling for survival. It had not been
profitable since 2009. Its net sales increased marginally in 2013, but the company still ended up with a
bigger loss than ever before. During the same period, the shares of the company plummeted from $15 per
share to $0.56 per share, losing 95 per cent of its share value (see Exhibit 1). The company’s controversial
chief executive officer (CEO), Dov Charney, had been able to sustain the business with continued
borrowing at an exorbitant rate (as high as 18 per cent interest) and additional capital. In March 2014, the
company raised $28.5 million by selling more than 61 million shares at 50 cents each.3 American Apparel
also renegotiated with its existing lenders. As a result, the company acquired some relief from its credit
payments. What actions could save the company?
The CEO and founder Dov Charney stated:
We invested substantially in our infrastructure in 2012 and 2013, and almost all of these projects
have been implemented. We expect 2014 to be a year where we return our full focus to exploiting
the strength of our brand and delivering exceptional service to our retail and wholesale customers.
We are committed to delivering a return on the investments we have made in our business.4
ABOUT THE COMPANY
“American Apparel is about vision, passion, intensity, brand-free, sustainable, fair wages, solar power,
recycling, creativity and the can-do spirit,” according to CEO Dov Charney.5
1
This case has been written on the basis of published sources only. Consequently, the interpretation and perspectives
presented in this case are not necessarily those of American Apparel or any of its employees.
2
All currency amounts are in U.S. dollars unless otherwise stated.
3
M. Townsend, “American Apparel Finds Latest Believer in Form of Swiss Firm,” Businessweek, April 8, 2014, accessed
May 12, 2014, www.businessweek.com/news/2014-04-08/american-apparel-ceo-finds-latest-believer-in-form-of-swiss-firm.
4
“American Apparel, Inc., Provides Preliminary Financial Results for 2013; EBITDA Forecast for 2014; and Preliminary
February Sales Results,” Reuters, March 6, 2014, accessed December 9, 2015, www.reuters.com/article/ca-americanapparel-idUSnBw066419a+100+BSW20140306#P7l54EHUtBZjHD0c.97.
5
“American Apparel’s Dov Charney Speaks for First Time Since Firing,” The Daily Beast, June 24, 2014, accessed June 26,
2014, www.thedailybeast.com/articles/2014/06/24/american-apparel-s-dov-charney-speaks-for-first-time-since-firing.html.
This document is authorized for use only by Matthew Phillips in OL-501 Business Foundations 17TW1 taught by Lindsay Conole, Southern New Hampshire University from July 2017 to
November 2017.
For the exclusive use of M. Phillips, 2017.
Page 2
9B16B008
Based in downtown Los Angeles, American Apparel was a vertically integrated manufacturer, distributor,
and retailer of branded basic fashion apparel and accessories for women, men, children, and babies. As of
February 28, 2014, the company had approximately 10,000 employees and operated 246 retail stores in 20
countries. The company had businesses in the United States, Canada, Mexico, Brazil, United Kingdom,
Ireland, Austria, Belgium, France, Germany, Italy, Netherlands, Spain, Sweden, Switzerland, Israel,
Australia, Japan, South Korea, and China. The company operated an e-commerce website,
www.americanapparel.com, with 12 localized online stores in seven languages that served customers from
30 countries worldwide. The company had four operating segments: wholesale, U.S. retail, Canada, and
international. “American Apparel” was a registered trademark of American Apparel (USA), LLC.6 Since
2006, the company had been listed on the New York Stock Exchange. The apparel manufacturing
operations were spread across the 800,000 square-foot facilities in the warehouse district of downtown Los
Angeles, California.
Business Model
American Apparel’s mission was to make great quality clothing without using cheap “sweatshop” labour
and exploiting workers:
We are trying to rediscover the essence of classic products like the basic T-shirt, once an icon of
Western culture and freedom. Our goal is to make garments that people love to wear without having
to rely on cheap labor. Every aspect of the production of our garments, from the knitting of the
fabric to the photography of the product, is done in-house. By consolidating this entire process, we
are able to pursue efficiencies that other companies cannot because of their overreliance on
outsourcing.7
Growth Strategy
The company focused on growing by enhancing the number of stores, building a good online sales platform,
buying new merchandise for consumers, and creating strong information systems to support its operations.
