American Apparel is in tough shape, and its new chief executive, Paula Schneider, has no illusions about it.
The company lost more than $300 million over five years under the leadership of its founder, Dov Charney. It also spent much of last year snarled in soap opera-esque drama, as Charney was forced out by the company’s board of directors amid allegations of sexual misconduct and misuse of company funds.
It’s a mess. But, Schneider says, that’s why she took the job — so she can clean it up.
“This is not a brand problem,” Schneider said in an interview. “It’s an execution problem.”
Investors, it seems, are not yet convinced of that. Schneider, an industry veteran who worked at brands including BCBG Max Azria and swimwear maker Warnaco, took over on Jan. 5. Yet the company’s stock has continued to sink on her watch, perhaps an indication that the problems go beyond spiffing up the clothes and bringing discipline to the business. They speak to a more fundamental challenge: The environment for teen-focused specialty apparel chains has become hyper-competitive, and not everyone is going to survive.
Still, Schneider is moving forward with a slew of changes at American Apparel that she hopes will bring customers back to the chain, which promises well-made basics with a feel-good guarantee that they were made by U.S. workers.
One of the company’s first challenges will be making more of its clothes appealing. Twenty-five percent of American Apparel’s items account for about 90 percent of its revenue, Schneider says. Translation: There are many garments in its stores that customers simply don’t want.
“We have a tremendous amount of styles that are really viable, but we have a lot that have slowed down, and we just keep offering them year after year,” Schneider said. “And basically what they do is take up floor space.”
With that in mind, American Apparel has reduced the number of individual styles it sells by 30 percent since Schneider took over.
The company also now operates on a design calendar for the first time, which should help its fashion better map to seasonal shifts and trends.
“In the past, we have shipped bathing suits at the end of July, and we have shipped flannel shirts at the end of March and April,” Schneider said.
As this new rigor is injected into the planning and design process, American Apparel is trying to keep their core customers in mind. Internally, they think of them in three categories: The “young girl” (think a 16-year-old texting her friends about the day at school); the “classic girl” (a 25-year-old professional e-mailing mom to brag about her new apartment); and the “party girl” (the nighttime mode of either the young girl or the classic girl).
According to Schneider, the company realized it had been going too heavy on clothes that only appealed to the young girl, such as tight-fitting dresses or short tennis skirts. The design team is now aiming to add more items with looser silhouettes that will appeal to those looking for office-appropriate attire. (Schneider herself was wearing one of these new pieces — a black, drapey tunic that she says has been a bestseller since it arrived in stores.)
To better appeal to male shoppers, they are rethinking the fit of many of their clothes. They are also working to developing the male equivalent of the “young girl” and “classic girl” shopper profiles so they can better address men’s clothing needs.
As American Apparel works to fine-tune its look, it faces the same challenges as other specialty clothing retailers such as Urban Outfitters and Abercrombie & Fitch — millennial shoppers have proved to have fleeting tastes and little sense of store loyalty.
“It’s also facing pressure from fast-fashion retailers like H&M, Zara, Forever 21,” said Michael Levin, an associate professor who studies retail and marketing at Otterbein University. “You can do cheap, but [other stores] already do that really well. So what do you offer that they’re not?”
Schneider is also evaluating one of the clothing chain’s most hot-button issues: its racy ads. In the past, the company has drawn criticism for its imagery, such as sexually provocative advertisements that were called irresponsible by a British watchdog group and mannequins with pubic hair. The new chief executive has put fresh eyes on the company’s marketing and branding efforts, bringing in Cynthia Erland, a veteran of Perry Ellis, to serve as senior vice president of marketing, and Benno Russell, a former American Apparel leader who has returned to the retailer as a design director of branding.
Schneider, however, thinks only a small share of American Apparel’s marketing in the Charney era went too far.
“There’s about 90 percent of it that I thought was awesome, and there’s about 10 percent of it that crossed the line,” Schneider said.
She plans to keep a sexy vibe to the ads, without going into the “’70s porn” territory she said it has occasionally veered into previously. She also intends to renew the focus on social messaging, such as reminding shoppers of the clothing’s made-in-America origin.
It’s early to tell if Schneider’s changes are working. In the first quarter of this year, the company posted a $26 million loss.
Some of her efforts may have short-term downsides but long-terms gains. In early 2015, for example, they slashed prices on 1 million units to offload slow-selling inventory. Meanwhile, the first full collection of clothes guided by her strategies won’t hit stores until the fall.
Still, investors aren’t showing renewed enthusiasm for the brand. American Apparel’s stock has fallen 44 percent so far this year, and is now trading at just 56 cents a share.
Investors aren’t the only ones watching whether she can turn that around. American Apparel has drawn a deluge of public attention lately. First, there were the lurid accusations against Charney, then a tooth-and-nail battle with the board that ultimately led to his ouster.
But it didn’t end there. Charney since filed a suit that accuses the company of wrongfully terminating him. And American Apparel sued Charney for allegedly violating an agreement he signed when he exited the company. Charney’s lawyer, Keith Fink, told the Wall Street Journal this week, “Does Mr. Charney want to take back the company? You bet.”
“The noise around the brand has to stop,” said Mladen Svigir, a management consultant at retail advisory firm Jackman Reinvents. “Paula’s goal will really be to give people something else to talk about.”
Schneider received some first-hand evidence of just how far that noise has reverberated when her daughter, a senior at University of Southern California, started a business class this semester. At the course’s beginning, her professor asked: Who’s been following the saga at American Apparel?
While Charney’s ongoing maneuvers likely create additional distractions for Schneider as she tries to refocus the company, she said she tries not to dwell on them.
“I don’t have time to worry about what past management’s agenda is,” Schneider said. “We just need to move this forward. Because his agenda is his agenda, and it’s specifically for his own benefit.”
The more important thing, as she sees it, is getting the board of directors and current employees to embrace her plans for turnaround.
Since Schneider’s arrival, some employees have protested the conditions in American Apparel’s factories, saying they have deteriorated since the departure of Charney.
In many respects, though, Schneider seems to be keeping intact key pillars that Charney established for the brand. She sees two of its hallmarks — the lack of logo-ed styles (which teens are increasingly turning away from), and the chain’s made-in-America backstory — as unique assets it can leverage in today’s shopping climate.
“I’ve sort of been made out to be Glenda the Good Witch,” Schneider said. “If you really knew me, I’m much more of an anarchist and I always push the envelope. But I guess by comparison, it might look that way.”