American Apparel (AMEX: APP) is a clothing manufacturer in the United States. It is a vertically integrated clothing manufacturer, wholesaler, and retailer that also performs its own design, advertising, and marketing. It is best-known for making basic, solid-color cotton knitwear such as T-shirts and underwear, but in recent years it has expanded—to include leggings, leotards, tank tops, vintage clothing, dresses, pants, denim, nail polish, bedding and accessories for men, women, children, babies, and dogs in various prints and colors.
Company formation and growth
American Apparel was founded in 1989 by Canadian Dov Charney, who had a long history with T-shirts and a fascination with American culture. It was during Charney’s freshman year at Tufts University that the company took on the name “American Apparel” and began to experiment with screenprinting, importation and other parts of the apparel business. In 1997 after a variety of iterations, including a period of manufacturing in South Carolina, the company moved to Los Angeles. Charney began to sub-contract sewing with Sam Lim who, at the time, had a shop with 50 workers under the Interstate 10 freeway in east LA. Months later the two became partners. In 2000 American Apparel moved into its current factory in downtown Los Angeles where it continued to grow primarily as a wholesale business, selling blank T-shirts to screenprinters, uniform companies and fashion brands.
After its success as a wholesale brand, the company moved into the retail market. The company was ranked 308th in Inc.’s 2005 list of the 500 fastest growing companies in the United States, with a 440% three-year growth and revenues in 2005 of over US$211 million.
In late 2006 American Apparel announced a reverse merger, in which Endeavor Acquisition Corp., a special-purpose acquisition company founded in July 2005, bought the company for $360 million. The merger closed in December 2007, at which point American Apparel became a publicly traded company.As a result, Charney became the President and Chief Executive Officer of the publicly traded company known as American Apparel, Inc. He remained the majority shareholder.
It is also one of the few clothing companies exporting “Made in the USA” goods and in 2007 sold about $125 million dollars of domestically manufactured clothing outside of America. The company also promotes a number of progressive policies including immigrant rights and labor policies the company dubs “sweatshop free.”
In 2010, American Apparel’s auditors, Deloitte & Touche, resigned after informing the company that its financial statements for 2009 may not be reliable. The resignation led to investigation by U.S. Securities and Exchange Commission and the United States attorney’s office for the Southern District of New York. Subsequently in August, the company was threatened with being delisted from the New York Stock Exchange for failing to submit a quarterly earnings report. It faced lawsuit from some of its investors. Revenues declined, and total debts rose to $120 million, and the company was in danger of defaulting on a $80-million loan from British-based Lion Capital. Commenting on the loss of 1,500 workers due to concerns over illegal immigration (see below) Charney said “It broke our efficiencies and generated a situation where we were late delivering garments. It lost us an enormous amount of money. It cost us agility.”
American Apparel bases its manufacturing in an 800,000-square-foot (74,000 m2) factory in downtown Los Angeles, California. The company also owns and operates its own fabric dye house, garment dye house, and knitting facility, all based in Los Angeles. American Apparel has decided not to outsource its labor, paying factory workers an average of over twelve dollars an hour. Garment workers for similar American companies in China earn approximately 40 cents per hour. It claims to have the ‘highest earning apparel workers in the world’.
The company uses “team manufacturing” which pools the strongest workers towards priority orders. Each team functions autonomously and determines its own daily production schedule, giving them control over their own hourly wages. After its implementation, garment production tripled and required a less than 20% staff increase. The factory claims to have the capacity to produce 1 million shirts per week and manufacture 275,000 pieces a day. According to The New York Times it is the largest single garment factory in the United States and employs over 4,000 people across two buildings.
A banner on top of the downtown factory states “American Apparel is an Industrial Revolution.” As of December 2008, banners on top of the factories state “Legalize LA” and “Immigration Reform Now!”
American Apparel is a vertically-integrated company. The integration extends to 260+ retail storefronts, all of which are owned by the company. By integrating all aspects of production and avoiding outsourcing, the company achieves a fast turn-around time from design concept to finished product. On Charlie Rose, founder Charney discussed the process of developing new merchandise in their unique retail system, saying that it took just a “couple of weeks” for a bathing suit to go from idea to the retail floor. He claimed that a garment could be designed on Monday and be sold in London the following week.
