American Apparel: Vertically Integrated in Downtown La

American Apparel: Vertically Integrated in Downtown LA

American Apparel is a clothing manufacturer located in the downtown Los Angeles. The company is also a wholesaler, retailer, and also performs its own design, advertising, and marketing. Defying conventional wisdom, the company implemented a vertical integration strategy. Instead of outsourcing production to lower wage countries, the company believed the high cost of manufacturing could be balanced out by the quality and benefits of speed to market. The company set out to set itself apart by offering quality and design.

Synopsis of the Case

“In October of 2003 American Apparel opened its first retail store in Los Angeles. Within 14 months, the company was operating 34 stores in North America, making it the largest garment manufacturer in the US”. (Grant, 2016)  The distinctive feature of American Apparel was its high level of vertical integration. The company believed this gave them the opportunity to quickly respond to the market and customer demands. It employed an in house team of designers for quick turnaround on ideas, had an 800,000 square foot manufacturing facility, while operating 252 retail stores in 20 countries. (Grant, 2016)

The company continued to grow successfully until mid-2010 when their fortune took a sudden and sharp turn. Abruptly the company went from expansion to cost cutting. Even with a positive approach in human resource management offering higher wages, subsidized healthcare, low cost auto insurance; the company could not get away from the controversy of their sexual approach and environment. The character of Dov Charney, CEO, came under fire, the company’s stocks tanked overnight and the company was forced to claim Chapter 11 Bankruptcy in 2015.

Relevant Factual Information about the Problem or Decision the Organization Faced

With the continued scrutiny of Mr. Charney’s character the board was forced to replace him as CEO. Paula Schneider was brought in as CEO and implemented a turnaround strategy that turned out to be unsuccessful. The company was forced to file Chapter 11 Bankruptcy for financial restructuring. This made the initially embraced vertical integration strategy to come under question. The company was left to decide whether this was the approach for the future of American Apparel.  

Explanation of Relevant Concepts, Theories and Applications Derived from Course Materials

Having a vertical integration strategy gave American Apparel the competitive advantage, no one else could do what they did, everything could be done in house. Vertical integration gave the company the ability of quick turnaround on design and production based on the demand of fashion trends. Vertical integration allows for superior coordination and reduced risk. This does not however keep a company from the challenges in a competitive market.