Strategic business management of American Apparel

Question: Describe about the Strategic Business Management for American Apparel. Answer: Introduction The fortune of American Apparel, a leading fashion brand in America, has faced a reversal in its fortune in mid 2010. American Apparel is a fashion retailer established on 2003. It was one of the fastest growing fashion brands in America. It had expanded its company in Canada and USA and to eighteen other countries within a very short span of time. In 2008, the company was placed in second position after Nike and was listed as the Top Trendsetter Brands, beating Apple in third position. The CEO of the company, Dov Charney, was named as the retailer of the year (Weed and Davis 2013). The problem with American Apparel began in July 2010, when Deloitte and Touche resigned from the company due to the material weakness and decline in the sales and profit of the company (Noel 2015, pp.37-52). The company went bankrupt due to decline in sales, fall in the price of shares and decline in growth. The aim of the report is to critically analyze the case study of the American Apparel and analyze the problems and issues faced by the company. The share prices of the company declined by 66 cents in September 2010 down from a high of $16.80 in December 2007 (Noel 2015, pp.37-52). American Apparel is involved in manufacturing, sewing, cutting, dyeing, and designing cotton T-shirts by using a vertically integrated strategy (Abernathy et al. 1995, pp.175-246). Identification of strategic issues and problems American Apparel uses vertical integration business tool where all the operations of manufacturing and distribution is operated at one single unit. The main issue identified with American Apparel is a decline in sales, profit, growth, and share prices of the company that made the company go bankrupt in the year 2010. The strategies used by American Apparel changed in 2009-2010 due to the problems that it was facing. The main problem was the financial crisis and decline in the sales and growth. The strategies of American Apparel in 2009 were to achieve a growth in sales by twenty percent (Bowles 2014, pp.36). It had also aimed and targeted at earning twenty to twenty five percent per share over next few years. The strategies formed for the years 2010 to 2012 focused on restructuring the financial status of the company by emphasizing on cutting down the cost and conserving the cash. The company had set a new finance team to manage the financial strategies of the company (Hill et al. 20 14, pp.55). The CEO of the company believed that the company should focus on cutting down the cost and boost its efficiency, while others doubted the viability of the strategies formed by the company. American Apparel Company focuses on vertical integration strategy where the produced products instead being supplied to contract manufacturers in low wage countries were supplied to high wage countries in Los Angeles. American Apparel faced problems because of high cost of manufacturing in United States. The higher cost can be offset by premium quality, styling, and brand image. The reason for the rise in problems at the company was due to the lifestyle, personality, and attitude of the CEO of the company. The CEO of the company had a very lean attitude and inappropriate workplace behavior due to which the company faced several issues. The attitude of the CEO towards the social issues such gender equity and frankness to media was considered as inappropriate and harmful to the companys growth. The CEO of American Apparels was considered as deprave (Noel 2015, pp.37-52). The other strategic issue with the fashion brand was that despite of production of cotton T-shirts in America huge amounts of T-shirts had to be imported. The import of T-shirts from other countries such as China and other countries increase the competition for American Apparels. The competitors of American Apparel are Hanes and Fruit of that Loom. The strategies of American Apparels focused on marketing, distributing, and manufacturing products both overseas and offshore. The process of manufacturing and production was not divided in American Apparels. One of the unique strategies of the organisation was its vertical integration business model where the entire process of manufacturing, production, designing, marketing, and advertising is conducted at its headquarters in Los Angeles. The operations of all its retail stores are done via Los Angeles. Due to its strategy, the company was successful in achieving speed and flexibility in its operations. Though the strategy of vertical int egration helps the organisation create new and innovative design and trends in fashion it increases the cost for the company. The strategies of the company focus on timely production of commodities and producing products of new design in order to maximize the sale. The production and manufacturing of the products is created at a very short span of time. The strategies of the company not only focus on the management of production process but also concentrate on the customers. It is essential for the company to form strategies to advertise its products in the existing market and attract customers that are more new in order to achieve its set target and strategic goals (Hambrick and Fredrickson 2001, pp.48-59.). The target market of the company are young adults, aged twenty to thirty two. The strategy of the company focuses on establishing a valuable culture in order to attract customers. The company was also involved in supplying the products online. The company was facing downturn until the year 2010 due to which it had to adopt and alter its strategies to improve the financial condition. The primary focus of the company was on the retail business (Orlitzky 2008, pp.6-27). The main issue with the vertical integration strategy was that it restricted the international expansion of the company. The company should concentrate on expansion of supply chain, and logistical activities in order to expand the industry. The company had expanded its range of products that added to the problems for the company. It added more complexities to production, distribution and marketing activities and increased the cost for the company. The lack of effective implementation of the vertical integration strategy added to the problem for the organisation (Porter 1996, pp.5-7). The strategies used by the organisation led to the reigning of senior management