With 239 stores in 20 countries across the globe, American Apparel is one of the few clothing companies which exports ‘Made in the USA’ goods globally. Being a vertically integrated company, it is a manufacturer, distributor and retailer of branded fashion apparels. Images Business of Fashion discusses the journey and unique success mantras of American Apparel Inc.
Created by Dov Charney, American Apparel is a California-based vertically integrated clothing manufacturer, designer, distributor, marketer and retailer. It is a leading manufacturer of basic, solid-colour cotton knitwear such as t-shirts and underwear. However, in recent years the company has diversified into making leggings, leotards, tank tops, vintage clothing, dresses, pants, denim, nail polish, bedding and accessories for men, women, children and dogs in various prints and colours.
What is unique is that unlike their competitors, they make their own products and supply it to the four business segments: U S Wholesale, U S Retail, Canada and International. The American Apparel factory is also the largest sewing facility in North America. It is continually growing its wholesale business of selling blank t-shirts to screen printers, uniform companies and fashion brands.
Production process
The centralised manufacturing unit is a seven-story 8,00,000 sq.ft. (74,000 m2) factory in downtown Los Angeles where it produces more than 55,000 different products and garments. The factory claims to have the capacity to produce 1million shirts per week and manufactures 2,75,000 pieces a day.
The typical production process of the most staple product, a t-shirt starts as spools of yarn that are knit into rolls of fabric in one of the three knitting facilities in Southern California. These rolls are then dyed, either within the same facility, or in another company owned dye houses, at most 30 miles away. The rolls of fabric are then cut, sewn and packed into a box under the same roof at one of the three factories in Southern California. These garments are visualised and made by the creative department, including photographers, models and graphic designers. Also, the team creates a marketing campaign without the help of an outside PR firm or celebrity endorser. The shipping and retail department handles the distribution of these products in more than 280 stores. The company ensures adherence with US environmental regulations with regards to effluents, waste disposal, airborne particulate matter and many others.
Vertical integration – the competitive edge
From manufacturing to designing, distribution, marketing, advertising and retailing, everything happens under one roof. This makes American Apparel totally a vertical integrated company. The integration shrinks the company’s carbon footprint as the materials are not shipped back and forth internationally in the production process.
Because of its vertically integration and domestic manufacturing model, American Apparel’s gross margins are significantly higher than other basic apparel brands. According to the company, its blended margins are roughly 70 percent (while GAP averages about 30 percent and luxury brands like Prada are between 65 percent and 70 percent).
The inherent sustainable business model gives the company the ability to mobilise all departments within no time, to respond directly to changes in the market and to have complete visibility over their product – from start to finish.The integration extends to 260+ retail store fronts, all of which are owned by the company.
Team USA
At American Apparel, each garment is created by motivated and fairly-paid employees. The culture recognises outstanding performance, voice of the workers and promotes from within to in?uence the direction of the company. At American Apparel they call it Sweatshop-free, a term they coined in 2002.
As of March 31, 2015, the company had approximately 10,000 employees and operated 239 retail stores in 20 countries including the United States and Canada. The Company also operates a global e-commerce site that serves over 50 countries worldwide American Apparel today employs over 10,000 people worldwide. According to The New York Times it is the largest single garment factory in the United States and employs more than 5,000 people across two buildings, making them one of the largest apparel manufacturing employers in the country. Today, in the Los Angeles area alone, there aremore than 6,500 employees including sewers, shippers, cutters, dyers and creative artists.
While a garment worker, working for similar American companies in Bangladesh earns an average of only $600 a year and a garment worker in China earns about 50 percent higher, at American Apparel, an experienced garment worker earns about $30,000+ with other bene?ts. The company does not outsource its labour, instead it pays its factory workers an average of over $12 an hour and often more than $100 a day making them the highest earning apparel workers in the world. It increases efficiency, better and more consistent quality of work, stronger employee morale and ultimately retention of skilled operators.
In addition to the earning potential, the company offers low cost benefits programs, an on-site clinic, informational sessions on health issues, and free vaccinations (covered by the health plans) that keep area families healthy through preventive care, and help reserve our city’s emergency rooms for emergencies.The company also works to encourage healthy eating habits, promote exercise and body stretching, and offers even complementary massages to workers to avoid on and off the job injuries.
