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

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2 PRAD 555 Professor Rajul Jain October 12, 2015 I. Introduction Made in the U.S.A.: A Media Audit of American Apparel 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 5 th 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, P a g e

3 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 5 th through October 9 th. 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 5 th. 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 2 P a g e

4 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 3 P a g e

5 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. 4 P a g e

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