The company’s expansion into retail was the fastest retail roll out in American history. In 2003 American Apparel opened company stores in Los Angeles, Montreal, and New York to nearly $80 million dollars in sales As of 2008 the company has more than 200 stores worldwide and continues retail growth with new stores in the United States, Israel, Italy, Japan, South Korea, the Netherlands, Switzerland, China, Germany, Austria, Canada, France, Sweden, Spain, Mexico, United Kingdom, Ireland, Brazil, and Australia. Stores are planned or under development for Belgium, Iceland, China, and Hawaii.
American Apparel retail stores are marketed and designed individually rather than homogeneously. Store designs are sparse and typically cost between $100,000 and $400,000 to develop. The company tends to reject midtown, high rent locations and generally avoids in-mall stores. The stores are often hubs for urban renewal since the company looks for low-rent but high traffic locations like Houston, Little Tokyo, New Orleans, college towns and most recently across from the Apollo Theater on 125th in Harlem. In some stores, the decor features Penthouse covers from 1970s and 1980s—a style that has been controversial. When scouting for locations, it considers urban areas that can be revitalized. After opening on Southwest Stark Street in Portland, Oregon American Apparel was joined by a vintage clothing store, sushi restaurant, shoe shop and modern-styled hotel. In some cases, the company sublets parts of retail locations to other businesses of the same demographic, bringing additional retailers to previously unoccupied space. The bulk of American Apparel retail venues are in New York City and California, mainly San Francisco and Los Angeles.
AmericanApparel.net is the company’s e-commerce sales hub. It carries an online inventory of roughly 250,000 SKUs and receives 1.5 million visitors per month. Online sales grew from $13.3 million in 2006 to $29.3 million in 2007 to roughly $40 million in 2009. The company site runs on the Yahoo Stores platform and is included in the Internet Retailer 500 Index.
In late 2007, American Apparel opened a retail location for vintage clothing called California Select in Echo Park, a district of Los Angeles Shortly afterward, the company began selling vintage clothing through an eBay store of the same name.In 2008, the company was named “Retailer of the Year”, following Calvin Klein and Oscar de la Renta.
American Apparel began by selling high-quality t-shirts to screen-printers and boutiques in 1990 under the American HEAVY label. Although it has made its transition into a primarily retail brand, the company is still one of the largest wholesalers in the country. American Apparel shirts are used as band merchandise and concert t-shirts for the bands, among many others, Hanson, Van Halen, Wilco, Death Cab for Cutie, Foursquare, Vampire Weekend, Metric, and Flogging Molly as well as websites like Threadless, Busted Tees, Print Liberation and the I Can Has Cheezburger? store as the t-shirts are said to fit true to size. People for the Ethical Treatment of Animals, the animal rights advocacy group, prints its merchandise on American Apparel clothes because they are made domestically and animal-free.
Branding and advertising
American Apparel designs, creates and prints its own advertisements. The company is known for its provocative and controversial advertising campaigns, which is largely the inspiration of the company CEO Dov Charney. According to Adage, American Apparel’s advertising ‘telegraphs the brand’ from person to person. Their print campaigns are widely considered to be some of the best in the industry. The sexually charged advertising has been criticized, but has also been lauded for honesty and lack of airbrushing. American Apparel images often display subjects with their blemishes, imperfections and asymmetrical features highlighted and attached with brief, personal descriptions. Many of the models in American Apparel’s sexual advertising are recruited by Charney and his colleagues on the street, or company stores; others are selected after sending their photos directly to the company website. Despite this, many consumers have noted the relatively small sizing American Apparel employs, advising other shoppers to buy larger sizes than normal, though this may be the result of other retailers’ use of vanity sizing to market to an overweight American public. Some critics have labeled their models as “cocaine-chic” and another describing them as “pre-pubescent”.
For a time, Charney promoted a branding strategy that spotlighted his treatment of workers as a selling point for the company’s merchandise, promoting American Apparel’s goods as “sweatshop free. In 2008, the company took out a series of political ads featuring the corporate logo that called current immigration laws an “apartheid system.” In regards to the company’s image overseas, advisor Harry Parnass stated that the brand is about aspiration and that they are “selling the American dream.” He dismissed competitors who do the same but refuse to manufacture in America.
The company has also used pornographic actors in some of its ads including Lauren Phoenix, Charlotte Stokely, Sasha Grey and Faye Reagan. Some of the company’s other ads, which feature nudity or sexual themes, have been banned by various advertising authorities. Most recently, American Apparel agreed to comply with a UK ruling to not run an ad that appeared in VICE Magazine because it had the potential to “widely offend” people.
