American Apparel SWOT Analysis Marketing 304 Section 12382 Group# 5 Nancy Alonzo Yavon Irving Salvador Bustos Cory Lashinsky American Apparel is a vertically integrated clothing manufacturer, wholesaler, and retailer. AAI is best known for making basic, solid color T-shirts and undergarments. They have expanded into dresses, denim, bedding, pants, and accessories for men, women, children, babies, and dogs. Their long-term goal it to become the #1 destination for basic apparel – the first name that consumers think of for t-shirts, sweatpants, underwear, socks, etc.

What sets American Apparel apart from other clothing companies is that every aspect of their production takes place in the center of Los Angeles, California, making it the largest manufacturer in the United States that is sweat-shop free and does not outsource. American Apparel has the highest paid factory workers in the United States and they currently employ approximately 10,000 people globally (about 5,000 are employed in Los Angeles). Overall, American Apparel is striving to become the biggest apparel operation in human history, “one t-shirt at a time. Their mission statement says it all: Committed to leveraging art, design, and technology to produce garments of the highest quality, while pioneering industry standards of social responsibility in the workplace. American Apparel’s goal is to make basic garments that people actually enjoy wearing without having to rely on cheap labor. Since the opening of their first store in Los Angeles, CA, in 2003, American Apparel has been successful at leveraging their core competencies of design and merchandising, making it a recognized name in quality clothing.

American Apparel is a unique brand with its own unique target-market of young adults who prefer the quality of a good piece of a basic garment. Their racy ads have captured the young generation of fan base that are loyal to the brand. However, as in any other business, American Apparel has direct competitors that could affect the profitability of the company. A direct competitor of American Apparel is The Gap. While they offer a broader clothing line, their basic garments are comparable to the ones in American Apparel.

The prices are also comparable; in fact, The Gap has multiple outlet stores worldwide in which they sell their products at a much discounted price. This is a direct advantage over American Apparel who does not own any discounted or outlet locations. A perfect example of their direct competition became obvious when an ad for The Gap’s new 1969 jeans was introduced in 2009. Not only was the advertisement similar to those of American Apparel, it seemed to be an intentional effort to co-opt the hipster style and perceived affordability (Starting at $59. 0, Gap’s new jeans will rival or even beat American Apparel’s pricing of $74-plus. ) The Gap, who also owns Old Navy, is part of what has become the largest specialty retailer in the U. S, and a close second globally. They own more than 3,200 company owned stores which has giving them better position to service their customers. Urban Outfitters who sells “hipster” clothing is also in correlation with American Apparel, however the controversies that surround Urban Outfitters has to do with what they choose to print on their clothing whereas American Apparels are how they advertise theirs.

However, Urban Outfitters’ clothes have a similar edgy appeal, and it seems that their product line has all the alternative sub-styles covered. What makes Urban Outfitters different from American Apparel however is that their product line has a very broad scope, unlike American Apparel’s which is seemingly targeted toward a narrower market base. Nevertheless the value of saving money is too good for consumers to pass on which brings other competitors in the basic apparel business to light, such as Fruit of the Loom, Hanes, and Gildan.

These companies offer products that satisfy similar needs and market themselves by being providers of inexpensive basic apparel. But while these companies sell similar undergarment items as American Apparel, they are not “boutique” style merchandise with a recognizable and coherent brand identity. Fruit of the Loom, Hanes, and Gildans’ weaknesses include not actively cooperating with WRC (workers’ rights consortium) investigations, and giving incorrect severance pay to laid off workers. Other weaknesses include the employment of sweatshop workers and the exportation of employment opportunities to other countries.

As a vertically integrated company, they manufacture, wholesale, and retail their own clothing line. They independently own and operate over 280 retail stores in 20 countries. American Apparel sells directly to its customers through their AmericanApparel. net website. The site has an online inventory of over 250,000 items and receives 1. 5 million visitors per month. Online sales grew from $13. 3 million in 2006 to roughly 40 million in 2009. The company’s site also runs on the Yahoo Stores platform and is included in the Internet Retailer 500 index. They also sell through an eBay store.

