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American Apparel Case Study

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Company Analysis

COMPANY BACKGROUND In today’s market economy, American Apparel places a premium on differentiating itself from the competition by creating a unique brand image based on a hip, comfortable line of clothing, and a “Made in the USA” slogan. Founded in California, American Apparel is a company that wants its customers to be comfortable in its merchandise, as well as in their own skin above all else. American Apparel offers clothing and accessories for men, women, children, and even pets. The vertically-integrated company prides itself on providing value to its customers, making them loyal shoppers of their brand. With over 150 retail store locations nationwide and over a dozen more in countries across the globe, American Apparel has earned its reputation by offering fashionable products of high quality at affordable prices.

SEGMENTATION The fashion apparel retail market can be segmented using the following factors: geographic, demographic, and psychographic. Before entering the market, American Apparel studied these factors to create segments. In terms of geographic factors, American Apparel could have alternatively chosen to target include those living in rural small towns, far away from a major metropolis, or in the middle of a farming community. While American Apparel operates over 150 stores in the United States alone, there are less than 24 retail outlets located in the Midwest[1]. As far as demographic factors are concerned, American Apparel mainly steers away from tweens and the under-18 age bracket. American Apparel also chooses not to go after the popular 34-45 age bracket, or people over the age of 45. Similarly, American Apparel also chose not to target people who are married or divorced with children in grade school. It is not popular or common for multiple generations of a family to shop at the same retail store. Although, as previously mentioned, while American Apparel is not targeting teenagers or their parents. Having one’s parents shop at a store would likely deter their teenagers from shopping there in later years. Although American Apparel offers basic items at reasonable prices, the company does not target customers who earn less than $30,000 annually. If a customer makes $80,000 or more annually, it is unlikely that the customer will go to American Apparel for a t-shirt rather than go to an upscale alternative such as Barneys. The company chose not to aim their products at people with less than a high school diploma, or at the opposite end of the spectrum, those with a PhD or doctorate degree. American Apparel has a very distinct culture in the retail market and many people in the United States have a difficult time identifying with the company. For instance, Americans with conflicting characteristics such as those who love guns and country music will choose to shop elsewhere. Additionally, if a person does not use a computer on a daily basis, and more importantly does not subscribe to any type of social networking service, then this company’s products will not be the right fit. Finally, for those ultra-conservatives who do not believe in equal rights and who are offended by advertisements featuring scantily clad young women, the American Apparel brand is likely to irreparably damage their psyche, thus deterring them from entering a store for anything other than making a complaint.

