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A man uses one of the phones at the American Apparel factory in downtown Los Angeles, in this October 17, 2008 file photo. Ousted American Apparel Inc head Dov Charney supported workers in the clothing industry with his stance in favor of immigration rights and determination to keep jobs in the United States, but some employees are not returning the favor. Last month American Apparel's board dismissed Charney. It accused the chairman, president and chief executive of misusing corporate funds and failing to prevent the dissemination of nude photos of a female ex-employee who sued him.
Reuters/Lucy Nicholson
Sex is an inescapable part of American Apparel, even in its Los Angeles factory.
GOOD LUCK WITH THAT

American Apparel is in a hole, so it’s good that its new CEO is not at all like Dov Charney

By Marc Bain

Whatever its public image, American Apparel is a serious business. It employs more than 10,000 people, operates the largest garment factory in the US, runs upwards of 230 stores globally, and generates in excess of $600 million in sales annually. Its operations extend well beyond the stuff that catches the most headlines, such as its famously lurid, 1970s-pornography-inspired imagery and the antics of the brand’s founder and former CEO, Dov Charney, who’s as well known for his endless entanglement in workplace lawsuits as he is for building a multimillion-dollar brand.

It’s now one year since Charney was ousted, and those operations are in a sorry state. American Apparel badly needs a turnaround. Paula Schneider, who was installed by the board as CEO in December, is the person responsible for making it happen. She’s taking on a company that in 2010 flirted with bankruptcy, and has since racked up losses of $300 million. Its stock price has never recovered, frequently trading below a dollar, far below its peak of $15 in late 2007.

Schneider’s plan, as outlined in an investor presentation filed with the SEC on June 8, essentially comes down to this: Concentrate on the core business, ignore all the peripheral distractions, and grow the company to $1 billion in sales.

American Apparel's quarterly sales growth

The brand and the basics

Schneider’s decision earlier this year to have pubic hair and nipples airbrushed from images on the American Apparel website offers an example of that thinking.

“I want to make sure we’re making the right business moves so we can sell clothes, not body parts.” – Paula Schneider

“I took pubic hair off the website. It made it in every national paper,” says Schneider, who is credited for reviving Warnaco, which makes swimsuits for Calvin Klein and Speedo. Some criticized that decision as both untrue to the American Apparel brand and a way of hiding the natural female body. But from Schneider’s point of view, it was the financially smart thing to do. “The amount it helps us to have pubic hair versus not have pubic hair is meaningless versus the amount it costs us to defend ourselves from things like this. #FreeTheNipple got all over me. But I want to make sure we’re making the right business moves so we can sell clothes, not body parts,” she told Quartz.

When it comes to the actual products American Apparel makes and sells, the core business means perennially popular basics, such as fairly plain t-shirts, sweatshirts, underwear, dresses, bodysuits, and all the other semi-generic, vaguely retro clothing that still draws millennials to its stores. Roughly 90% of the brand’s revenue comes from just 25% of its products, according to Schneider. That means a lot of the product in stores is exactly the sort of noise Schneider wants to eliminate, which is why the company intends to cut its SKUs, or variations on individual products, by 30%.

Multicolored sweat shirts hang inside of an American Apparel store in New York April 1, 2011. Clothing chain American Apparel, known for racy advertising and its founder's legal problems, may file for bankruptcy if it does not get enough money to keep running, and might even have to liquidate, the company said.
Reuters/Lucas Jackson
Basic.

And it wouldn’t be a new chapter without some new designs. It recently hired Joe Pickman, the former head of men’s design for now-defunct label Band of Outsiders, to run its menswear. (Fans of the deceased brand may find some happy echoes of its clothes at American Apparel.) The women’s design team, meanwhile, identified a key psychographic, as Schneider calls it, that they need to attract.

“So we had the young girl taken care of, and we had the party girl completely taken care of. What we were missing a lot of was this 25-to-35 millennial girl,” she says, describing someone who is newly independent of her parents and has some disposable income for the first time. It suggests something a little more work-appropriate might be in the pipeline for women, and the brand aims to target the group through increased digital advertising, as opposed to the print and billboard ads it previously focused on.