The company had the core business strengths of unique designs, advertising and branding, speed to market,
quality products, and broad appeal to consumers of various demographics.8
About the CEO and Founder
Dov Charney founded the garment business in 1998.9 Charney had been focused on high-quality and
trendsetting clothes. He also had a strong business sense, and his vertically integrated business model
provided the company with an extra advantage of responding quickly to market changes and consumer
needs. Ernst & Young named Charney Entrepreneur of the Year in 2004. Apparel Magazine, the Fashion
Industries Guild, and the Advertisement Specialty Industry each awarded him the title “Man of the Year.”
Charney was included in the Los Angeles Times’ “100 Most Powerful People of Southern California” list,
and Details Magazine inducted him into its “Power 50.” For the first annual Los Angeles Fashion Awards,
Charney was recognized for Excellence in Marketing. In 2008, an independent research report placed
6
American Apparel, “American Apparel, Inc., Form 10-K (Annual Report),” Edgar Online, Los Angeles, CA, 2014.
“Conscience Undercover,” American Apparel, August 23, 2004, accessed June 28, 2014,
www.americanapparel.net/presscenter/articles/20040823outgeneration.html.
8
American Apparel, “American Apparel, Inc., Form 10-K (Annual Report),” Edgar Online, accessed March 27, 2016.
9
S. Maheshwari, “Dov Charney Dreams Big for American Apparel Even as Its Stock Trades Under $1,” BuzzFeed, February
10, 2014, accessed June 2, 2014, www.buzzfeed.com/sapna/dov-charney-dreams-big-for-american-apparel-even-as-its-stoc.
7
This document is authorized for use only by Matthew Phillips in OL-501 Business Foundations 17TW1 taught by Lindsay Conole, Southern New Hampshire University from July 2017 to
November 2017.
For the exclusive use of M. Phillips, 2017.
Page 3
9B16B008
American Apparel as the Top Trendsetting Brand, second only to Nike.10 In 2008, the company’s CEO was
named “Retailer of the Year” at the 15th Annual Michael Awards for the Fashion Industry, following Calvin
Klein and Oscar de la Renta. In contrast to his achievements, Charney was also known for the use of
sexually provocative advertisements in the marketing of the company’s products. Charney was associated
with several controversial lawsuits, although none had been proven in court.11
AMERICAN APPAREL’S PAST PERFORMANCE
From being the top trendsetting brand in 2008 to becoming a debt-ridden company, the journey of American
Apparel had been very difficult. The aggressive expansion of the company, the explicit use of sexually
provocative advertising, and good-quality products had paid well in terms of the profitability of the
company. The company created strong brand recognition and its products appealed to the young, with its
trendsetting designs and Charney’s unique fashion sense. Based on the company’s growth strategy,
American Apparel continued to expand through organic growth, internal initiatives, and acquisitions. The
company grew from 147 stores in 2006 to 260 stores in 2008, while expanding both domestically and
internationally. Sales increased by a massive 40 per cent compared with the previous year. The rapid
expansion of stores and retail centres made American Apparel one of the fastest growing companies in the
retail sector.
Year 2009 and Afterwards: A Struggle for Survival
American Apparel’s success story continued until 2009. During 2009, a federal investigation uncovered
irregularities in the identity documents of workers when they had been hired by American Apparel.12
Because of the immigration issues, the company was required to terminate the employment of 2,000
American Apparel workers from its factory, leading to its inability to both complete orders on time and
meet demand. As a result, production was badly hit, which led to stock-outs.
The operating profit decreased from $36 million in 2008 to $3 million in 2009, a massive decrease of 92
per cent. The company’s net profit fell dramatically from $14 million in 2008 to $1 million in 2009, a
decline of 93 per cent (see Exhibit 2, which contains the details of the company’s income statements; also
see Ivey product 7B16B008).
The impact of the labour termination of employment was so severe that the company could not fully recover.
The global recession made the recovery all the more difficult. For the first time, the company’s sales
declined (from $558 million in 2009 to $532 million in 2010). The operating income fell from $24 million
in the year 2009 to negative $50 million in 2010. American Apparel went from a net profit of $1.11 million
to a net loss of $86 million.
