The sinking ship is a perfect metaphor for American Apparel. A Dov Charney-shaped iceberg hit the company and during its slow capsize the company is throwing everything that it can grab overboard. First, it was American Apparel's infamously sexist ads — and even that came with a few lumps. The company then filed for bankruptcy and Charney's dismissal was followed by even more employee layoffs. Now, the company has been hit with yet another round of layoffs and is even going to start outsourcing products after previously making all the products in its L.A factories.
The Los Angeles Times reports that American Apparel just laid off a total of 500 employees as production of more complicated pieces, like jeans, is handed over to a third party. The company's new CEO Paula Schneider insists that they will still be "American-made," though.
Although this is only a small shift, it could be the hole that springs the sink-shipping leak. Analysts believe this is only the first step and American Apparel will reshape its business more dramatically in the future.
"They’re headed out of Dodge," Lloyd Greif, chief executive of Los Angeles investment banking firm Greif & Co, tells the LA Times "They are going to outsource all garments. It’s only a matter of time."
Grief says that AA wants to announce small changes to see how much it can get away with. "They might be kind of testing the waters to see what the market reaction is."
It's impossible to overlook Charney's warts, but he always fought for Made-in-America products and fair wages. Charney says that these principles are vanishing from AA. "They are doing exactly what American Apparel fought against,” Charney tells the LA Times.
It all begs the question: Is American Apparel going to become just another fast fashion brand? Meaning, is the company going to trade in its proud Made-in-America standards for something more cost-effective? Grief certainly seems to think that's the case. “There’s no reason why American Apparel has to be made in America,” he said. “It can be designed in America, but cut and stitched somewhere else.”
And, looking at it from American Apparel's perspective, why wouldn't it go down this path? Its integrity may help the CEO sleep at night, but it's not going to pad the company's profit margin. The Wall Street Journal reported that in the nine months following Charney's ousting in December 2014, the company lost $65 million on $385 million in sales.
Meanwhile, fast fashion behemoth Zara is raking in $14.8 billion in annual sales and its owner, Amancio Ortega, is one the richest men in the world. Zara offers the types of trendy clothing at the price points customers want to pay, and it seems like consumers are unwilling to pay more for these types of products.
The latest example of this is Uniqlo, which took a huge hit after trying to raise prices. The company will bring prices back down after its quarterly numbers were walloped, according to WWD. Profit over the past six months dropped 55.1 percent and left the chairman of Fast Retailing, Uniqlo's parent company, defeated. "Consumer sentiment has turned out to be far worse than we thought," Fast Retailing chairman Tadashi Yanai said in regards to the increased retail prices.
And this is a store where you can get a T-shirt for literally $10. How is a company like American Apparel, which wants to manufacture its T-shirts in the U.S. and offer employees fair wages, but wants $26 in exchange for a tee, supposed to compete?