Lean and streamlined

Under Schneider’s lead, the company has plenty of other plans for cutting back to focus on what’s working. It wants to close underperforming stores, especially in cities such as New York and Los Angeles where the brand is overrepresented, and open new stores where it doesn’t have a presence. It’s also recalibrating the e-commerce markets it focuses on and remaking its e-commerce site, which Schneider sees as a huge opportunity for them. Right now their conversion rate, meaning the percentage of site visitors they convert into paying customers, is just 1.6%. That’s dismal. Schneider estimates that if they can get their rate up to the industry average of 2.5%, it will give them an additional $35 million in revenue.

The eponymous retail chain is only part of the business, though, and not even the bulk of its clothing production. Roughly 70% of the clothes it manufactures are sold wholesale, either to companies such as Amazon that offer the products under the American Apparel name, or to businesses that want blank clothing to print their own graphics on. Wholesale makes up about one-third of American Apparel’s sales. According to Schneider, simple fixes such as launching a dedicated wholesale site and creating a calendar so they can better align their merchandise with their buyers needs could boost those numbers.

Two people walk past the American apparel factory building and outlet store in Los Angeles, California July 7, 2014. Ousted American Apparel Inc head Dov Charney supported workers in the clothing industry with his stance in favor of immigration rights and determination to keep jobs in the United States, but some employees are not returning the favor. Last month American Apparel's board dismissed Charney. It accused the chairman, president and chief executive of misusing corporate funds and failing to prevent the dissemination of nude photos of a female ex-employee who sued him. Picture taken July 7, 2014.
Reuters/Lisa Baertlein
The house that Dov Charney built.

The coming months will prove whether these steps are enough. Many of the operational changes are conceptually simple, suggesting American Apparel lacked the organization typically seen in such a large company. Some may only offer a limited boost. Will new designs help revive the brand when the vast bulk of its sales come from a static group of core products, for instance? On the other hand, new products could lure new customers into the stores, and the big changes that are planned, such as overhauling the e-commerce site at a time when shoppers are increasingly online, could be significant—if they work.

Labor cuts

The trimming has also extended to American Apparel’s workforce. In April it laid off 135 workers amid protests about furloughs and reduced hours. (Workers have also complained of harassment by security guards and management recently.)

Schneider says layoffs are regrettable but necessary as the company ”stabilizes.”

Schneider says layoffs are regrettable but necessary as the company ”stabilizes,” and that it can’t hit its targets otherwise. But she promises the workforce will grow as American Apparel returns to financial health.

“The whole idea, when I laid out the growth plan, if you’re going to get to $1 billion, you hire more people,” she tells Quartz. “It’s directly related to how much manufacturing time we have.”

Old and new

There can be no underestimating the scale of the challenge confronting Schneider, who weathered a $26 million loss in her first full quarter at the helm, must manage the business as it faces lawsuits from Charney and others who say he was fired in a plot to wrest control of his company from him, and continues seeing board members resign. Yet as she sets American Apparel on a new path, she has to make sure the brand preserves the qualities that established its name and won it fans in the first place.

That undeniably includes sexual provocation, which has always been part of the brand identity. Schneider says she wants to find a way to keep American Apparel’s grittiness while jettisoning those elements that were “totally over the line.”

“We became known for featuring naturally beautiful people who stand out on their own,” says Benno Russel, American Apparel’s branding director, who worked with Charney as an art director for years. “We’re now focusing on leaving behind the in-your-face content which at times has overshadowed our more complex, understated perspective on what is considered ‘sexy.'”

A slide from American Apparel's investor presentation
A slide from American Apparel’s investor presentation

The risk is producing something bland that incites no emotion at all, which is better than ads that exploit young women, but still doesn’t help sales.

But Schneider also recognizes the brand’s core is as much its commitment to fair-wage manufacturing in the US and social-rights issues, such as LGBTQ rights, as it is the sexualized marketing. That tension between the altruistic and sleazy has always been part of what makes American Apparel, for better or worse, more distinctive than many of its competitors.

“This brand is a really important brand. What was built here was amazing,” she says, crediting Charney.

Now the really amazing part would be to hit $1 billion in sales.

Read this next: American Apparel’s new CEO is taking the company back to (management) basics