Shattered by the losses and lack of liquidity, American Apparel’s money situation worsened by the first
quarter of 2011, and the company stated that it might file for protection against bankruptcy under Chapter
11. Desperate for funds, Charney was able to bring in investors for the company at the last moment and
saved it from default. However, the loan taken by the company was excessively costly.
10
American Apparel, “Company Information,” American Apparel, accessed June 1, 2014,
www.americanapparel.net/presscenter/pressCompanyInfo.html.
11
J. Edwards, “Those Sex Harassment Lawsuits Against American Apparel CEO Dov Charney Have Mostly Come To
Nothing,” Business Insider, March 12, 2013, accessed February 9, 2015, www.businessinsider.com/sex-harrassmentlawsuits-against-american-apparel-ceo-dov-charney-2013-3.
12
J. Preston, “Immigration Crackdown with Firings, Not Raids,” The New York Times, September 29, 2009, accessed May
30, 2014, www.nytimes.com/2009/09/30/us/30factory.html?_r=0.
This document is authorized for use only by Matthew Phillips in OL-501 Business Foundations 17TW1 taught by Lindsay Conole, Southern New Hampshire University from July 2017 to
November 2017.
For the exclusive use of M. Phillips, 2017.
Page 4
9B16B008
Despite all of this debt, the company kept enhancing its stores. Because of significant efforts, the net loss
declined in 2011 to $39 million compared with $86 million the previous year.
In 2012, the company undertook efforts to upgrade its production forecasting and allocation system, which
would enhance the logistics using a demand planning solution. At the same time, it continued building
stores. The total net loss decreased from $39 million in 2011 to $37 million in 2012. Sales had also started
increasing; net sales of the company increased from $547 million in 2011 to $617 million in 2012 (see
Exhibits 2 and 3).
Financial Results in 2013
In 2013, American Apparel experienced its worst financial year. In this year, the company implemented
two important strategic initiatives in the area of inventory management and the new distribution centre in
Los Angeles. The company also completed its radio-frequency identification system and implementation
of the Oracle Web Commerce application for its e-commerce platform. The company had difficulties
transitioning to a new distribution centre, which led to a significant increase in operating costs, while
deliveries were disrupted.13 The cost of goods sold increased from $289 million in 2012 to $313 million in
2013, crushing both net and gross margins. The net loss increased to a massive $106 million, with sales
growth at a marginal 3 per cent from $617 million in 2012 to $633 million in 2013. Already pressurized by
extremely high interest rates and debt repayments, the company had only $8 million in cash on December
31 (see Exhibit 4). (For information on stores in 2013, see Exhibit 5.) At the end of 2013, the company had
huge debt. Prominent lender Lion Capital had loaned funds at an extremely high rate and had maintained
strict terms and conditions, which could be increased, and the debt could be called back in the event of any
top management changes.
APPAREL INDUSTRY
The apparel industry in general was highly fragmented and highly volatile. According to PEC Research,
the sales growth over the previous five years had been eroded (−0.5 per cent compound annual growth rate
[CAGR] domestically and 1.4 per cent CAGR overall).14 In addition, the industry inventory levels had been
increasing steadily over the previous five years from approximately 12 per cent of sales in 2008 to 14 per
cent of sales in 2011 because of the increased cost of raw materials and inventory management, which
affected the overall pricing of inventory. The U.S market was almost stagnant; international sales had grown
by a CAGR of 11.3 per cent over the same period. The CAGR for total sales (combining international and
domestic sales) over this period was approximately 1.6 per cent.
According to IndustryWeek, the apparel industry in the United States had lost more than 80 per cent of its
jobs, and the post-recession recovery was extremely slow.15 Many U.S. companies were sustained by the
vertical integration model because of their strong ability to move and respond quickly to consumers’
preferences and needs. The ability of the company often depended on its capability to capture domestic and
international sales. Any failure in predicting fashion trends could prove fatal for the company.
13
American Apparel, “Company Information,” accessed June 1, 2014,
www.americanapparel.net/presscenter/pressCompanyInfo.html.
14
PEC Research, “US Branded Retail Apparel Industry,” Yale School of Management, September 16, 2012, accessed June
8, 2014, http://analystreports.som.yale.edu/reports/BrandedApparel2012.pdf.
