American Apparel Business Report

Page 1

Nina Patel






INTRODUCTION 1 PRIMARY RESEARCH 2-3 MACRO ENVIRONMENT 4-13 Pestle Analysis Key Macro Trends Key Touch Points

MICRO TREND ANALYSIS 14-15 Market Health Competitor Brand Map

BRAND AUDIT 16-19 Brand Overview Target Consumer Brand Health Check

BRAND OPPORTUNITIES 20-21 Challenges and Opportunities Swot Ansoff matrix

KEY CONCLUSION 22-23 REFERENCES 24 BIBLIOGRAPHY 25 APPENDIX 26-29



BRAND HISTORY: American apparel was founded by Dov Charney in 1989. Starting as a wholesale brand and today a vertically integrated clothing company. This means that every aspect of our operation, from design to distribution, is done in-house in our downtown Los Angeles factory, unlike the majority of other clothing manufacturers, American Apparel does not outsource or exploit workers in poor parts of the world. They are the largest single garment factory in the united states. BRIEF: The main objectives for the brief were to find out the business growth engines, the success factors and barriers, the achievements and lessons learnt to date, the big issues to address and what are the opportunities for the brand in the future.

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RESEARCH OBJECTIVES Where the brand is now and where can it go in the future? METHOD Face to face interviews and questionnaires filled out by consumers on the streets of London and Nottingham. Ethics were read out to the consumers taking part (Appendix 1) The first questionnaire (Appendix 2) was conducted outside American Apparels flagship store in London. A second improved questionnaire (Appendix 3) developed to allow more information to be gathered on the consumer views on American apparel. A focus group interview (Appendix 4) was conducted, this involved a group of four females aged between 17 to 23. SAMPLE The questionnaires aimed at 104 teenagers to parents, mixed genders and ages. The face to face interviews were aimed at 4 females aged between 17-23.

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pestle analysis Political The rise of youth unemployment. - According to Poverty, unemployment has ‘risen sharply in the current recession, from 20% in 2010.(1)’ BBC News then claims ‘Youth unemployment has been hit the hardest, among those aged 16-24, increased by 15,000 to reach 973,000.(2)’ - The increase of unemployment for the young people, American Apparels target market means that consumers are going to have less income for clothing. American Apparel is a high price point brand and could therefore suffer from this.

Student Fee increase from 2012. - The government have raised the costs of university funding from £6000 - £9000 per year. According to the Telegraph (3), university applications were down 8.4% for 2013. - This will have an impact on American Apparel as there target consumer consists of younger people meaning there will be more unemployed youth living off benefits. Leading the younger consumers to shop elsewhere for similar products for cheaper prices compared to American Apparels high pricing. - American Apparel need to consider there pricing to remain appealing to the younger market. 4


pestle analysis Economical The Recession.

The Rise of Cotton Prices.

- There has been a great impact on all markets during the recession, this has resulted people to have less income and made them more aware of how they spend their money, leading the consumer spending habits change.

- American Apparels business and products are focused on locally sourced cotton.

- As well as people being wary about prices, people also purchase from value retailers as there is a demand for better quality clothing that lasts longer. - This is a challenge and opportunity for American Apparel as the lower price competitors have a large market share, though, American Apparel highlight the quality and durability of the fabrics they use for there products, which can attract consumers.

- According to the Independent (4), cotton prices jumped 13% to $1.65 which could affect the profits of American Apparel as there manufacturing costs will rise. This will result in making the products more expensive, and with previous research the target youth market will lean towards the low-cost retailers due to the lack of income, this could influence marketing strategies. - This could be resolved if American Apparel use marketing development to aim products at wealthier markets.

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pestle analysis Social Increase in Social Networking

Growth of Fashion Blogging

- There has been a huge rise of people interacting using social networking, the most common sites used recently have been Facebook and Twitter.

- Fashion blogging has become a popular social networking. This involves people writing about trends, styles and influences of outfits to express their fashion.

-In the business world, it has been used as a marketing technique. Social networking allows brands to create a online community which portrays the messages, values and identity of the brand.

- Samantha Maria (6) is an example of someone who has become a style guru and online sensation.

-American Apparel uses Facebook (5) to attract new customers as they run campaigns and competitions which allow customers exclusive discounts and offers. This strategy shows American Apparel are increasing brand awareness.

- American Apparel connects with fashion bloggers by encouraging them to model and review the American Apparel products, influence followers to think the brand is stylish and must have wardrobe pieces.

