Out of Style
American Apparel’s Millennial Crisis—Could It Come Back From the Brink?
Young consumers aren’t buying what American Apparel is selling—but filing for bankruptcy isn’t necessarily the end for the store.
Few people were tearing their fuchsia halter leotards or their “lapis” blue spandex mini dresses in mourning at the news on Monday that American Apparel had filed for bankruptcy.
American Apparel isn’t dead quite yet.
The Chapter 11 petition provides a layout for “secured lenders to reduce the retailer’s debt through a process known as a debt-for-equity conversion, where bondholders swap their debt for shares in the company,” The New York Times reported.
The company reported a loss of $19.4 million for its latest quarter, Forbes reported—though it said its 200-plus stories would remain open.
Still, this sounded like another death knell of a once-edgy, then more latterly scandalized company.
That is mostly down to the actions of Dov Charney, American Apparel’s founder, who a female reporter said had masturbated in front of her, and who allegedly forced female employees to perform oral sex on him.
He was finally ousted in 2014 after an internal investigation revealed that he did nothing to stop an employer from posting naked photos of an ex-employee who had filed a suit claiming Charney had forced her to perform sex acts.
Of course, there was also American Apparel’s “controversial” advertising—a great catch-all descriptor for the many examples of merchandising strategies that were offensive in a host of different ways.
There was the “Made in Bangladesh” topless model ad.
In fact, the retailer relied heavily on ads where women were wearing very little of American Apparel’s clothing. Adding to the distasteful marketing, in the wake of the many fatalities and massive wreckage of Hurricane Sandy, American apparel attempted to turn a profit with a special online discount, SANDYSALE.
Despite its many attempts to brand itself as progressive, American Apparel has failed to hold the financial interest of the latest generation of consumers.
For all the mannequins with pubic hair and T-shirts with masturbating, menstruating vaginas, millennials offer a little more than a shrug for American Apparel.
“It was cool around 2005 when I was in high school because it was somewhat different, but it’s not like other companies that change every season. American Apparel always has the same T-shirts,” Andrea Koenker, a friend who is a 26-year-old nonprofit fundraiser in London (who grew up in California), told The Daily Beast.
Anecdotally, I haven’t noticed any significant differences in American Apparel offerings since I walked into one in 2009 to buy a red spandex halter dress for a Halloween costume and then again this year to try their very high-cut bathing suits.
“It’s not that they [American Apparel] have changed. The customer has changed, and it hasn’t kept up with producing new things the customer would be interested in,” said Paula Rosenblum, the co-founder and managing partner of Retail Systems Research, a retail industry research group.
American Apparel’s style is pretty static. That could be problematic for any retailer, but it is especially so for one that targets a specific demographic—and especially a young one.
“They really haven’t changed their store design or their product,” said Steven Frumkin, the Fashion Institute of Technology’s dean of the School of Business and Technology.
“They started with a customer base much younger than the 25-35 age group, but that’s where their customers are today. American Apparel stayed with that age, but the people in that category matured and moved out. The 17-year-old who shopped from them eight years ago is now 25. The company never followed the customer as it got older.”
“The millennial customer is a different customer from what Charney envisioned,” Walter Loeb, the president of Loeb Associates and former senior retail analyst for Morgan Stanley, told The Daily Beast.
Loeb likened American Apparel’s situation to that of Benetton, another clothing company that was once considered the height of cool with the young’uns but failed to last.
In the 1980s, “Benetton was highly visible in many quarters of New York City the way American Apparel was. Teamed with Levis, it was the uniform of the day,” Loeb recalled. “But time moved on, and Benetton did not keep pace. It lost its customers as American Apparel has lost theirs.”
It’s not the American Apparel’s original customer base may have aged out of its teal unitards and leopard-print bodysuits. The age-appropriate consumer of today doesn’t want what American Apparel is selling—or at least not for its price.
“H&M has the exact same clothes, and it’s at least $30 cheaper. American Apparel is a rip off,” my 18-year-old cousin Shayna Gutcho chimed in on Facbeook when I solicited opinions about the retailer.
“The stuff is pretty basic when push comes to shove. You can probably get similar items at Walmart, Target, and Costco. I would imagine Old Navy has taken away from their profits, too. You could say their stuff is better quality than Target or Old Navy, but if you’re not going to wear it for five years, then what’s the point?” said Rosenblum.
“At the time when American Apparel was cool, its customers were willing to spend [on these basics]. But today’s customers are much more budget-conscious,” said Rosenblum.
It’s no secret that fast fashion stores, which are characterized by relatively cheaply-priced garments and fast style turnovers (sometimes, only a manner of weeks), are ruling retail. H&M, Forever21, and Zara are succeeding while former U.S. teen mainstays American Apparel, Urban Outfitters, and Abercrombie and Fitch are faltering.
“The millennial consumer is one who doesn’t want to spend,” said Loeb. “Maybe they’re afraid they won’t have a job. They’re going to Forever21 and H&M. They have stuff you can wear three times and not worry about throwing it away. It may fall apart, but the look is terrific—or it is, presumably, while it lasts.
While millennials aren’t necessarily driving the fast fashion boom, their behavior as consumers meshes well with these retail offerings.
Many studies indicate millennials are quite frugal. But that doesn’t mean they are simply cheaper.
“What we are seeing is a divergence between thrifty fashion spending and the attainable indulgence, even from a single consumer,” Jason Dorsey, the CEO of the Center for Generational Kinetics, explained to The Daily Beast in an email.
His organization has been researching the consumption patterns for millennials. They’re not necessarily easy to categorize because they are cautious, but they are also willing to make a reasonable, occasional splurge.
“A Millennial consumer might buy four fashion items for a total of $60 but then hold out for that one great item at $99. We’re seeing that they would rather do this than spend $159 on a single item,” Dorsey said.
In other words, millennials want their basics for cheap, but they are willing to spend when a fashion item is unique and special. “We also know that Millennials love boutiques, locally-owned fashion options and more artisanal type fashion rather than anything that feels mass-merchandised or something you’ll see ten times when you go out on a Friday night,” said Dorsey.
Despite these problems, experts haven’t ruled out an American Apparel comeback quite yet.
Rosenblum said American Apparel has an advantage as the largest manufacturer of apparel in the U.S. With its clothing source in relative close proximity, she argued American Apparel could adapt to the fast fashion model.
“They have the bones of a good fast fashion retailer,” she said. “I think there’s probably a place for the store if they’re clever with their store design strategy. They need to improve the merchandise mix, so they have more on-trend products.”
It will be up to Charney’s successor as chief executive, Paula Schneider, to make these massive changes if American Apparel is to survive.
“I don’t know what she’s going to do, but she better do it quickly,” said Frumkin.