Will poor management decisions mean the end for American Apparel?
You’ve probably heard of American Apparel, the Los Angeles-based clothing manufacturer and retailer that’s so popular with the kids these days, they of the semi-controversial billboard advertisements and almost-certainly-controversial CEO Dov Charney. Well, maybe you haven’t heard just how much many commentators dislike the company.
If it’s not their ads, which may or may not exploit their young female employees, then it’s their practice of hiring only a certain type of person (viz. young, attractive, fit, hip and female) to work and manage their stores. Of course we mustn’t forget the allegations that their “sweatshop-free”, “Made in downtown L.A.” image might be supported by cheap and possibly illegal Mexican immigrant labour, and the company’s ambitious expansion, which sees several stores open in close proximity and proceed to cannibalize sales from one another.
The latter charge is why Jezebel, an online magazine that seems to have a particularly strong distaste for the company, recently claimed “American Apparel’s bankruptcy is inevitable“. The article cites AA’s sales reports, finding that despite overall sales growth, “same-store” sales declined every month in 2009. In other words, while the company’s retail expansion has led to higher sales overall, sales at individual stores are steadily declining. Add in the costs of expansion—building, hiring, marketing, etc.—and Jezebel thinks AA is on a course for ruin.
The company’s former external auditors Deloitte & Touche seem to feel the same way. The auditing firm quit AA after finding “material weaknesses in internal control over financial reporting” and that the company “hadn’t maintained effective internal control over financial reporting” as of the end of 2009.
For the time being, American Apparel is still kicking; I doubt customers have noticed much of this in stores. We’ll just have to wait to see the result of these questionable management practices.
Still, I think companies can learn a number of valuable lessons about running a business from the case of American Apparel:
- Avoiding lawsuits may be as easy as keeping your pants on
- Accounting and financial reporting are best left to professionals
- Sometimes it’s best for executives to stay out of the spotlight
- Can you say “discriminatory hiring”?
- Don’t let frivolous initiatives get in the way of meaningful foundational principles (in this case, for example, rapid expansion vs. “Made in USA”)
- Controversy can work to draw attention to a brand or company, but it’s only an overarching business strategy like poutine is a meal (hint: it’s a side)
First Reference Human Resources, Internal Controls and Compliance Editor
Maybe if Mr. Charney had looked through Finance & Accounting PolicyPro (FAPP) from First Reference, he would have made some different decisions along the way. FAPP offers advice and sample policies on everything from General accounting procedures to Internal controls and Reporting. But he might have gotten the most out of the Governance volume which covers Ethics and business conduct, the Role, rights and responsibilities of executive officers, General management, Public relations, Risk management, and much more.
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