TARGETING After American Apparel successfully determined the specific segments of the market, its next step is to evaluate the different segments and choose a target market. After dividing up the market using segmentation to find a substantial, differential, information-accessible, measurable and actionable target group, American Apparel branched out from conducting strictly wholesale operations to launch major retail endeavors in the United States. The company chose to set up its first stores in fashion conscious cities: Los Angeles, San Francisco, New York, Houston, Chicago, and New Orleans, among others[2]. The main criterion for selecting a city for a new urban store is having a population of at least 75,000, with a few exceptions for college markets. The company states that, “the young adults we want to reach are in the cities.”1 Not only does it make sense to launch its product in cities with a vast number of consumers, but also choosing cities along both the East and West coasts is a logical move for a company that prides itself on its urban appeal. Additionally, American Apparel locates many of its retail operations in college towns that are populated with residents in the target age bracket of 20-32 years of age. For instance, the company has recently chosen to open stores in college markets including “Gainesville, Fla., and East Lansing, Mich., home to the University of Florida and Michigan State University."1 American Apparel does not target customers based on gender, and thus hereafter the customer will be referred to in the masculine form. The 20-32 year old age demographic of American Apparel shoppers results in well-educated customers. If a shopper has earned a Bachelor degree already, it is because he is currently enrolled in school and working towards graduation. Additionally, due to the fact that he is still in college or is a recent graduate, his income is still, on average, around that of an entry level worker, between $30,000 and $60,000, on average. This leaves an above average amount of discretionary income for purchases outside of the necessaries, especially considering that the "American Apparel customer [is] not affected by broader economic trends because [he] does not have a mortgage, drive a car, etc."[3] Fortunately for American Apparel, a large portion of his discretionary income is exchanged for merchandise in its stores week after week. "It is also still on the cusp of affordability for a young shopper, whose clothing budget may be limited by income."[4] In terms of relationship status, the American Apparel target customer is single, or at least, unmarried. He may be in a committed relationship, but he is not in a rush to get married either. Valuing individual freedom, he wishes to delay marriage until later in life. However, it is not unlikely that American Apparel’s target customer lives with his loved one, and the couple even shops American Apparel together for t-shirts and hooded sweatshirts. If there is not a significant other in the picture, this target customer has roommates, who also happen to shop together at American Apparel stores when not at work. As this customer “desire[s] to be creative through combination,”3 it is not surprising that he typically works in a creative profession. For instance, many of the customers work in fields such as graphic design, public relations, music, and art. Due to the fact that a successful company must understand its customers’ needs in order to survive and make a profit, American Apparel has reacted to the "increasing desire for consumers to ‘self-brand’ using apparel as the expression of their own brand."3 The target customer is someone who likes to mix and match creatively in order to make his own authentic style both in regards to his personal attire and his leisure activity choices. For example, he likes to socialize with friends and go out for dinner and drinks at a popular new restaurant or bar on the weekend. About once a month he might attend a concert of an up and coming musical artist at open mic night, and every summer he heads to the coast to hear a legend perform classic hits on the beach. As far as genre of music, he tends to favor anything with a beat, like dance/house, hip-hop, or punk and can also be found listening to alternative or classic rock music, as well. For the female customers in particular, this great love of music has inspired dance or cheerleading as a recreational activity and potentially as a career. Their target customer also enjoys athletic activities and plays sports such as basketball and volleyball. Because this customer has non-conformist tendencies, he enjoys the X-games, and when time permits, he likes to escape to the beach for surfing or to the mountains for snowboarding. If it’s not possible for him to get to the beach or the mountains, he feels perfectly comfortable skateboarding anywhere with a flat surface, and even in places that a spectator may believe quite impossible to roll wheels on. He visits his family sparingly, on birthdays and major holidays, though he may go home sporadically without reason. He appreciates politics, as opposed to someone who refuses to get involved or have an opinion, but does not wish to get pigeonholed based on the beliefs of a single party. In fact, he most likely volunteered to work on Barack Obama’s presidential campaign and still quotes “Yes, We Can” for kicks in many situations. However he also desires the freedom to change his mind or differ from his peers on certain topics. Based on this, his affiliation typically lies on the liberal side with the Democratic Party or the Green Party. As someone who values social responsibility, he wants to make the world a better place for himself and those he cares about. Through the use of social networking sites such as Facebook and Twitter, he has a perfect vehicle to express his opinions and to petition for causes via the site’s groups and fan pages. In order to stay abreast on current events, he skims newspapers online everyday and subscribes to magazines like The New Yorker. To satisfy his interests in contemporary culture and fashion, the male customer reads Details and GQ and the female customer reads Cosmopolitan and Vogue. One might expect this customer to review more eclectic sources for the latest fashions, especially because these publications tend to put entire outfits together for those who cannot style themselves. However, that is not what this customer is looking at; this customer is looking at individual pieces to create their own unique image. American Apparel satisfies the “consumers’ desire to be creative through combination, their thirst for individuality by design.”3 American Apparel limits the application of behavioral factors when creating its brand and considering its target market. The overall company image is not linked to celebrity endorsements and the company does not use its logo on any of its merchandise. The company’s advertising scheme is not seasonal and customers do not visit the store significantly more often during holidays. Additionally, American Apparel’s portrayal of a basic, clean look allows customers to mix and match and empowers them to create an individual style. “American Apparel is one of the few stores where two women could pick up the same item, match it with three other items or accessories, and walk out with completely different outfits.”3 This is the typical value of the benefits sought by the customer, as he is using American Apparel to augment his individuality with very specific items and not looking to the brand to create his total image.

