American Apparel CEO Talks Turnaround with CSA
New York -- Let’s be clear about one thing: Paula Schneider is not changing the DNA of American Apparel. The apparel industry veteran, who took the reins of the troubled retail company in January 2015, is quite proud of the brand’s progressive spirit.
“We are a very inclusive brand,” Schneider told Chain Store Age. “One that gives everyone the opportunity to express themselves. You can see it in our clothes and in the causes we support.”
Those causes, which range from gay rights to anti-bullying efforts to immigration reform, speak to the heart of American Apparel, according to Schneider. So does its “Made in USA” distinction.
Getting the message out, however, has proved tough the past couple of years as the company’s image took a beating in the face of corporate drama, legal battles and lurid headlines that included accusations of sexual misconduct.
“Hardly anyone knows, for example, that we are the largest apparel manufacturer in North American, “Schneider said. “We really do a lot of good.”
And for that, she cites the company’s founder and ousted CEO, the controversial Dov Charney, who is still legally sparring with the company. (Currently, management is defending the company against approximately 20 lawsuits and administrative actions initiated by Charney and his associates.)
“I give Dov a lot of credit for the machine he built here,” Schneider said. “This is the most positive company you can imagine. We support good causes, we keep jobs in the United States. This brand is a call to action.”
It’s also a brand in dire need of a turnaround, which is exactly why Schneider, credited with reviving Warnaco, was brought in. There is little question that she hit the ground running. Just six months into the job, Schneider has brought an important measure of professionalism and stability to a company that had been shockingly mismanaged for years. Demand planning was non-existent; there was no merchandising calendar. The company was lacking in accountability, collaboration and communication. And it was bleeding money: American Apparel hasn’t turned a profit since 2009, losing $340 million over the five years.
Under Schneider’s watch, critical business practices are being reorganized and new talent is being recruited. She has already made several crucial hires, including the chain’s first chief digital officer, first chief information, a new senior VP of marketing, and new head of design for menswear. Most recently, the retailer named Christine Olcu, formerly with Express, as general manager of global retail. In another critical change, each department was required to come up with its own budget for the year as opposed to Charney’s "top down" strategy of years past.
American Apparel is still in the red. It lost $26.4 million in its first quarter, and sales fell 9% to $124.3 million from $137.1 million a year earlier. (The decreases were credited to a program to clear out a sizeable backlog of excess and slow-moving inventory.)
There is no sugarcoating how difficult the American Apparel turnaround will be. (The company laid out its plight in blunt terms in a recent statement in which it said that even if it succeeds in increasing revenue and cutting costs, there is no guarantee it will have sufficient financing commitments to meet funding requirements for the next twelve months without raising additional capital.)
“This (the turn-around) is a long-term play,” Schneider said. “It takes a while to get everything going in the right direction. We just need time.”
Short term, in addition to shoring up the chain’s executive team and restoring basic business practices, Schneider is trying to fix what has been one American Apparel’s underlying weaknesses for some time: stagnant product, and too much of it. Too many of the same items were being offered year after year without any thought given as to just how well they were even selling. Precious floor space was being taken up by product that wasn’t selling.
“We sell a good and well-made product, but we definitely had some product that had stayed too long at the party,” Schneider said.
Indeed, product development is one of the key initiatives in Schneider’s ambitious, multi-year strategic turnaround plan. The plan, which proposes to make American Apparel a $1 billion brand, is comprehensive and well-crafted, with targeted short, intermediate and long-term growth goals. It emphasizes both strategy and execution.
“American Apparel doesn’t have a brand problem,” Schneider emphasized. “It has an execution plan. And we are working on it. We just need time.”
PRODUCT: The turnaround plan’s merchandise initiatives include reducing SKUs by 30%, improving the assortment and store merchandising, getting goods to market quicker, and building the company’s first demand planning and forecasting function. (Schneider hired a VP of demand on her second day of the job.)
Other measure include hiring new design talent to improve the fit and look of the merchandise.
As intent as she is on improving American Apparel product positioning, Schneider made it clear that she is no way trying to dictate the look of the brand.
“I’m not the arbitrator of taste,” she said. “I leave that to our merchants and design team. They are the brand. My job as the CEO is not to design the line, but to understand who we are designing for.”
The design team put together a design brief that did exactly that, putting the American Apparel female customer into one of the three buckets: the younger or high-school girl, who mostly buys the opening price-points; the older, or 25 to 35-year-old, millennial customer who grew up with brand but might not be comfortable with something like a cropped top anymore; and the party girl, which takes in the first two girls when they go out.
The first fruits of the effort to improve the product mix will hit stores this fall. The company will introduce some 150 new styles (about 100 for women, and 50 for men). By comparison, when Schneider arrived at American Apparel in January, the spring collection was already set and it included only 15 new styles.
"Historically, the fall season was not a major focus for the company,” Schneider said. We are beginning the process of re-merchandising the product assortment in our retail stores to increase productivity by SKU," said Schneider. "The new styles are designed to increase revenue as we continue to evolve our product offering during this important selling season.”
But while more fashion is being added to the mix, American Apparel is no way overhauling its complete product offering, or department from its “authentic” underpinnings. The new fall line will be focused on “advanced” basics and key items.
“There’s lots of logo fatigue out there,” Schneider said. “We have great basics, with some fashion. But we are not following trends, not watching runway shows. We don’t even use a trend service.”
It’s not well known, but wholesale, as opposed to direct sale, is responsible for 70% of American Apparel’s clothing production. (Among its wholesale buyers are companies looking for logo-free clothing on which they can imprint their own graphics or logo.)
Initiatives