Exceptions to manufacturing
In the handful of cases where they don’t produce a product themselves, they work with manufacturers who share their principles of business. A few of the multi-brand items might not be made at the factory in Downtown Los Angeles, but they pass through it physically and philosophically. For example for the Made in USA nail polish line, they have partnered with a factory located just a few miles away from the headquarters in Los Angeles. The wool floppy hat is custom made by Baron Hats, who has been in the millinery business for more than 75 years and the new dance shoe is custom made for American Apparel by Gateway Shoes in Ballwin, Missouri. Even the vintage line, California Select is mostly sourced through California vendors and markets.
Wholesale & retail
American Apparel began 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 Thread less, Busted Tees. People for the Ethical Treatment of Animals (PETA), the animal rights advocacy group, prints its merchandise on American Apparel clothes because they are made domestically and animal-free.
The company’s expansion into retail was the fastest retail rollout in the American history. In 2003, it opened company stores in Los Angeles, Montreal, and New York to nearly $80 million in sales.By 2008, the company grew to more than 200 stores worldwide and continues retail growth with new stores in the United States, Israel, Italy, Australia, Japan, South Korea,Netherlands, Switzerland, China, Germany, Austria, Canada, France, Sweden, Spain, Mexico, United Kingdom, Ireland and Brazil. And, the stores are planned or under development for countries like Belgium, Iceland, China and Hawaii.
Advertising strategy
The American Apparel advertising campaign has become synonymous with the brand name as the signature Made in the USA basics that first put us on the map. The vertically integrated business model means that every aspect of the operation, from design and marketing to manufacturing and distribution, is done in-house. The majority of creative content is conceived somewhere between the 2nd floor and the factory rooftop, where the visionary art directors, designers and creative team deliver groundbreaking campaigns.
American Apparel finds its models from all over the world, through online submissions, word of mouth, and in retail stores, where they have been known to do an impromptu test shoot or two. The ads have always been indicative of a time and place in American Apparel’s identity, which has evolved into a 12,000 employee worldwide collaboration.
Online hub
The company has its e-commerce website AmericanApparel.net which serves customers across 50 countries, carries an online inventory of roughly 2,50,000 SKUs and receives 1.5 million visitors every month. The online sales grew from $13.3 million in 2006 to $ 43.1 million in 2011. The company site runs on the Yahoo Stores platform and is included in the Internet Retailer 500 Index.
In 2008, the company won the title ‘Retailer of the Year’ at the 15th Annual Michael Awards for the Fashion Industry, following Calvin Klein and Oscar de la Renta.
Environmental commitment
Concentrating their entire operation within a few square miles, American Apparel has a smaller carbon footprint than its competitors. They have set the precedent for sustainable and ethical manufacturing in California—the state with the strictest and most progressive EPA standards in the country.
They recycle almost all the manufacturing waste—an average of 125,000 lbs of textile and 25,000 lbs of paper, plastic and cardboard per week (over 260 semi-truck loads per year). As of 2014, they were virtually land?ll-free. Their solar panels offset as much as 20 percent of their electrical usage, and they ship the majority of their goods to the worldwide stores via excess space on passenger rights and busses, minimizing the environmental impact.
Corporate social responsibility
American Apparel is also committed to sustainability and broad tenets of Corporate Responsibility. American Apparel contributes millions of dollars annually to the State and country’s tax base, as well as the local economies. When a customer buys a t-shirt from American Apparel, a smaller portion of the margins goes towards fuel, trans-ocean container ships, middlemen, boxes, pallets and entropy. Instead they are able to spend that money on paying living wages to their workers, higher-quality materials for the garments, and investing in the future of the company
Going forward
As wages and transportation costs increase worldwide, the company believes that the business model of vertical integration is the path of least resistance. American Apparel supports free and fair trade, and almost half of the company’s 239 stores are outside the USA, allowing the company to export hundreds of millions of dollars of US-made apparel annually.
Indeed they do mean what they say when they declare that “We don’t have to do things this way, we just believe it’s the right way.” A case study for the “Make In India” protagonists to emulate perhaps.
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