The paper "Strategic Management of American Apparel" is a perfect example of a business case study. Since opening its first retail store in 2003, American Apparel remained one of America’ s fastest-growing clothing companies with its one of the hottest fashion brands. The company had its retail presence expand from the US and Canada to the other 18 countries. In fact, the company had been placed second after Nike in the Cassandra reports that lists top trendsetter brands in 2008 with its CEO Dov Charney being named the retailer of the year in the annual Michael awards.
However, all this was to change beginning July 2010 when the company’ s auditor resigned on discovering material weaknesses in the company’ s financial controls. The company was also experiencing declining sales and profitability which saw its share price hit a low of 0.66 cents in September 2010 down from a high of $16.80 in December 2007. The company would in 2010 breach the terms of the contract with Lion capital for $180 million loan owing to the losses it had made. As a result, the company issued a bankruptcy warning.
But what resulted in the dwindling fortunes of the company? This essay looks at the strategic issues and problems facing the company which could have resulted in this state of affairs. The essay further analysis and evaluate the strategies adopted by the company that led to its dwindling fortunes. The essay then provides recommendations on what ought to be done in order to bring the company back to profitability and hence a profitable future. The essay concludes by suggesting a complete strategy change for that company that will result in changing fortunes for the company. Strategic issues and problems facing the company The dwindling fortunes for the company have resulted from a number of strategic issues and problems as explained below; Its operating model American Apparel is a vertically integrated company meaning it designs, manufactures, and sells to other retailers as well as to consumers.
This is done in its three facilities located within a 30-mile radius of Los Angeles. The company prides in its iconic, clean, simple and timeless model. While this model had worked for sometimes, its ability to continue working is questionable owing to a number of factors including increased competition, increased operating costs and the increasing size of the company.
The company also prides in its made in the USA model. However, their sweatshop-free labor that assures that employees are much comfortable with hefty pay and allowances has worked to make the cost of labor control difficult and hence the company is at a significant disadvantage when compared to its peers. Its vertical integration model sees the company pay its numerous employees approximately $1,440 per month as opposed to companies outsourcing their production to such countries as Bangladesh ($68 per month), Vietnam ($90 per month) and Mexico ($127 per month).
Furthermore, the company had to fire more than 1,500 skilled workers following an immigration inspection that uncovered questionable employee documentation (Stoel, 2016). This means that the company had to scramble in replacing the skilled workers with even more expensive workers thus placing additional pressure on the made in USA economic model. It is also worth noting that though the company’ s outward philosophy of social and environmental responsibility under the CEO’ s direction is commendable, American Apparel has had an unhealthy culture coupled with loose cooperate operations which have seen the CEO Micromanage the company leading to low employee empowerment and morale.
Furthermore, the sexual harassment suits against the CEO have worked against the company.
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Halzack, H2016, Inside American Apparel’s attempt to fix its clothes and image, Retrieved on 2nd November 2016.
Gael, O2016, American Apparel: Sex, power and terrible corporate governance, Retrieved on 2nd November 2016, from;