How to save American Apparel

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This post was originally sent to Standard General, the investment firm which has assumed 44% ownership in American Apparel, on July 9th of this year. No word yet in response.

At my company, NOBL – a strategic consultancy, we help large and ambitious organizations prepare for and profit from disruption. We’re also Angelenos, with an office right in American Apparel’s backyard, so we want to see the retailer regain its footing and continue its mission to support American manufacturing and sweatshop free conditions for its workers. To that end, there’s really only 2 things the organization should do: create new news and cut costs (without killing innovation). HOW they do both is up for debate, of course, but here’s our thinking. We welcome your thoughts in the comments.

First, create new news.

For the time being, Dov is an unhelpful distraction. To break through the noise of reporters asking “Will Dov return or not?” the organization first needs to generate news that points to its brighter future ahead. After all, the street doesn’t like a prolonged controversy or protracted legal battle. With that in mind, American Apparel should do any or all of the following:

  • Future-proof the board. We know that one of the investment firm’s first tasks is to assemble an advisory board to shape the organization’s rebound. This is an incredible opportunity to both reassure shareholders and bring in fresh perspectives to the organization. We have four suggestions for a heavy hitter: First, Ron Johnson‘s perspective was wasted on JC Penney, he has a bag of retail tricks from Apple, and he has something to prove. Neil Blumenthal of Warby Parker could help re-focus the organization’s cultural purpose (and he wouldn’t mind access to the brand’s global footprint of stores). Lee Herge is the COO of Local Motors, one of the most innovative manufacturers in the US at the moment, and is spearheading the development of localized mini-factories. Melody Meckfessel is one of Google’s secret weapons in the engineering group and could bring a focused perspective on tech for the organization and its operations.
  • Hire leaders that can change the conversation. The organization (and its image) could use some gender balancing. The industry is full of strong female leaders who could respectfully evolve the brand and its practices. For creative, we’d suggest poaching Madewell’s Kin Ying Lee, Alexandra Spunt of Everlane, or Gigi Guerra at Target. If Dov Charney does not return as CEO, we can’t help but wonder what Sophia Amoruso of NastyGal could do for the organization if the brands joined forces.
  • Recommit to Purpose. The ideals behind Made in AmericaSweatshop Free,Legalize LA, and Legalize Gay are noble – but juggling so many platforms has left the brand’s purpose diluted and easily forgotten in favor of continuous controversy. Sweatshop Free is an enduring idea. Double down on it. It will also sustain a brand that is increasingly global. American Apparel could amplify this brand platform by making their labor statistics transparent, putting their workers’ faces front and center, publicly challenging other retailers to follow suit, and even following Starbucks’ example to make economic mobility more accessible to their employees

Second, cut costs without curtailing innovation.

While the press remains fixated on scandal, the company’s financial setbacks point to a deeper problem: an inability to move quickly, act nimbly, and seize new opportunities. Gilt, Everlane, Threadless, Uniqlo, Lululemon, GustinBetabrandPolyvoreTrunk ClubWarby ParkerBib+TuckRent the Runway,EDITDHointerKiva SystemsTrue&Co – the entire apparel category, from sourcing to stores, is being rewritten. Given Standard General’s investment position, however, they’ll urge quick wins to boost shareholder value, which will require store closures and operational trimming. These cuts will be difficult and yet necessary. But they won’t be enough (just ask Blockbuster).

American Apparel needs to execute a few smart strategic moves to reduce waste while actually increasing its ability to respond to innovation in the market:

  • Don’t offshore, but do go local. American Apparel should replicate what the organization has built in downtown LA in every country they sell their clothes (and keep LA running, of course). In less developed countries they can then truly fight for a living wage (for everyone) while still reducing manufacturing and distribution costs. The ‘American’ in American Apparel will then stand for the ideal of upward mobility, not just origin.
  • Slim their SKUs while expanding their selection. American Apparel built itself on basics, now it’s time to reinvent the basics business. They should stock fewer and more profitable SKUs in-store and turn the rest of their line into premium print on-demand items (you could even ask for pre-orders like Gustin or Betabrand) and/or customizable digital inventory (like NikeID) for the millions of visitors to
  • Launch a kid’s basics subscription service. As an expert on basics, American Apparel could deliver a service that ships Moms a box of baby or kid basics that increase in sizes as their children grow. As a subscription service, this would help the brand increase revenue without impacting their stores. As an example, just this month, purchased Citrus Lane, a subscription service for baby and kid goods, for $48.6 million dollars after they paced for an estimated $12MM in revenue this year. This could also be an opportunity to win back the customers to the brand that actually helped build it in the first place but aged out or were turned off by overly-sexual advertising.
  • Take the lead in the apparel category for modern manufacturing. Not since the Industrial Revolution has manufacturing changed so dramatically – with robots assisting humans in factories, robots taking over fulfillment in distribution centers, big data informing what gets made, and on-demand manufacturing on-site and in-store. Each innovation offers cost-savings, greater responsiveness to demand, and an opportunity to license an organization’s capacity and/or know-how to other players.

Former CEO, Dov Charney, once said “America doesn’t need another faceless, institutional apparel company. They need an apparel company that gets it and does it right.” Yet, without visionary leadership through this difficult time, American Apparel may very well emerge from crisis emaciated,  faceless, and without a purpose beyond making profits.

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