In 2005 the company was named “Marketer of the Year” at the first-ever LA Fashion Awards. Women’s Wear Daily published a survey in April 2007 from Outlaw Consulting, a creative research firm tracking the habits of 21-to 27-year olds, which ranked American Apparel as the 8th most trusted brand, ahead of such clothing brands as H&M and Levi’s. In January 2008 the Intelligence Group, a trend and market research firm, listed American Apparel as their number two Top Trendsetting Brand, behind only Nike. In 2008, The Guardian named American Apparel “Label of the Year”.
In 2007, Imp Kerr created a fake American Apparel ad campaign in New York. The stunt lasted almost a year, until it was revealed that the fake ads were actually Photoshop mockups. In a final twist, American Apparel ran a tribute ad on the back cover of Vice magazine showing a compilation of the fake ads.
American Apparel also briefly experimented with advertising in Second Life with a virtual store on the island named Lerappa but shuttered the operation in the fourth quarter of 2007.
Woody Allen billboard and lawsuit
In 2007, American Apparel put up two billboards, one in New York and one in Los Angeles, featuring an image of Woody Allen’s character dressed as a Rabbi from the movie Annie Hall and Yiddish text, for a period of one week. According to Charney, the billboards were a satire and allegory alluding to both the scene in the movie and the similar controversy experienced by both individuals. Allen strongly objected to this use of his image and sued the company for $10 million. Allen testified at a December 2008 deposition that he considered the company’s advertising to be “sleazy” and “infantile.”
Although the company said as early as May 2008 that the billboards were meant “strictly as social parody”, there was much debate over whether American Apparel’s lawyers would unfairly use Allen’s personal life, namely his affair with Soon-Yi Previn as their defense at the trial. Charney claimed that these rumors were outright false and that his speech was protected by the First Amendment. In May 2009, the case was settled by American Apparel’s insurance carrier for $5 million, with the insurance company paying the bulk of the settlement. The settlement was for half of Allen’s initial demand. Dov Charney said that if it had been up to him, he would have continued the case and taken it to trial.
Legalize LA and Legalize Gay
In addition to participating in a variety of immigration protests, the company launched an advertising and advocacy campaign called “Legalize LA”. The campaign featured advertisements in national papers like The New York Times as well as billboards, t-shirts, bus ads and posters. The company also maintains a Legalize LA portion of their website that features news articles relating to immigration reform, the brand and information on the history of the issue.
After the passing of Prop 8 (which makes same sex marriage illegal in the state) in California in November 2008, American Apparel launched the Legalize Gay campaign. It is similar to the Legalize LA campaign, and shirts with “Legalize Gay” and “Repeal Prop 8” printed on them in the same style as the shirts of Legalize LA are sold by the company.
In a November 2010 ad running in Canadian alternative weeklies, the company describes itself as “a majority-owned Canadian company, founded and operated by Dov Charney, a Montrealer”. The ad goes on to say, “in the end, one of the important things that makes American Apparel special is its Canadian heritage”.
Corporate culture and employment
The production system of American Apparel centralizes most of its employees in a single location. By not outsourcing, Charney believes that he knows his workers better and that it ties them directly to the brand. A banner on top of the downtown factory states “American Apparel is an Industrial Revolution.”
Charney has stated that American Apparel hires its creatives by their sense of culture and fashion, not their resume. Conversely, the company has also been accused of focusing on personal style and outward appearance in its hiring practices for retail positions.According to Charney, the unconventional corporate culture at American Apparel is responsible for the company’s creativity and rapid growth. He’s stated that the company is open about sexuality and its culture because “young people like honesty.”
Sexual harassment lawsuits
American Apparel has been subject to several sexual harassment lawsuits, of which three were dismissed or settled while another remanded to arbitration. A fifth was filed in May 2008, premiering on the front page of TMZ.com. To date, none of the accusations has ever been proven. In an attempt to resolve one of the cases in which the plaintiff confessed that she had not been subjected to sexual harassment, American Apparel was reprimanded in an opinion by the Second Appellate District for then attempting to issue a press release about the case mentioning an arbitration hearing that had, in fact, never taken place. The company and many media outlets have publicly accused the lawsuit against American Apparel of being extortionary attempts to “shake the company down”. The company was later sued by four ex-models for sexual harassment, including one separately named plaintiff who sued the company for $250 million, in a murky lawsuit in which unsolicited nude photographs, consensual sexual text messages and requests for money surfaced. The company was accused of being responsible for these leaks in a later lawsuit.