They sell wholesale under the American Heavy label. American Apparel is 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. It was reported in 2007, that their retail distribution channel accounted for 55% of sales; wholesale for 39%; and online for 6%. Some of the retail stores are underperforming and may require closing. American Apparel offers clothing for men, women, and children. One of their most popular items, the t-shirt, ranges in price from $18 to $34. Women’s denim jeans are priced around $80.

They also sell jewelry, eyewear, shoes, belts, bags, and other accessories. While AAI manufactures its products out of one central location in Los Angeles, California, they sell their products globally through wholesale markets, retail, and online. The growth of the company was promising with sales increasing steadily each year. In 2006, the company ranked number 308th on INC. 500’s list of the nation’s fastest growing private companies with annual revenue of 211 million. According to the audited financial statements of American Apparel filed with the Security Exchange Commission, sales from 2005 to 2009 had been steadily increasing.

Net sales increased an average of more than 39 percent from 2005 until 2008. In 2009 the sales slowed down increasing only three percent from that of 2008. 2010 was the first year the company had experienced a decrease in overall net sales since the start of the company. It was also the first year the company reported a loss of income from operations, a loss in net income, and a basic loss in earnings per share. In 2010, American Apparel ended the year with total consolidated net sales of 532,989. This was nearly a five percent decrease from net sales in 2009. Reviews of the inancial statements indicate that overall sales had declined in every geographic location with the exception of Korea, Australia, and other foreign countries. Additionally the cost of sales had increased by nearly six percent. This decline in sales and increase in the cost of goods seemed to be a trend across the board for many businesses, (Bureau of Labor and Statics Consumer Report of 2010 that while consumer spending declined in 2010 the cost of goods and services still increased 1. 6 percent), for American Apparel, it left them with a gross profit of 279,909 which was fourteen percent less than they had achieved in the prior year.

The gross margin percentage was calculated as by dividing the gross profit of 279,909 by the net sales of 532,989 resulting in a gross margin of 53%. The gross profit margin is indicative of a company’s ability to earn profits beyond its breakeven point. Therefore the higher the gross profit margin, the higher the flow of cash within a firm. With a gross profit margin of 53%, this means that American Apparel’s operating cost for this year was approximately 47%. In 2010 revenues fell from 558. 8 million to 533. 0 million.

The company has been unable to reduce the percentage of sales devoted to cost of goods sold, SGA expenses and income tax expenses. This has led to a reduction in the bottom line from a gain of 1. 1 million to a loss of 86. 3 million. The fashion industry is complicated to define. They belong to a wide range of enterprises working in the apparel, clothing & garments, footwear, home furnishings and textile accessories markets. This industry consists of diverse professionals and companies- modeling, fashion-designing, retailing, marketing, planning, and distribution.

There are brands and local sellers too, all struggling with their products for survival. All of them are feeling the impact in different ways but what is similar among all is their narrowing wallets. The trends all over the world are that of rising unemployment, credit squeeze and plummeting home budgets. Lavish spending habits have been replaced by very cautious closefisted consumer. One of the few items on which the consumers cut back in tough times includes apparels and fashion accessories. As such, many fashion companies have also started to fall into credit problems.

In the last few months, various companies worldwide have filed for bankruptcy. According the article Global Recession Impacts on Fashion Industry: Strategies for Survival, the industry is facing the following trends: Many big names in the fashion industry are facing financial problems, many of whom have even declared their negative condition. Some of these companies are hoping for a take-over. Many companies are negotiating for a partnership deal with willing investors in order to help their finances. Announcing of plans to remove jobs in regional offices has become more common news.

Many events, innovative plans are being canceled. Many fashion labels in fashion hubs like Italy are holding emergency talks the government and are appealing to support their industry or at least lessen the effects of their financial slowdown. Many fashion houses are not showing their collections due in the season as the shows will cost thousands of dollars with no guarantees of returns. Many designers have set the trend of smaller or more reserved shows. The industry experts are expecting many more designers to follow suit.