POSITIONING To create a unique image in consumers’ minds as compared to direct competitors like Fruit of the Loom, Hanes, and Urban Outfitters, American Apparel positions its brand based on the image of “Fashionable Basics. Sweatshop Free. Made in the USA.” [5] By offering a high-quality assortment of apparel and accessories, the company has created a brand awareness among customers as being the place to go for simple foundation pieces throughout the year. Not only are the affordable apparel basics a major draw for the target market, but also the use of provocative print advertisements featuring “the sexualized anatomy of the young models" is hard for shoppers to ignore as shown in Exhibit 2 of the Appendix.[6] In fact, to better communicate this elite image, the company focuses on social networking by creating pages on Facebook, Myspace and Twitter. In February 2010, American Apparel used its usual “shockvertising” to promote its latest controversial contest on both Facebook and its own website in search of the “butt of the brand.”[7] After participants posted shots of their underwear-clothed models, visitors to the site were able to leave comments and rank the photos based on attractiveness. Needless to say, creative executives at other wholesome competitors such as Hanes or Fruit of the Loom have not advertised using such a risqué competition. Aside from maintaining a trendy yet effortless and carefree image, American Apparel positions its brand to portray a socially-responsible retailer that customers can shop with pride. While many competitors set up offshore locations years ago in order to lower costs, American Apparel not only maintains its production facilities in the US, but also continues to call for immigration reform, “advocating fair treatment of workers” [8], specifically through its “Legalize LA” campaign in Exhibit Three of the Appendix[9].

PRODUCT MIX American Apparel offers a wide assortment of merchandise under the company’s brands: Classic Girl, Standard American, Classic Baby and Sustainable Edition. These brands cover many product categories including: tops, bottoms, dresses, undergarments, swimwear, accessories, shoes, beauty, bedding, and pet products.[10] Each of these product lines possesses an appropriate amount of product depth, with six variations on average. Such variations are developed in the form of different patterns, fabrics, or colors. “American Apparel’s design vision and aesthetic are intended to appeal to young, metropolitan adults by providing them with a core line of iconic, timeless styles offered year-round in a wide variety of colors at reasonable prices.” 6 For the tops category, American Apparel offers basic t-shirts, fashion t-shirts, button-down shirts, sweatshirts, jackets, tube tops, and tank tops. In bottoms, there are sweatpants, leggings, shorts, skirts, jeans, and slacks. The dresses category consists of rompers, short-sleeve dresses, long-sleeve dresses, sleeveless dresses, and strapless dresses. In undergarments, the company offers bras, panties, boxers, briefs, and pantyhose. Swimwear consists of swimsuits and cover-ups. Accessories is an extensive product category with classifications including handbags, wallets, athletic bags, hats, gloves, scarves, socks, belts, eyewear, headbands, hair accessories, and jewelry. In beauty, the company offers lip balms, soaps, and nail polish. Sheets and pillowcases are offered in bedding. American Apparel also offers apparel and accessories for kids and babies. And finally, for their pets, customers can purchase collars, leashes, and t-shirts. The footwear category is fairly limited, as the cost of stocking shoe sizes and holding inventory is much higher than with other merchandise categories. Overall, the company successfully touches on every viable product category and offers its target customers enough variations so as to permit them to build their own distinctive look. "By creating an easy and inspiring shopping experience and offering products that are affordable, easily remixable to create a multitude of outfit options, and maintaining excellent quality so each item outlives several seasons of passing trends, American Apparel maintains itself as a bastion for individuality in an ocean of pre-conceived ready-to-wear."3 Very basic items are offered in a dozen or more colors, while the trendier pieces are offered in only two or three variations. Leggings come in cotton, spandex, jersey, lace, and denim. Because American Apparel operates its own domestic production facility and is vertically integrated, it is able to quickly react to changes in customers’ tastes and preferences when it comes to color, fabric, silhouette, or even entirely new products[11]. This also saves American Apparel in inventory costs and prevents the company from overstocking out of style merchandise.