15
B. Bland, “A New, Sustainable Model for Apparel Manufacturing in the U.S.,” IndustryWeek, October 17, 2013, accessed
June 8, 2014, www.industryweek.com/leadership/new-sustainable-model-apparel-manufacturing-us.
This document is authorized for use only by Matthew Phillips in OL-501 Business Foundations 17TW1 taught by Lindsay Conole, Southern New Hampshire University from July 2017 to
November 2017.
For the exclusive use of M. Phillips, 2017.
Page 5
9B16B008
In the apparel industry, American Apparel faced stiff competition from Gap, Urban Outfitters, American
Eagle, and Express. Some of these competitors had better financial power as well as good access to reduced
costs because of an outsourcing model.
FUTURE AHEAD: 2014 FIRST QUARTER RESULTS AND THE OUTLOOK FOR THE YEAR
For the first quarter ended March 31, 2014, American Apparel’s net sales decreased to $137.1 million,
because of a reduction of both comparable stores and wholesale net sales. Gross profit reduced to $72
million in the first quarter. In the first quarter report of 2014, the company reassured investors of its
commitment to reducing costs by bringing down manufacturing and administrative costs. In that year, the
company also halted its excessive capital expenditure and was more focused on removing inefficiencies
associated with the production process while building up productivity for a profitable future.16
Charney indicated, “We are encouraged by our first quarter performance with our achieved results ahead
of our 2014 business plan. The results of our cost control efforts are being seen in all areas of the business,
and we are now fully focused on measures to improve top line performance.”17 Showing the way forward,
he said, “Its [American Apparel’s] 247 stores could be 20% more productive with the right tweaks; the
online business could double, wholesale could grow by 20% to 30%.”18
Recent Happenings
On March 25, 2014, to comply with the terms and conditions of debt renegotiation, the company raised
more share capital. CEO Johannes Minho Roth, of FiveT, a Zurich-based firm, purchased $26 million of
the shares and became the second largest outside shareholder, after CEO Dov Charney.
Roth believed that the company was grossly undervalued. Roth, regarding his investment in American
Apparel, stated, “We cannot believe how cheap it is,” especially since, “it’s a lot further in the restructuring
process than people think . . . he’s a visionary. . . . Dov wants to make it his life goal to make American
Apparel into a successful company. I have a very positive view on him.”19
Although raising funds earned the company some time, which enabled it to pay off its debt, the danger of
default had only subsided and not gone away, with the next big interest payment due in April 2014.
On April 14, 2014, the debt-ridden company suffered one more blow. Based on an internal inquiry, the
board accused and dismissed Charney because of “willful misconduct” based on sexual assault and sexual
harassment cases. The board clarified that the firing was based on personal misconduct rather than
professional misbehaviour. The firing came at a time when the company was suffocating under its debt
burden. An interest payment of $14 million had to be paid by the end of April 2014. Analysts viewed this
event as the last nail in the coffin, questioning whether Charney’s exit from the company would trigger the
default that the company had been avoiding for so long. Further questions remained regarding which
performance areas had dragged the company down into debt and whether American Apparel had lost its
appeal and Charney had lost his charm.
16
American Apparel, “Company Information,” op. cit.
American Apparel, “American Apparel, Inc. Reports First Quarter Financial Results,” May 12, 2014, accessed June 2,
2014, http://investors.americanapparel.net/releasedetail.cfm?ReleaseID=847307.
18
BiggerCapital, “American Apparel: Our Long Investment Thesis,” Nasdaq, April 23, 2014, accessed February 9, 2015,
www.nasdaq.com/article/american-apparel-our-long-investment-thesis-cm346462.
19
M. Townsend, “American Apparel CEO Finds New Believer Just in Time,” BloombergBusiness, April 9, 2014, accessed
February 9, 2015, www.bloomberg.com/news/articles/2014-04-08/american-apparel-ceo-finds-new-believer-just-in-time.
17
This document is authorized for use o …
Purchase answer to see full
attachment
How it works
- Paste your instructions in the instructions box. You can also attach an instructions file
- Select the writer category, deadline, education level and review the instructions
- Make a payment for the order to be assignment to a writer
- Download the paper after the writer uploads it
Will the writer plagiarize my essay?
You will get a plagiarism-free paper and you can get an originality report upon request.
Is this service safe?
All the personal information is confidential and we have 100% safe payment methods. We also guarantee good grades