Designers also seem to be affected by the crisis as many shows featured only quiet colors and minimalist lines. Subsequently, when the crisis is over, major players are likely to again produce extravagant creations. American Apparel targets Hipsters. Hipsters tend to be men and women in their 20’s and 30’s that have liberal views and value; independent thinking, counter-culture, and progressive politics. This culture of people poses an appreciation for art, creativity, and witty banter. The fashion of Hipsters is sometimes is considered to be thrift store inspired. This would include tight fitting jeans and outspoken t-shirts.

Hipsters tend to reject ignorant attitudes that lack the objectivity towards controversial issues such as politics. They often jump at the opportunity to ignite social consciousness in views on environmental issues, cultural barriers and animal rights. A common misconception is that they lack education, when in fact; hipsters tend to hold degrees in liberal arts, math or sciences. American Apparel has been successful in catering to this culture of people around the world. They have been able to achieve the support of this group of people in supporting humanitarian causes such as the Haitian relief efforts.

In addition to their statement impacting t-shirts; their ads often depict Hipster’s modeling their form fitting jeans, trendy colored tee’s and simple undergarments. Many girls in Europe have been spotted carrying a logo-less American Apparel duffel bag. The owner, Dov Chaney takes pride in his design of “open-minded, international, metropolitan, flexible fashion. ” This platform of marketing has continuously appealed to market of consumers they aim to attract. American Apparel is a basics brand company which makes garments mainly for young adults but also for people of all ages.

Their target market is young metropolitan adults in major urban markets. Over 50% of their market has been females ranging in ages 18-34 that typically have no kids and an annual disposable income of about 30-60K. Although a variety of ethnicities benefit from the products AAI has to offer, 64% of their consumers are Caucasian. They are a company who speaks out to its socially and politically conscious, by staying active in social and political awareness issues, yet surveys reveal that 44% of their market have no college education. As stated on their website, “As a company, we have certain resources that individual activists do not.

We try to use that special ability to support political causes that need help. American Apparel regularly uses its billboards, advertisements, press contacts and even printed t-shirts to speak out about important issues. The two biggest issues have been Immigration Reform and Gay Rights. There are plenty of potential opportunities to target new demographics which American Apparel can benefit. Consumers ranging from ages 35-49 account for 22% of AAI’s current market making it their second largest segment. If AAI were to consider introducing pajamas to their product line, they could possibly appeal to this older segment of customers.

At this time there is no recommendation to drop any of their current demographics because they have been successful in achieving customer loyalty with those they have targeted. American Apparel has been successful by being well adept at gauging social trends. The company is well-positioned for a return to more value-oriented consumption. They are focused on fashionable, versatile basics; they offer a good value for money – quality clothing that stays in style across many seasons; they are not about blindly following trends; there is no logo making them not ostentatious; the clothing is produced in a socially responsible setting.

An article titled “The Death of the Expensive (and the Skinny) Jean”, the company emphasis that the $300-and-up pair of jeans is a dying phenomenon. To be cost conscious they introduced unisex slim denim slacks in a handful of different, arrestingly bright colors including red, silver and electric blue. Yet, the biggest news of all is the price-point: “When it’s all said and done we’d like them to sell for around $60,” says Mathew Swenson, American Apparel’s Fashion Media and Product Placement rep. One of the negatives in such a down economy is that many are shopping at low-end retailers such as Wal-Mart and even second hand boutiques.

American Apparel takes pride in being a socially conscious business. They believe being a vertically integrated company reduces their footprint by concentrating their manufacturing operations to a small circle of buildings in Southern California. They strive to be as efficient as possible, creating as little waste as possible. Instead of tossing packaging or supplies they no longer use – such as the spools thread comes on, or cardboard tubes at the center of large rolls of paper– they donate as much as possible back to local schools and non-profits for use in arts programs.

They use solar panels in their Los Angeles factory; they have an organic line; and they lend bikes to their employees to provide a sustainable alternative for commuting. The company has a simple privacy policy: They will not share their data with anyone, period. All data collected from the American Apparel web site and American Apparel Store is used for internal purposes only. For customers with time-poor constraints, American Apparel’s website makes it easy to shop and order clothing. One of the drawbacks of their advertising campaign is the provocative nature of their ad.

