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PRAD 555

Professor Rajul Jain

October 12, 2015

Made in the U.S.A.: A Media Audit of American Apparel

I. Introduction

American Apparel is a U.S.-based clothing manufacturer, designer, distributor, marketer

and retailer headquartered in Los Angeles, California. The company was founded in 1989 by

Dov Charney, who was subsequently ousted in early 2015 and replaced by current CEO, Paula

Schneider. American Apparel has a wide-spread global presence with 227 retail locations in

nineteen countries, as well as a global e-commerce site. Recently, American Apparel was a

publicly-traded company with the NYSE ticker APP until the NYSE suspended trading on

October 5th

after numerous prior warnings regarding their financial situation. The company

firmly believes in vertical integration and only manufactures their products in the United States

at their Los Angeles warehouse. Previously, the company gained media coverage for their use of

racy advertising as well as their dedication to producing apparel made solely in the U.S. rather

than overseas. On October 5, American Apparel filed for Chapter 11 bankruptcy protection

amidst the release of their new fall line and an ongoing lawsuit with their prior CEO, Dov

Charney. The following report presents the substantial amount of media coverage that American

Apparel has received over the targeted collection dates, how the company is being framed in the

media and recommendations for ways the company can improve communications to consumers

and their media relations efforts.

II. Data Collection

Data collection was performed by each of the three team members on their assigned days.

Media coverage of American Apparel was monitored from Monday, October 5 to Friday,

October 9. Each morning the assigned team member input the term ‘American Apparel’ into

LexisNexis at 9 a.m. In order to obtain more specific results the terms ‘American Apparel

bankruptcy’ and ‘American Apparel CEO’ were also used. Our goal was to review all media

mentions from major news outlets in any one given 24-hour period. Data for Monday was

collected on Tuesday at 9 a.m., data for Tuesday was collected on Wednesday at 9 a.m. and this

process was replicated throughout the week. Although there were innumerable mentions of

American Apparel at the beginning of the week, LexisNexis did not generate many results for the

remaining days. As such, Google News was subsequently used as a data collection tool as well.

In order to refrain from eliciting non-pertinent responses, only data containing both the words

‘American’ and ‘apparel’ together were reviewed, as data focusing on only ‘American’ or

‘apparel’ were of no interest. American Apparel’s social media communication was also

monitored. The company’s Facebook, twitter account and website were reviewed daily.

Additionally, news releases issued by the company were also taken into consideration. A total of

two press releases were posted on the company’s website during the data collection time period,

one dated October 5, 2015 and the other dated October 6, 2015.

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III. Key Findings.

Throughout the week-long review of media conversations surrounding American

Apparel, we found that a vast majority of the news reports and articles concentrated on the

company’s recent filing for Chapter 11 bankruptcy and the restructuring of the company. The

mention of American Apparel’s former CEO, Dov Charney, and the ongoing lawsuit he has filed

against the company for defamation was also prevalent in the media, as well as the topics of

U.S.-based manufacturing, disruption of company operations during the reorganization and stock

prices.

Quantitatively, the volume of coverage varied throughout the data collection period of

October 5th

through October 9th

. The former part of the week was saturated with articles from

leading news outlets, with seventeen major articles published on Monday and thirty-one on

Tuesday. These reports were fact-driven and discussed the bankruptcy protection, which was

filed on Monday, October 5th

. Mid-week experienced a significant drop in coverage with eleven

mentions on Wednesday, nine on Thursday and finally, just six on Friday. The company made

international news and the majority of the media coverage was hard news articles centered on the

company filing for Chapter 11 bankruptcy, and how this could have potentially been avoided. In

the latter days of the data collection period, there was notably less media coverage regarding the

American Apparel bankruptcy situation. Instead, the media search resulted in news articles that

centered on American Apparel ousted CEO, Dov Charney. The fashion brand expressed worry

that Charney will become a threat to the company’s effort to restructure its business. The Wall

Street Journal, Huffington Post and The Inquisitr were key contributors to the “threat” Charney

represents to the fashion brand.

Undoubtedly, there was a dearth of positive coverage – with the exception of a select

number of analysts proclaiming bankruptcy as an opportunity to rebuild - and the overall tone of

the media coverage was negative. Numerous media outlets and reporters specifically attacked

American Apparel for their insistence on continuing to manufacture in America. Not only was

the company chastised for their future plans, but their previous operations were condemned as

well. Large key industry opinion leaders such as the Shan Li from the Los Angeles Times, Matt

Townsend from Bloomberg, and various reporters from The Financial Times, The Wall Street

Journal and The New York Times focused on reasons for bankruptcy, with a main focus on costs

associated with manufacturing in the United States and store merchandise not selling at the rate it

needed to in order to survive. Labor cost comparisons for wages in California and those abroad

were used to highlight the devastating effect this caused on American Apparel. There were also

several articles that focused on the fact that American Apparel stores did not have multiple

clothing lines until late in the game. Prior to the introduction of different clothing lines, each of

the American Apparel stores sold identical merchandise. As such, the company’s proposed debt

remedy of opening new locations resulted in more money lost rather than providing a financial

turnaround.

