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Dov Charney Bankruptcy American Apparel

How American Apparel went from a trendy to deeply troubled brand


By Natalie Mortimer, N/A

October 5, 2015 | 5 min read

Earlier this summer American Apparel announced a plan to turn the brand from ‘chaotic to iconic’ following a six-year long history of declining sales, controversial ads and a scandal-plagued former chief exec. But as the beleaguered retailer today (5 October) files for bankruptcy it is clear the road to recovery will be a bumpy one.

Once a vanguard of style among its teen fans, American Apparel was the epitome of edgy with its preppy fashion, affinity for spandex garments and provocative ad campaigns. It became a global success in 2006 after receiving a $280m stock deal which allowed it to set up shop in numerous countries across Europe, Asia and Latin America. Its Jock-inspired clothing and socially motivated slogan tees were a hit with hipsters the world over and the LA-based brand enjoyed three years of success with sales on a constant upward trajectory.

But since 2009, the last year it turned a profit, American Apparel has slowly been drowning. It has struggled to remain relevant to its millennial audience as it competes with fast fashion brands such as H&M and Forever 21 with their cheaper price points and constant cycle of fresh garments. The brand’s made-in-America proposition might have initially made it stand out from the crowd in the fiercely competitive fashion space, but an inability to evolve its products alongside its alienating overtly sexualised ads have led to rapidly falling sales figures – in August it posted a 17.2 per cent drop in sales for the second quarter of 2015 coupled with a 25.3 per cent fall in profit from $82.4m to $61.5m.

Jim Whyte senior insights analyst at Fitch told The Drum that although headlines of American Apparel’s bankruptcy woes will be led by ousted founder Dov Charney, it’s the brand’s product offering that is partly to blame. “Its made-in-America proposition and its strength in simple fashion classics and active-wear are very much is sync with broad changes in consumer preferences. However, American Apparel grew its number of stores aggressively but its range of products lagged behind. In a break-neck global expansion the brand has lost much of its niche caché but has failed to develop a broader repertoire beyond its highly successful but narrow range of T-shirts and Y-fronts.”

The retailer has also been late to the ecommerce race and only revamped its website two years ago to push its ecommerce capabilities. This, coupled with a lack of a native mobile app and strong brand offering could be factors adding to American Apparel’s nosediving sales, according to Bob Sheard, managing director of branding agency FreshBritain. “For ecommerce to succeed the brand and product needs to be addictive. The brand content needs to feed that addiction, so that the consumer revisits the site to nourish their addiction. American Apparel it seems didn’t identify what about their product and brand might be addictive and consequently didn’t exploit it fast enough.

“The marketing and advertising may [also] have contributed in so much as they are delivering basic product – the product has no tangible superiority over the competition and in that situation the marketing and advertising must create a clear emotional differentiator.”

That differentiator could well be the newly planned advertising direction dreamed up by recently appointed chief executive Paula Schneider, who speaking in February said American Apparel will move away from overtly sexualised ads in favour of focussing on social issues such as gay rights and anti-bullying. The brand also plans to introduce a native app over the coming year, a revamped website and a lifestyle blog to better converse with its audience and no doubt shake off its association with Charney and his chequered sexual harassment past.

“Coming back from the brink will require a wholehearted investment in a ‘redemption’ narrative,” added Sheard. “American Apparel needs to figure out what about them is addictive and then align the meaning of product to the meaning of the brand. At that point American Apparel needs to reach out with some humility and be seen to invest in the customers to counterpoint perceptions of exploitation.”

As part of the bankruptcy protection deal with its lenders, the retailer will see around $200m (£131m) worth of bonds written off in exchange for equity in the restructured company, reducing the debt to $135m and removing $20m interest from annual payments.

Schneider said in a statement that the restructuring will enable American Apparel to become a "stronger, more vibrant company".

Dov Charney Bankruptcy American Apparel

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