It has weathered storms of controversy over sexy adverts that bordered on porn and accusations that its flamboyant founder sexually harassed his young employees, but in the end money, not sex, has proved the undoing of American Apparel.
Unable to ride out a terminal collapse in sales the company warned this week it may go bankrupt within months.
The clothes retailer known not just for its lurid marketing but also for making all of its disco shorts, hot pants and tank tops in the USA, warned investors this week that it won’t have enough cash to “sustain operations for the next twelve months”. Which raises “substantial doubt that we may be able to continue as a going concern”.
Some analysts said it was ironic that American Apparel, which has grown to operate from 260 stores in 19 countries, had reached its nadir so soon after investors succeeded in their long-fought battle to oust founder Dov Charney from the company he has led since he first hit upon the idea in his Tufts University dorm room in 1989.
“After everything this company has been through, it could be all over by October,” said Howard Davidowitz, chief executive of retail consulting and investment banking firm Davidowitz & Associates. “Through all the sex, and the sex scandals they survived, but now the writing is really on the wall it comes down to economics if you can’t make money you won’t survive.”
American Apparel, which is based in downtown Los Angeles, where it makes most of its products, reported a $19.4m loss in the second quarter – its 10th consecutive quarterly loss – as sales dropped 17%.
Davidowitz said American Apparel has come back from the brink of collapse several times but the emergency cash injections had always been secured by the charismatic Charney.
“In the past, believe it or not, it has always been him that has secured the miracle rescue package,” Davidowitz said. “How he did it, I’ll never know, with all the things he did … I could never figure it out, but somehow he was able to pull the rabbit out of the hat. Without him I don’t think they will be able to do it.”
Charney, a 46-year-old Canadian, who had said he hoped American Apparel would become a heritage brand and would “live beyond my lifetime”, was sacked in December following an internal investigation into the latest in a string of sexual harassment allegations from employees and former staff.
The allegations, which included claims that he made an 18-year-old sales clerk his “sex slave”, became so serious and numerous that the company could no longer afford to pay for legal insurance against more expected lawsuits against him.
Charney, who had conceded that he is his “own worst enemy”, is suing his former company for $100m in damages. American Apparel’s legal costs ran to $3.6m in the last quarter alone.
Under Charney, many of American Apparel’s problems came down to sex – either the sexual activities he was getting up to, including masturbating eight times in the presence of a female journalist profiling him and sending explicit texts to employees, or the sexual nature of its adverts. American Apparel ads have been banned in various countries, including the UK, for being offensive and for appearing to sexualise children.
Charney’s line has always been that: “Sex is inextricably linked to fashion and apparel. It has been and always will be. And our clothing is connected to our sexual expression.”
However, now that he’s gone, sex is off the table in the boardroom and its adverts. American Apparel’s new CEO, Paula Schneider, a veteran fashion executive, has banned sex in all its forms and vowed to “recast the brand in a positive, inclusive, socially inclusive light”.
Nicky Baird, an analyst at Retail Systems Research, said being sexy was “originally very successful for American Apparel but then turned into something icky”.
“When the allegations that he was sexually inappropriate arose it turned something that was fun and exciting into something creepy,” she said.
Baird said it was good that American Apparel had cooled down the sex but warned that it was “a bit too little too late”. She said structural problems with the company were of a greater concern. “It is a company that has built itself on basics, when some of those basics moved into athleisure [the new term for athletic wear that is nice enough to wear to a bar even if you’ve got no intention of going to the gym],” Baird said.
She said American Apparel might have been able to survive the bad publicity surrounding its ads and its founder’s alleged inappropriate activities, if it had actually been able to keep up with consumers’ changing demands, but in the end it hasn’t done either. “There is definitely enough bad press about it,” she said. “Especially in an age of social media, it has a big impact – people on the street know about it.”
Rival brand Abercrombie & Fitch has also vowed to stop hiring topless male models in an attempt to improve its image and halt a decline in sales.
Does it mean sex no longer sells? “I’m not sure if you could universally say sex doesn’t sell any more,” Baird said. “[But] as soon as the brand loses that genuine claim to be something fresh and representing its customers, it has got to find something else to pitch itself as, and I’m not sure American Apparel has.”
Marshal Cohen, chief industry analyst at NPD Group, said American Apparel had lost the total trust of the consumer and building that back will be hard slog. But he said the company’s real problem has been taking its eye off the ball while it dealt with the fallout from Charney’s antics. “My biggest concern for the company is that a slew of competitors are ready to eat its lunch,” he said. “Before they were the leaders to go after, now they are playing catch-up.”
This article was written by Rupert Neate in New York, for theguardian.com on Friday 21st August 2015 17.07 Europe/Londonguardian.co.uk © Guardian News and Media Limited 2010