Analysis of the Challenges Facing American Apparel and Strategies to Solve these Problems (Research Paper Sample)

Analysis of the Challenges Facing American Apparel and Strategies to Solve these Problems Name of Student Institution Affiliation Introduction Characterizing the American Apparel Company. The organization’s mission, vision, and values. American Apparel is a company at the heart of American’s Fashion culture. Although the company has had many ups and downs, its goals have always been the same. The business mission at all times has been to set new trends when it comes to fashion. Such fashion trends are to be broad enough to cover individuals of all ages and sexes. This way the customers always have the best and widest collection of clothes to pick from. The vision of the organization has been to form a vertically integrated value addition chain. This starts with the in-house designing and manufacturing of clothes, these clothes are then distributed through shops owned by the company. This model gives a lot of flexibility and control to the company. American Apparel can therefore rapidly conform to changes in fashion trends. On the other hand, the values of the company are to provide quality American made clothes to its customers. Unlike other clothing companies who outsource their manufacturing to third world countries, American Apparel makes all its clothes in the United States. This gives them an upper hand in quality. One other value that forms the core of American Apparel is the need to provide adequate returns to its investors. This has, however, not been possible due to the financial difficulties faced by the company. Challenges facing the organization. Since 2008, American Apparel has been plagued by lots of problems. The most significant of this is financial trouble as a result of high debt. To expand its operations, the company borrowed large amounts of expensive debt. In 2014 alone, the company was supposed to repay 13.4 million dollars as loan interest and repayment (Moor & Littler, 2014). This was not possible as the business was not making any profits. Its market share was also under constant attack by cheaper alternatives from other United States companies. On top of that, the company also has an issue with immorality. Its advertisement strategy has in the past featured inappropriate imaging with lots of nudity. Senior executives of the company have also from time to time been accused of sexual harassment. These same executives hired illegal immigrants to work in their American factories. Such offensive behaviors have tainted the image of the company. Business Environment Internal and external settings of American Apparel. TOWS (threats, opportunities, weaknesses, and strengths) analysis There are several threats that the American Apparel business faces that need to be addressed immediately. The first has to do with the financial aspect of the company. Over the past decade, the company has constantly been in financial trouble. The end result of this is reduced investor and creditor confidence. Finding new financial sources for the company is a hard thing. The other threat is increasing competition from larger retailers such as GAP. These companies outsource their manufacturing hance can afford to sell at a lower cost. They, therefore, undercut American Apparel. On top of that, there has been an increase in the price of cotton over the last one five years. This cost has now been made worse by the worsening economic condition. American Apparel should expect their cost of production to increase into the foreseeable future. An additional threat has to do with the branding of America Apparel as an American first brand. The United States is now seen as the enemy of globalization. The unintended result of this is a dislike for American goods such as those made by American Apparel. Aside from the threats, opportunities for recovery of the business still exist. One such opportunity is the possibility of expansion into online and catalog sales. American Apparel sells some of its goods online, but this is just a small percentage. Improving their online presence will significantly increase their ability to sell products. Another opportunity exists in revamping the brand of the business. Although tainted with scrupulous business strategies, the American Apparel still has a lot of potential. Intensive marketing could easily reinstate the brand to its former glory. Another opportunity that exists is to implement change at the leadership level. The troubles of the company can be squarely blamed on the executive. A change in the management of the institution should, therefore, breath new life to the fashion house. An additional opportunity exists in revamping the products of the company. The company should focus on narrowing its range of goods to only those that sell well. Furthermore, a lot of focus should be put into making the most out of the seasonal spikes in sales. This is where the company can make up for low sales. Several weaknesses are apparent when an analysis of American Apparel is made. First, there is a major loophole in the financial controls of the company. This led the auditing firm, Delloite, to stop working on the books of the company. Another weakness is in the high level of debt within the company. The CEO is another major weakness in the company. She is shrouded in a lot of controversy including accusations of sexual abuse. The other Achilles heel is the controversial advertisements that the company uses for its marketing. Most of this advertisements have unacceptable levels of nudity. Despite its troublesome past, American Apparel still has its strong suits. It manufactures its goods in the United States and is, therefore, a favorite of the locals. Furthermore, the brand name still has a strong fan base. This is evident in the fact that investors have not lost hope in the company. On top of this, being a vertically integrated manufacturer is a huge strength. The company can control how it produces its products and how it sells them. Their preferred method of sale is also an advantage. Their stores are simple and clean hence inviting to the customers. Another strength lies in what the company is perceived to represent. The company does not use a lot of chemicals during manufacturers and is seen as a green company. This company also voices out its political views and is known to champion the preservation of American jobs. Fig 1: Summary of the TOWS Analysis on American Apparel. Threats Financially reputation that is unstable Competition from other retailers Increases in the price of factors of production A worsening economic condition A rise in anti-American Sentiment overseas Opportunities Expansion of sales through online and catalog sales Reforming the brand identity to its former glory Focusing on the profitable clothes alone Changing the executive Focusing on increasing sales during high seasons Weakness The CEO is a liability to the company The use of promotional material with nudity Unavailability of strong internal financial controls A huge amount of debt Strength The company directly benefits US workers There is a strong brand loyalty The model of business is a Vertically integrated one. The company represents the voice of the American worker It is an environmentally conscious company Strategic improvement in the Organization’s Business based on the TOWS analysis Based on the findings of the TOWS analysis, there are several strategies that can be used to improve the performance of American Apparel. The first strategy is to use advertising messages that are appropriate to everyone in marketing campaigns. This marketing campaigns should run only during specific times. Another strategy is to put in place stringent financial regulations. This internal controls should reduce wastage and debt (Kulshrestha & Puri, 2017). The company can also reduce its production cost by streamlining its manufacturing processes. In a bid to expand its market share the company should sell its product online. Selling online reduces cost and helps the company reach new customers. The final strategy is to do an overhaul of the company’s leadership. This new leadership should be transformational. Strategies that should be prioritized. For American Apparel to achieve its mission of becoming a trendsetter in the fashion industry, it needs to be profitable. The strategy that is most important o the company is putting in place financial regulatory structures. Financial regulation structures will lead to a financially stable organization that is profitable and that is able to attract investments. The other set of activities that needs prioritizing is the marketing strategy. American Apparel needs to sell more products to remain profitable. Failure to do so will lead to the collapse of the business. Diversifying sales channel is the other item on the priority list. E-commerce and catalog selling are good examples of this strategy. More sales channels equal more sales. Financials Examination of the company’s financial statement. The Balance sheet, income statement, and cash flow statement of American Apparel. The balance sheet paints a grim picture of the company. As of 2013, the company has more liabilities than assets by 77,404. Total assets stand at $333,752 and total liabilities are $411,156. At this point in time, the company is not able to pay all it owes to its debtors. The problem of insufficient capital is also evident in the balance sheet. There is a negative deficit on equity totaling to -$77,404. An even urgent problem is low cash flow. The cash in hand as at the making of the financial report is $8,676. The income statement further shows the financial woes in the business. Between 2010 and 2013 the company has not made any profits. Additionally, the income statement shows an unexplained high selling expense. Before any selling expenses are deducted the company made a gross profit of 313,056. Selling expenses totatotalling$24...