level such as Tom Casey. The retail stores closed during the period of 2010- 2012. The stores were cut from two hundred and eighty one to two hundred and forty nine. The other strategic issues were the rise in the debt of the company as it was involved in taking loans from Capital Lion Crystal financial LLC. The company had borrowed eighty million dollars that had increased the pressure for the company (Grant 2016, pp.100). The issues with the vertical integration are as follows: Balancing capacity is a primary issue of vertical integration strategy. It is essential for the firm to expand its upstream activity in order to ensure downstream efficiency. In the case of American Apparels, all the manufacturing and distribution operations are handled in Los Angeles. Vertically integration strategies increase the cost of the company due to low efficiencies in managing its suppliers (Lichtenstein 2014, pp.99). Vertical integration strategy reduces the scope of expanding the variety of products manufactured by the company as the entire process of manufacturing and a single firm or center handles distribution. The cost is high as the products are to be shipped from the place of manufacturing to the respective retail stores and customers. The bureaucratic costs are also high. The firm has to compromise in existing competency areas (Collis and Rukstad 2008, pp.82-90.). Analysis and evaluation The first retail store of American Apparels was established in the year 2003. The company was considered as the fastest growing industry and achieved second place for creating a unique brand design after Nike. The headquarter of the company is at Los Angeles where all the manufacturing and distribution takes place. All the operations by American Apparel are managed from Los Angeles at itself. Until 2010, the operations of the company were going good, after which there was downturn in the sales and profit of the company. It was due to the strategies used by the company and the behavior of the CEO of the company. The company had expanded its store to US, Canada and eighteen other countries. The company was traditionally responsible for producing the blank cotton T-shirts and supplying it to the printers who designed logos and retailed the products. By 2012, American Apparels was responsible for supplying both the blank T-shirts and designed T-shirts under its own brand name and logo to the targeted customers. The design of the T-shirts is inspired from the classical style where the designers focus on creating iconic styles of T-shirt (Weed and Davis 2013, pp.202-205). The design of the T-shirts was inspired from classical style and design. The company hires the employees with professional attitude who are able to create iconic styles and design. The range of products manufactured by the company had increased by 2009. The company was involved in supplying products such as dresses, sweatshirts, jacket and various types of apparels. The products were not only manufactured for humans but also dogs. American Apparels faced many financial issues due to the strategies it had adapted. Despite of all this issues the company was able to reestablish itself by focusing on vertical integration business tool and expanding its production to international front. The 2010-2012 downturns were improved by stabilizing the operations of American Apparels and altering its strategies. The measures adopted focused on appointing new senior management team that would help in improving the operational efficiency. The company backed its finance by taking loan from Lion Capital. The company had adopted cost-measuring measures by evaluation the cost efficiencies in raw materials purchased, managing logistical activities, reducing corporate expenses and rationalizing the employees of the organisation (Olson et al. 2005, pp.47-54.). The company had expanded its sales by providing the product through online business, sales, and retail sales. The company mainly targets to sell its products to young adults aged twenty to thirty with high value, and fashionable strength. The strategy by American Apparel focuses on building a relationship of its customers in order to establish brand loyalty. The retail stores are located in metropolitan cities. The online business and supply of American Apparels products are available for the customers of US, Mexico, Canada, UK, Europe, and other countries. Recommendations American Apparel that is one of the leading fashions Brand in US has its headquarter in Los Angeles. The company was operating successfully until 2010 after which the company started facing downturn. The company uses vertical integration business tool to manage its operations. The sales, profit and share prices of the company were following and the debt was rising. It is hence essential for the company to alter its strategies in order to improve its business efficiency. It is recommended that the company should establish its manufacturing unit in a developing country where the labor will be available at low wage. This is necessary as this strategy will help the country in minimizing its cost of operation and hence will increase the profit (Collis and Rukstad 2008). The company should also focus in expanding its customers base by promoting its large variety of products is the new market. Larger the customer higher is the profit of the organisation. The products can be promoted using various methods such as advertisement, newspapers, word of mouth. The company should focus on the quality of the product in order to attract the loyal customers. Instead of operating all the activities at just one place, the production and distribution activities should be diversified. This will help in proper management and reduction in the cost of production. The company should not just focus on vertical integration strategy but implement other strategies to manage the business. The logistical activities and supply chain of the company should be expanded in order to manage the cost effectively and efficiently. It is also essential for the manger to have right attitude at workplace. The CEO of the company should change its attitude of frankness and be more focused on the operations and strategies. Conclusion Hence, it can be concluded that America Apparels one of the leading fashion brands has used many strategies to expand its business to other countries. There is a period of boom and downswing in every business. 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