It is difficult to reach time-poor customers who don’t read magazines or classified papers, such as the LA weekly. According to the Bureau of Labor Statistics, the textile and apparel manufacturing industries are among the most labor-intensive industries. To stay competitive new technology such as advanced machinery helps boost productivity. Computers aid in design, patternmaking and cutting. There are also laws that benefit the U. S. apparel industry. The armed forces are required to use clothing produced in the United States.

The law was recently extended to cover uniforms worn by Transportation Security Administration officers. The current state of the economy also greatly affects American Apparel and the apparel industry. Many consumers are spending less and are price conscious. Strengths * Efficient operations. * Ideas for new styles are converted to samples in hours because of vertical integration. * Made in the “USA” branding company * Sweat-shop free * Good looking employees * Low overhead because of vertical integration * Edgy Style * Socially and Environmentally Conscious * Ads that catch the consumer’s attention. Inventory Control (Vertical Integration) * Quality Products (Vertical Integration) * Effective Marketing Strategy * No logo, solid colors, appeals to broad market * Strong Brand Identity Weaknesses * Financial mismanagement * High management turnover * Racy ads * Limited product line * No Outlet Stores * Inability to broaden their marketing campaign due to their ads * Exorbitant Selling, General, and Administrative expenses * Inappropriate management conduct * Limited demographics Opportunities * Expand into malls & shopping centers * Expand internationally Broaden brand identity with less racy ads * Invest in training employees and hiring managers * Broaden their Demographics * Add product assortment * Open Outlet/Discount Stores Threats * Consumer backlash over Racy ads * The state of the economy * Employee Sexual Harassment Lawsuits * Change in customers style and preferences * Discounted retailers * Competition * Rising costs of cotton and raw materials Works Cited “American Apparel | About Us | Learn More. ” American Apparel | Fashionable Basics. Sweatshop Free. Made in USA. Web. 07 Nov. 2011. <http://www. americanapparel. et/contact/privacy. html>. “American Apparel | Vertical Integration. ” American Apparel | Fashionable Basics. Sweatshop Free. Made in USA. Web. 07 Nov. 2011. <http://americanapparel. net/verticalintegration/>. “American Apparel | Vertical Integration. ” American Apparel | Fashionable Basics. Sweatshop Free. Made in USA. Web. 07 Nov. 2011. <http://americanapparel. net/verticalintegration/sustainability. html>. “American Apparel. ” Http://www. wikinvest. com/stock/American_Apparel_(APP). Web. “AMERICAN APPAREL INC (APP:NYSE Amex): Financial Statements – BusinessWeek. Investing ; Stock Research by Company and Industry – BusinessWeek. Web. 07 Nov. 2011. ;http://investing. businessweek. com/research/stocks/financials/financials. asp? ticker=APP:US;. “American Apparel Reports Fourth Quarter and Full Year 2009 Financial Results (AMEX:APP). ” American Apparel | About Us | Investor Overview. 25 Mar. 2010. Web. 07 Nov. 2011. ;http://investors. americanapparel. net/releasedetail. cfm? ReleaseID=454795;. “American Apparel. ” Wikipedia, the Free Encyclopedia. Web. 07 Nov. 2011. ;http://en. wikipedia. rg/wiki/American_Apparel#cite_note-iretailer-44;. Blogs, Adweek. “Gap’s New Ads Seem Very American Apparel | Adweek. ” Adweek – Breaking News in Advertising, Media and Technology. Web. 07 Nov. 2011. ;http://www. adweek. com/adfreak/gaps-new-ads-seem-very-american-apparel-13787;. Contributor, ReComparison. “Urban Outfitters vs. American Apparel: Fashion Identity | ReComparison. ” ReComparison – Compare It Yourself. Web. 07 Nov. 2011. ;http://recomparison. com/comparisons/101161/urban-outfitters-vs-american-apparel-fashion-identity/;. “The Death of the Expensive (and