Three Ways American Apparel Can Get Back to Profitability
It's no secret American Apparel (AA) has hit the skids. Making matters worse is the fact that the LA-based company said it's unable to make the filing deadline for its quarterly report with the SEC, the NYSE is threatening to delist the stock, sales are down, and -- thanks to cutting 1,500 staffers -- so is production.
So what's Dov Charney and company to do? Clean up their mess, stat.
Though it seems ridiculous for a chief who's built his business on sexual controversy in everything from ads to hiring practices, don't shovel dirt on American Apparel's grave yet. The company still has the ability to right the sinking ship.
Here's how:
Tidy the Balance Sheet
American Apparel is deep in debt and has mismanaged its paybacks. London-based Lion Capital helped AA pay off a $51 million loan from SOF Investment loaned, but just two months later the retailer fell out of compliance on Lion's loan covering its debt-to-EBITDA ratio. Things got worse when American Apparel's accounting firm quit. Deloitte & Touche LLP didn't want anything to do with AA's "material weaknesses in internal control" reflected in the dubious state of its books (think possible fraud).
The good news is that American Apparel is still (somewhat) appealing to investors. One in particular could be its ticket out of financial imbroglio. Back in June, Ron Burkle of The Yucaipa Cos. reported that he held over 4.3 million shares of AA, which amounts to a 6 percent stake in the company.
Though Burkle's got bigger fish to fry right now (he's currently locked in legal combat with Barnes & Noble's founder Len Riggio over whether he can take a bigger stake in the world's largest bookseller), the billionaire who made his fortune in the grocery business has more money to invest.
American Apparel would do well to woo Burkle into buying up a bigger stake and help pay down some of its massive debts. In this way, Burkle would be afforded the opportunity to dust off his own image, which frankly, could use some help given the mud-slinging in the publishing industry. By infusing his cash into an all-American enterprise, he'd enable AA to fill hundreds of empty positions (job creation!) and could emerge as a hero.
Clean Up the Clothes
Though it's probably against all book logic that a brand should change its core personality mid-stream, going from nearly-naked to buttoned-up preppy is a good move.
American Apparel's already experimenting with a clean cut style, yet this particular flavor of prep is definitely more mod than say, its Polo Ralph Lauren (RL) counterpart. That's a good thing. Despite Charney's proclamation that hipsters are out, what he's peddling -- especially for men -- is a kind of hipster, albeit one that came of age in London's swinging early 60s (think young Mick Jagger in pegged pants and a trim sweater). It's a look that's very au courant now thanks to the popularity of Bravo's series Mad Men. And while Jagger (like Charney) has always been an undisputed bad boy, even the squeaky clean Jonas Brothers are buying in. The market is ripe.
Sign Up a Celebrity Collaboration
American Apparel can take a page from that venerable purveyor of preppy threads across the pond: Fred Perry. Perry's been peddling its polos and above-the-knee shorts to generations of British devotees. Yet Perry's also cultivated an edge by promoting indie music on its site and in stores.
So when it came time to do a capsule collection with a celebrity, Perry inked a deal with Amy Winehouse. That beautiful wreck of a singer's been sporting Fred Perry threads for years (when she's dressed) and the signature beehive is just a finishing touch on a wardrobe that heavily references the Perry aesthetic for women.
To achieve a similar effect, American Apparel might want to cultivate a relationship with an American celebrity/singer, but perhaps one that's not been to prison (Lindsay Lohan's definitely out). But Katy Perry, now we're talking. A cross between a vixenish Betty Page and a sunny SoCal stylista, the pop songstress who made a name for herself crooning about kissing a girl with cherry Chapstick strikes the right balance between dirty and clean. Which is a good direction for the brand to move in. And she's already been spotted wearing AA apparel around town (pictured right).
Images via americanapparel.com and coolspotters.com
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