RECOMMENDATIONS 1. Because it is vertically-integrated, American Apparel is in a perfect position to upstretch its brand to high-end department stores including Bloomingdales, Saks, and Nordstrom. Aside from the design element, the ownership and control of production facilities and operations as a wholesaler would allow the company to enter into this new market without the hassle facing competitors would have shied away from doing the same. Some elements that would differentiate this line from the current product are better quality, higher price points, and different fabrics and finishes. The company should create a private label brand name that relates to its unique, sexual, controversial image, but one that is also short and easy to remember and pronounce. Considering patriot consumers’ support for products made in the USA, a name that is similar to “American Apparel” would likely be most successful. 2. American Apparel currently operates over 150 store locations in the United States, but the demand for the product is so strong that opening more stores via market development in different regions of the company would be a feasible and profitable task for the company. By continuing to use the same strategy for store selection, the company could take advantage of untapped markets and experience the same success as with many of its existing locations. Additionally, some of these new stores could be opened near existing American Apparel stores if they carry an assortment of upstretched merchandise (in addition to the typical product mix) to test the new brand before a full launch in several department stores. 3. Another option for the company to pursue is product development in the form of expanded product categories such as accessories and bedding. Because these product lines have less variation than others, there is a chance for the company to capture lost sales. For instance, rather than just offering tote bags and gym bags, the company should consider offering backpacks, shoulder bags, and clutches. As far as bedding is concerned, possibilities for new products include throw pillows, blankets, and curtains. 4. Although American Apparel’s product mix includes t-shirts, sweatshirts, shorts and sweatpants, it should think about creating a new brand that focuses on athletic wear. Through the right store signage and advertising, the company could easily develop a sports line of clothing to serve those who are currently shopping American Apparel solely for this reason. A detailed athletic line could increase sales thanks to those customers who are actively participating in sports and exercise more often that the average target customer.

APPENDIX

Vertically-Integrated Manufacturing – Exhibit 1[12]
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Provocative Advertising Campaign – Exhibit 27
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Socially Responsible – Exhibit 37

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Product Mix Example – Exhibit 4
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WORKS CITED
American Apparel Website, Retrieved February 16, 2010, from www.americanapparel.com

Fainstein, Rochelle. "Value + Versatility = Individuality." (November 12th, 2009): Retrieved February 16, 2010, from http://www.sterlingbrands.com/blog/2009/11/value-versatility-individuality/#more-310

Hirschfeld, Bob. "Question: Who operates the largest garment factory in the U.S.?" Retail Traffic Magazine, (May 1, 2006).

Hoover’s. (Accessed 2010, February 16). American Apparel. Hoover’s Company Records – In-Depth Records. Retrieved from ProQuest Database.

Story, Louise. "Politics Wrapped in a Clothing Ad" New York Times, (Jan 18, 2008).

Wells, Rachel. "A cheeky ad campaign - or sexploitation for a rebel sell?" Sunday Age, (June 14, 2009).

-----------------------
[1] American Apparel Investor Relations Website.
[2] Bob Hirshfeld, "Question: Who operates the largest garment factory in the U.S.?" Retail Traffic Magazine, (May 1, 2006).
[3] American Apparel Website, Retrieved February 16, 2010, from www.americanapparel.com
[4] Rochelle Fainstein, "Value + Versatility = Individuality." (November 12th, 2009).

[5] Hoover’s. (2010, February 16). American Apparel. Hoover’s Company Records – In-Depth Records. Retrieved from ProQuest Database.
[6] Rachel Wells, "A cheeky ad campaign - or sexploitation for a rebel sell?" Sunday Age, (June 14, 2009).
[7] American Apparel Website.
[8] Louise Story, "Politics Wrapped in a Clothing Ad" New York Times, (Jan 18, 2008).
[9] American Apparel Investor Relations Website.
[10] Appendix 4
[11] American Apparel Website.
[12] American Apparel Website.

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