As aforementioned, the predominant messages found in the collected data focused on the

financial ruin of American Apparel and expressed recommendations for a turnaround. Notably,

there was little or no mention of the company’s new fall line that has just been released in stores

or the company’s current Halloween campaign, which includes a contest that gives consumers

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the opportunity to win a 1987 Cadillac Allante by posting pictures of themselves in American

Apparel’s products onto various social media platforms.

The amount of coverage regarding American Apparel’s bankruptcy impacted the

exposure surrounding the current lawsuit with founder Dov Charney. Peg Brickley, from The

Wall Street Journal, commented on a statement from American Apparel backer Shannon Selden,

lawyer for Standard General, who said that she is “worried ousted chief executive Dov Charney

will get in the way of the company’s attempt to reshape its business in bankruptcy.” Selden

projected that if Charney is not stopped, his communications with employees, potential investors

and others “will interfere with the company’s effort to reorganize and come out of bankruptcy

successfully.” Chanel Adams from the Inquisitr also commented on Selden’s concern that

Charney’s ongoing activity may become disruptive to the bankruptcy process; however, the

article also mentioned a group of employees protesting the decision made by the current CEO,

Paula Schneider, to declare bankruptcy. The protest took place on Wednesday outside the

company’s headquarters in Los Angeles and was initiated by the union General Brotherhood of

Workers of American Apparel. The organization consisted of over 2,800 workers that support

the former CEO and “would like to see the return of American Apparel founder Dov Charney,

the creative genius who built the company as a fashion icon.”

The response of American Apparel during this crisis was evidenced through their social

media accounts, website and press releases. Although the messages were minimal, they

highlighted the financial restructuring and reassured consumers that the company will continue

to remain the largest clothing manufacturer in North America, emphasizing that they will still be

“Made in America”. The two press releases issued by American Apparel aligned with the media

coverage in presenting the facts of the restructuring support agreement and reiterating the NYSE

Regulation Inc.’s decision to suspend trading. The company’s assertion that operations will not

be affected during this process was of importance, as this fact was superseded by in-depth reports

on the bankruptcy and subsequently omitted from some of the media coverage.

IV. Key Observations and Recommendations

In light of reports that American Apparel has amassed $300 million in debt, Paula

Schneider, current CEO of American Apparel released the following statement, “in partnership

with our bondholders, we can work towards a new future for the company and concentrate on

what matters: making and selling great clothing,” as a way to explain the reason behind the

company’s move to file for bankruptcy protection. Despite the struggles with founder and former

CEO Dov Charney, which includes claims of misconduct ranging from sexual harassment to

choking a store manager and even forcing an employee into ‘sex slavery’, American Apparel

remains hopeful as they can continue to bring clothes made in the USA and as such, the company

remains insistent on going about business as usual during the restructuring.

In reviewing American Apparel’s social media presence, the company averaged an

unimpressive 1.4 Facebook posts per day and the same average in tweets per day. Furthermore,

only one Facebook post and one tweet addressed their bankruptcy filing and plan to restructure

the company. For an event that was covered in such thoroughness by all the major newspapers

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and financial blogs, we believe that American Apparel should have addressed consumer

concerns through social media platforms and increased their overall social media presence. For

example, they should have responded to individual consumer comments on both Facebook and

Twitter. Consumer concerns ranged from comments about the quality of their clothing products

to queries about their bankruptcy. It would have been advantageous for American Apparel to

reassure these particular consumers with individual replies and demonstrate that they do in fact

respect and care about their current customers.

Since American Apparel stands firm about their decision to continue manufacturing in

the United States, strategies to improve the media presence of American Apparel could

implement a social media campaign featuring personal interest stories of tenured workers that

have benefitted from their employment at the company. Emphasis should be placed on how they

provide opportunities for American workers when innumerable other clothing manufacturers

have taken their business overseas. Portraying American success stories has the potential of

alleviating some of the pressure on the company to move their manufacturing to a cheaper

location outside of the U.S. Furthermore, this initiative would also aid in combating any negative

effects resulting from the General Brotherhood of American Apparel’s protests against the

bankruptcy filing.

Amidst all of the controversy, the way the media framed American Apparel was

extremely negative. Coverage focused on the mistakes of the company that led them to

bankruptcy. As a result, release of the new American Apparel fall line and the company’s annual

Halloween photo submission contest for consumers was completely overshadowed. American

Apparel was previously considered a destination for young consumers in search of affordable

Halloween costumes, which contributed to their yearly fourth quarter earnings prior to their

financial downfall. Although the company did make a small effort to post pictures of various

items from the new line and promote the annual contest online, the impact was trivial. During

this time of restructuring, an additional campaign that could boost public opinion would be one

of reinvention. Both new clothing and the upcoming Halloween holiday underscore the theme of

reinvention in varying degrees. As American Apparel goes through a period of reinvention

themselves, they could use this as an opportunity to invite their customers to do so as well, albeit

in an obviously smaller scale.

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