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pestle analysis Technological Complex Mobile Technology

Creation of Online Shopping

- Mobile phone technology is a recent revelation in the fashion industry.

- Changed the fashion world severely.

- American apparel pride themselves on their use of social media through Facebook, twitter and other medias to connect with their fashion conscious young market, though they have no mobile applications. - American Apparel need to keep up to date with competitors in the technology field, or they will lose market share and a large number of consumers.

- Allows consumers the opportunity to compare and explore products anytime the consumer wishes. - Their online sales are 18.6% which continues to grow on a yearly basis. - American Apparel are up to date with their website and product maintenance, also branched out to selling products on ASOS making them competitors in the online market.

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pestle analysis Legal Producer Responsibility obligations (Packaging Waste) Regulations 1997

Labelling of Textiles under National Organic Program Regulations

- Aim to copyright fashion designs to stop companies imitating another companies designs.

- Guarantee products that are labelled as organic must be third party authorized, to ensure products sold are 100% organic and not misleading.

- The act has been blamed for being v controversial and unlikely to stop knock off replicas to be created. - American Apparel need to guarantee all their designs are original and have not violated this act in any way, if they were to violate the act an expensive lawsuit could put their unique styles at risk.

- American Apparels increase in organic textile products being manufactured to meet the consumers demands will mean that this law will have a positive affect on the brand.

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pestle analysis Environmental Rise of companies recycling

The demand for organic fashion

- American Apparel aim to be eco friendly due to issues like global warming, and climate change.

- Environmental issues is a key issue within the fashion industry.

- Scrap materials are turned into yarn for new garments or used for cleaning. - American Apparel recycle plastic, metal, cardboard and paper.

- The quality is improved and fibres have not been treated with chemicals, leading to the garments not being harmful to the skin making the finished garment is better quality. - American Apparel follow the environmental policies strictly which is one of their key unique selling points, along with organic products, this means they will guarantee a positive relationship with the consumers and their demands.

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Key macro trends The Big Bite

- Double dip recession, people facing debts. -Consumers are being more conscious about money spent, as they are earning less money leading them to spend less on luxury items.

The Smartphone Society

-Smartphone users have increased and consumers have never been more connected to the world. -Development of Ecommerce.

The Diaffected youth

-High youth unemployment, due to rise in tuition fees and rise of living costs. - Lack of support for the ageing population in the future.

-Consumers looking for better deals and basic products. 10


Sustainable Shopping

Globalization Ageing Population

-Consumers are being more conscious ethically, they would rather purchase products which are locally sourced, with a low carbon footprint creating less damage to the environment. -Sustainable brand this due to them having locally farmed cotton, recycling, renewable energy. Source environmentally friendly materials e.g. non toxic ink and cotton.

-Today countries are globally connected to each other, e.g. through the use of technology, and multinational companies. -Rise in multi national companies e.g. (Topshop and Apple)

-People living longer than ever before, because of this the taxes could go up, they will have to manage there money as things get more expensive. - Companies like American Apparel with high price products will lose there consumers as they will be able to purchase products from similar brands for lower prices.

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Key touch points

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Key Macro trends that will have an effect on American Apparels future. The Big Bite will lead to high levels of unsold stock, this could impact on the brands cash flow leading them to be not profitable, causing the brand to face bankruptcy . However the economy is predicted to recover in the near future this will have a positive effect on American Apparel as the consumers incomes will rise they will then be able to purchase the high quality products. The Smartphone Society will have a positive effect on American Apparel as the brand will be more accessible not only to the target market but all ages and possibly bring in new customers and consumers. Sustainable shopping will have a large impact on American Apparel as consumers will be likely to shop here due to high environmental standards compared to other brands with less emphasis on sustainability (eg Urban outfitters) therefore willing to pay more money for environmentally friendly products.

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Market health Figure 1 Figure 2

Key Market Drivers American Apparel has seen growth by 12.34% this is a great recovery comparing the results with 2011 results of -44.19% these results may have varied due to the changes in the economy. Future Market Outlook In the next 12 months American apparel is predicted to have a rise in stock prices however this would depend on the economic conditions in the market, it does look like a positive incline as a growth is predicted as seen in Figure 2. 14


Competitive Brand Positioning Map

High Price

Low Quality

High Quality

Low Price

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Brand Overview Brand Mission: American Apparel's mission is to make great quality clothing without using cheap "sweatshop" labour and exploiting workers. Brand Essence: Socially sustainable. Environmentally sustainable. Economically sustainable. A business model for the future. That’s American apparel. Brand Positioning Statement: Sexy, guilt free, good quality clothing that doesn't break the bank.

