American Apparel Case Analysis

Key Facts of the Case (no analysis)
-Who is the decision maker? (Remember: in analyzing a case you have to put yourself in the position of the decision maker and try to figure out what YOU would do in his/her position). -maximum 5 key facts that summarize the case.

Key Decision Maker
Board of Directors (AA is a publicly traded company)

Key Facts
American Apparel minimized their use of outsourced labour. They localized their manufacturing activities and were known for their anti-sweatshop practices The company was also praised for their environmentally friendly practices such as using organic and recycled materials in several of their products, and participating in charitable causes Their advertising campaigns stirred up a lot of controversy for the company, as some consumers believed them to be too sexual and borderline pornographic Charney (CEO) took the ad pictures himself using women he found on the streets or his own employees.

As a hiring practice, employees were required to provide full length self-portraits to him Charney brought heat to the company via sexual harassment lawsuits and by creating a hostile working environment (using foul language, walking around in his underwear, flirting with employees, etc.

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Problem(s) Statement
-What is the main problem(s) or opportunity(s) that you (as decision maker) must deal with? -How urgent and how important is this issue and why?

Main Problem
The main problem presented for American Apparel is that there are discrepancies between their controversial advertisements and workplace practices and their positive business initiatives, which has resulted in a loss of sales for the company.

They must determine how they are going to move forward and inspire a turnaround.

Urgency
Moderately urgent
The company forecast a turnaround by 2015 (3 years to the future)

Problem(s) Analysis
-What is the background that has led to the problem(s)?
-What are the key points that the decision maker must consider when figuring out a solution? (eg. constraints that limit the possible solutions or opportunities that could arise) -If a financial analysis is required, outline that in this section. -Perhaps a different format for analysis is more appropriate? (eg. SWOT, PEST, Porter’s Five Forces).

Background
American Apparel strived to promote raw natural beauty. To do this, they used real, non-photo-shopped, airbrush-free models in their advertising campaigns Their signature advertisements featured women in racy outfits and poses Charney took the pictures himself and either found women on the streets or used his own employees Charney said it was the company’s way of marketing to millennials, targeting contemporary adults who desired sexual freedom, and fighting against the pressures on women to achieve perfection Charney’s strange and inappropriate workplace behaviours made some employees feel uncomfortable

SWOT
Strengths
Pro-labor practices
Anti-sweatshop
Made in USA label
Pay their employees nearly double minimum wage
Provide job security and good benefits for employees
Environmentally friendly practices
Use of organic and recycled materials
Strong international presence – 253+ retail stores in 20 different countries Reasonably priced and good quality products
Weaknesses
Provocative advertisements
Store environment makes some customers feel uncomfortable – “reeked of sexual sin” CEO Dov Charney’s workplace behaviour and practices which have led to complaints and lawsuits The company’s cost of production is likely higher than their competitors because of their “made in USA” policy High labour costs

$120 million in debt
Opportunities
The company has the opportunity to tame their provocative advertising campaigns They can also steer the focus back onto their positive business initiatives Ethical buying habits are on the rise – consumers are becoming more conscious of the environment Expand online and catalog business sectors

- Focus product lines - eliminate those that aren't as successful and profitable
- Reform advertising campaign - focus more on AA's positive political activism and "homegrown" products
- Restructure corporate-executive-suite and construct a more positive public image Expand online and catalog business sectors
- Focus product lines - eliminate those that aren't as successful and profitable
- Reform advertising campaign - focus more on AA's positive political activism and "homegrown" products
- Restructure corporate-executive-suite and construct a more positive public image Threats
Their competition who offer similar products at equal or lower price points, and have cheaper production costs Threats of lawsuits against Charney which create a negative public image Threats of consumers shopping elsewhere due to dissatisfaction with AA’s sexual advertisements

SWOT Findings: The SWOT analysis shows that American Apparel needs to bring the focus back onto the strengths of the company. They need to remind consumers of the ethics the company was built on and their goodwill and valuable contributions. Their weaknesses primarily revolve around being too overtly provocative, whether this is towards consumers or within the workplace itself. The company clearly cannot continue with this controversy, as they risk overshadowing the positive aspects of their business.

Decision Criteria for Solutions
-What goals or objectives must be achieved by any potential solution to the problem? (eg. Must maximize market share) -What constraints limit the range of solutions (eg. Can’t cost more than $1 Million)

Goals and Objectives
The goal is to save the company’s reputation which will in turn stop their money-losing streak

Constraints
Must not incur further debt

10
Identification of Realistic & Practical Alternatives available to the Decision Maker - In most situations there will be at least 3 alternatives, one of which can be status quo. One or two short sentences to describe each. - Each alternative MUST be a stand alone solution to your problem(s).

Alternative 1: American Apparel should fire their current CEO, Dov Charney, and elect a replacement.

Alternative 2: American Apparel should change their advertising strategy by toning down their sexual nature and focusing on their business strengths to create positive publicity.

Alternative 3: American Apparel should continue with their current advertising strategies.

Pros and Cons of each Alternative

Alternative 1
Pros
Charney’s provocative vision and proneness to scandal will leave the company with him It shows that AA will not stand for sexual harassment and inappropriate workplace behaviours The company can bring in a new vision and have a fresh start

Cons

The company may lose customers who supported Charney and his vision The replacement CEO may not be any better than Charney at running the business Alternative 2
Pros
It helps AA to fix the disconnect between their ethical and unethical practices It reminds consumers of the company’s positive values
Cons
Charney may not go for the new vision; he may push back
It doesn’t solve the issue of unethical workplace incidents The company may lose customers who support the provocative and “natural” ads Alternative 3
Pros
No changes will need to be made, therefore employees will not need to be trained or guided through any change The controversy surrounding the company may actually bring in customers

Cons
Discrepancies of the company’s business practices will not be solved Consumers who do not like the provocativeness of the company may continue or start to avoid it

Recommendation & Implementation Plan
- You must have a sentence that says, “I recommend alternative…” - Do not combine alternatives. Pick just one.
- Defend your choice of alternative. Explain WHY it is better than the others. - If applicable, explain how the alternative will be implemented. (who, what, where, when, how)

Recommendation
I recommend alternative 1 – firing Dov Charney.

I do not believe alternative 3 is an option because the unethical advertisements and workplace practices would likely catch up with the company and really affect their performance in the long run. The reputation of American Apparel would just continue to deteriorate if nothing is changed, which would deter consumers from shopping there.

Alternative 1 is a better path to take than alternative 2 because it really gets at the root cause of all the issues – Dov Charney. The provocative and controversial advertisements were largely inspired by the CEO himself. Simply changing the company’s advertising campaigns is good and well, but there is no guarantee that Charney will even go for that. And what’s to say he wouldn’t go back to his old ways in the future? Also, alternative 2 doesn’t fix the issue of employee complaints and sexual harassment lawsuits that have given the company a bad image. Alternative 1 has the potential to resolve both the advertising strategies and the inappropriate workplace incidents.

Implementation
Who
Board of Directors
What
Fire Dov Charney
Where
At a board meeting
When
As soon as possible
How
Gather all documentation of Charney’s inappropriate behaviours Review the termination agreement that was made at the time of hiring Charney Review the company’s succession plan for the CEO – determine who may be able to take Charney’s place in the interim Seek counsel from the company’s lawyers on the best method to fire Charney

Overall Quality (logical consistency & readability)