American Apparel: Drowning in Debt?

Final Project Introduction  

Dafina Lamlli

Southern New Hampshire University

Final Project Introduction

The company that I have elected for my final project is American Apparel: Drowning in Debt? The reason is that I found very interesting to study how the company went from the top of fashion industry, slowly trickled down and struggling for survival.

Mission

American Apparel as largest single garment factory had a great mission that differentiated it from other competitors. Their mission was to make high quality and trendsetting clothes without using cheap “sweatshop” in other countries and overworking their employees. Moreover, every aspect of the production was made in the house from knit, dyed, cut, sewed, photographed, marketed, distributed, designed garments without outsourcing. Their goal was to make a return to their investment while exploiting their strength and delivering exceptional service to their customers. The company expanded tremendously worldwide and build an online platform, attracted customer of various demographics, and finally it was one of the fastest growing companies in the retail sector.

Values

To accomplish its mission, American Apparel evolved ethical behavior.  The company provided jobs for the community, eliminated offshore labor, paid them fairly and offered full-family healthcare. Media Magazine recognized American Apparel in its “Top 10 Socially Responsible Companies” ("AMERICAN APPAREL, INC - Current report filing (8-K) EXHIBIT 99").  Also, the company took a leading role in the promoting of a number of prominent social causes such as; Factory Conditions, about poor treatment of fashion workers in developed countries, Legalize LA, an immigration reform campaign and all the earnings were donated to emigration reform advocacy and many other social causes ( Wikipedia).

 The organization was socioeconomic method oriented, it adopted environmentally friendly practices and products that are less harmful to the environment, such as solar power and recycling. However, Charney has been the subject of several sexual harassment lawsuits but they are not proven.

Challenges

American Apparel after some years of success from being the top trendsetting in 2008, became a debt-ridden company.  In 2009 a federal investigation uncovered irregularities with identities of employees, the organization was required to terminate the employment of 2000 workers. After this they were unable to complete orders in time and meet demand which led to stock-out. This was the first challenge for American Apparel and never recovered fully ever since. The global recession made the recovery more difficult and the company went from a net $ 1.11 million to a net loss of $86 million. To save the company from default, Charney took a loan with a very high rate. This will become one of other challenges that doesn’t let the company to recover. Even though the company is selling, the debt is very high to pay. This led the company closing its stores and operating only online.