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Target Consumer

Young, fashion forward and not afraid to make a statement. In fact, they are edgy and extremely confident in themselves. They don’t feel they need the approval of society or that they have to wear what is “in fashion” that season. They listen to alternative music; dance, indie, alternative or old school hip-hop.

“Target market: young metropolitan adults (20-32) in major urban markets with disposable income” (7)

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Brand Health check Quantitative What is your age?

Figure 3 50 40 30 20

10 0 under 18 19 to 24 under 18

Figure 4

19 to 24

24 to 30 24 to 30

31-35 31-35

36+ 36+

Starting to look at some of the key questions and the results, in Figure 3 it can be seen that the majority of people that have been questioned are in American Apparels target market. Figure 4 shows that H&M is one of the top brands that the sample shop with leaving American Apparel at fifth place. Figure 5 illustrates that American Apparel is portrayed as an expensive, on trend, quality and controversial one of the findings that can be taken from this is American Apparel may need to lower their prices if they are known for being expensive. Figure 6 explains that H&M and Urban Outfitters are two of the top brands which consumers are aware of, this states that American Apparel need to improve their brand awareness to attract their competitors audience. Figure 6 Out of the following, which brands have you heard of?

Figure 5

120 100 80 60 40 20 0

102

104

104

61

52 20

26 0

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Brand Health check - Qualitative There was many finding from the qualitative date some of the key results follow: Consumers stated the high prices of American Apparels products has an impact on their purchases. It does not allow them to purchase on a regular basis, and they would only shop for necessity's or if there was a sale or special offers available. American Apparel are well known for being sweatshop free and eco friendly, however, this has little impact on the sample, stating this would not stop them purchasing from other brands. This finding suggests that American Apparel need to make the consumers more aware of the reasons they follow their sweatshop free policy. The samples opinion of American Apparels advertising was very negative on the fact that their images are provocative and nude even though it makes the brand controversial and stand out from the competitors. American Apparel could still make their adverts stand out with a socially acceptable strategy.

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Strengths - Sweatshop free. - Vertically integrated. - Leading sustainable business model. - Socially responsible. - High exposure, low advertising costs.

Opportunities - Move to classier advertising aesthetics. - The advantage of online shopping. -Global and emerging markets are expected to grow. - Plus size consumer market growth.

Weaknesses - Stock stability. - Hiring policies. - Competitively high production costs and prices. Threats - Failing sales. - Change in style or fashion. - Economic conditions and significant fluctuations.

Key issues facing brand  Lack of advertising from varieties of media.  Maintaining a lower production cost making prices will be lower for consumers.  Fashion constantly evolving. Strategic Challenge  Marketing penetration focusing on new target markets.  Maintaining and improving standards of product quality.

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Ansoff matrix Existing products

New products

Existing Markets

-Increase American apparels adverts by television and social media - Use a range of competitive pricing strategies for example sales promotion. - Introducing loyalty schemes to keep existing customers.

- Develop new products for example more variety of denim, like jeans. - Improve accessories line as research carried out previously suggested that the accessories were the weakest product.

New markets

- Different pricing policies to attract new consumers. - Target a new market segment such as home ware.

-New market segment of home ware selling products such as, furniture, ornaments, wall paper. - Haberdashery, including American Apparels own eco friendly materials.

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There are many key challenges and opportunities that American Apparel face which have not been issued, these could be use to optimise consumer connection and drive sales this would require American Apparel to make some key changes. From previous research it is shown that American Apparels target consumer is mainly focused on the 20-32 age group in order to increase their target base they could design a tailored message which reaches out to audiences outside of the main target age. They also need to consider the rise of youth unemployment and create new pricing strategies like cutting down on manufacturing and material costs. American Apparel are currently at a risky position with competitors, as they are at the top with some of the high priced brands yet they are far from their top competitors. To attract the audience from competitors they would need to consider looking into marketing strategies such as increase in use of social media, American Apparel would need to look into creating a mobile app for their brand as the younger population are constantly keeping track of changes in the technology world. Products in fashion are constantly changing with fashion trends, however American Apparel could consider breaking into a new market segment such as Home ware using their environmentally friendly materials, as well as opening doors to a bigger audience this would also allow current customers to have a variety of items to choose from during their shopping experience with American Apparel.

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Communication is a key factor when it comes to brand awareness, American Apparel is well known for its controversial photo adverts which has had many comments thrown at it. In order to reach out to people American Apparel will need to branch out of their comfort zone and use a variety of social media to create brand awareness. They can introduce TV advertisements and new styles of advertising their clothes rather than the provocative images they currently produce, this will open the door to many new consumers. Looking back at the research on the macro trends, the big bite was a main finding which would have a impact on American Apparels future. In order to maintain customer loyalty and continuing to build relationships with new customers American Apparel will need to consider their manufacturing and production costs and try and lower them as well as trying to maintain the quality of their products. Following these five recommendations American Apparel would be able to maximise its success in the near future.

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(1) http://www.poverty.org.uk/35/index.shtml (2) http://www.bbc.co.uk/news/10604117 (3) http://www.telegraph.co.uk/education/educationnews/9708905/Record-fall-in-UK-universityapplications-for-2013.html (4) http://www.independent.co.uk/news/business/news/rising-cotton-price-puts-pressure-on-retailers2303321.html (5) https://www.facebook.com/americanappareluk (6) http://www.beautycrush.co.uk/ (7) http://www.americanapparel.net/contact/2009_Fact_Sheet.pdf

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American Apparel Faces Bankruptcy as Store Chain Unravels. http://www.independent.co.uk/news/world/americas/americanapparel-faces-bankruptcy-as-store-chain-unravels-2058835.html. Last accessed 12/12/2011. ADAMS, R. (2011). American Apparel Founder Dov Charney Faces Sexual Harassment Suit. http://www.guardian.co.uk/lifeandstyle/2011/mar/09/american-apparel-dov-charney-harassment. Last accessed 20/12/2011. AMERICAN APPAREL. (2010). Annual Report on Form 10K. http://www.sec.gov/Archives/edgar/data/1336545/000119312510073701/d10k.htm. Lastaccessed 20/12/2011. AMERICAN APPAREL. (2011). American Apparel Reports Fourth Quarter and Full Year 2010 Financial Results and Provides Business Update. http://investors.americanapparel.net/releasedetail.cfm?ReleaseID=561329. AMERICAN APPAREL. (2011). American Apparel, Inc. Reports Third Quarter. http://investors.americanapparel.net/releasedetail.cfm?ReleaseID=621581.Last accessed 20/12/2011.AMERICAN APPAREL. (2011). Photo Archive. http://www.americanapparel.net/gallery/investors/qt.html. Last accessed 12/12/2011. ANONYMOUS. (2008). American Apparel Presentation. http://www.scribd.com/doc/30321419/American-Apparel. Last accessed 12/12/2011. ANONYMOUS. (2010). American Apparel Inc Chart. http://money.cnn.com/quote/forecast/forecast.html?symb=APP. CNN MONEY. (2014)

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Appendix 1 Consent Form I, the undersigned, confirm that (please tick box as appropriate): Participant: Name of Participant Signature Date Researcher: Name of Participant 1 . 2 . 3 . 4 . 5 . 6 . 7 . 8 .

Signature

Date

I have been given the opportunity to ask questions about the project and my participation. I voluntarily agree to participate in the project. I understand I can withdraw at any time without giving reasons and that I will not be penalised for withdrawing nor will I be questioned on why I have withdrawn. The procedures regarding confidentiality have been clearly explained (e.g. use of names, pseudonyms, anonymisation of data, etc.) to me. If applicable, separate terms of consent for interviews, audio, video or other forms of data collection have been explained and provided to me. The use of the data in research, publications, sharing and archiving has been explained to me. I understand that other researchers will have access to this data only if they agree to preserve the confidentiality of the data and if they agree to the terms I have specified in this form. I, along with the Researcher, agree to sign and date this informed consent form.

  

    

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Appendix 2

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Appendix 3

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Appendix 4

American Apparel Face to Face interview. We are Fashion marketing and branding students who want to find out your opinions on American Apparel.

This interview will involve asking 7 questions which will like you to respond honestly and in-depth. •Have you purchased American Apparel products? If so what type of products? •What do you think of American Apparel prices for the quality of their products? •Does the pricing of the products have an impact on your purchases? •American apparel products being sweatshop free, make their products/brand more appealing to you and more appealing than other brands? •What is your opinion on American Apparels advertising? •Does the advertisements impact on your purchases and your view of the brand? •What would you say is American Apparels unique selling point? •Are there any improvements you think the brand could make?

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