Case Analysis 4 - American Apparel PDF

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MGMT-703 Ethics and Stakeholder Management

Module 11 – American Apparel: Unwrapping Ethics Business Case Analysis

Executive Summary American Apparel is fashion clothing brand which was started in Los Angeles, California in 1998. The brand was known for knitwear like T-shirts and underwear, which targeted 20 years old and above young adults. It was founded by Dow Charney who is also the current CEO of the company. During 2012, the company has more than 10,000 employees internationally with around 253 retail stores and planning to open 50 more outlets by the year 2015. The firm has its all operational activities like marketing, distributing, and manufacturing was taking place in USA. American Apparel is known for promoting a positive labor support to their employees and a strong commitment to anti-sweat shop. Employees are provided perks like subsidized meals, free English lessons, on site massage and therapy and employee stocks option. With this, job security to its employees establishes low employee turnover. However, it was discovered that the company employed more than 2,000 illegal migrant workers, which were laid off by the CEO. On a positive note, he gave them the assurance of rehiring once they accomplished their legal immigration requirements. Moreover, American Apparel promotes and commits on environmentally friendly organization. They use organic cotton and recycled fabric scraps for their clothing materials, and solar power as an important source of power to the company’s factory. The company was also known for serving the society through the good deeds of charity, donating clothes and even raised money for the weaker section of the community. All these ethical actions justified the existence of American Apparel in the competitive industry. The company was pretty much successful in maintain a good reputation in the eyes of its stakeholders for a long period of time. The company’s marketing was unique and depicted bold side of fashion. The brand used real and non-edited pictures to showcase natural beauty in order to influence young adults. However, the company had a promotional plan change into sexy advertisement of young adults to compete with other firms. Photos and poses were inappropriate because it shows close to nudity. Hence, this was not acceptable by some of their consumers even though this type of advertisements is open in the US. Another internal challenge, CEO and founder Dov Charney stated that advertisements are unique, distinct, and modern which represents sexual freedom. As the photographer, Charney asked for full length self-photographs from its employees as a hiring requirement, used abusive language to address its subordinates and act inappropriately like flirting with his employees. In the year 2011, Dov Charney finally got convicted in a case sexual harassment, where he forced a 17-year-old teenager to have an intimate relationship once she turns 18. Later, he was charged with $250 million-

dollar lawsuit which ruined the brand image and reputation. Unfortunately, the case was terminated. The main problem of this case was the disconnection of American Apparel with its ethical initiative between their positive labor support and eco-friendly strategies, against its sexy marketing advertisement campaigns. To further analyze this case, the team used SWOT analysis to identify its internal and external strengths and weaknesses, and Fishbone analysis to determine the causes of the problems. This report recommends a company recalibrate its advertisement strategies into focusing more on ethical values and brand images. Also, the company should consider replacing the existing CEO since he was accused with sexual harassment that wasn’t able to get justice. Revising the company policy on advertisement campaigns should be formulated by the boards of directors. Lastly, the brand can hire ambassadors like celebrities which can boost the sales of the company and establish a positive brand image. As an implementation action plan, the team divided the recommendations to be executed immediately, within six (6) months and for long-term purposes.

TABLE OF CONTENTS Executive Summary, 2 Introduction, 5 Define the Problem, 6 Problem Analysis SWOT Analysis, 8 Fish Bone Analysis, 9 Identification and Evaluation of Alternatives, 12 Recommended Course of Action, 14 Action Plan and Implementation, 16 Conclusion, 17

1. Introduction

American Apparel is a fashion retail known for its basic wear namely T-shirts and underwear. Its marketing campaign was able to target 20+ young adult consumers who aims for natural beauty within their fashion style, without idolizing edited photo models. This marketing campaign resulted for consumer loyalty because of its simplicity. However, as fashion trends became more competitive, American Apparel started to change their advertisement to “saucy snaps” which was described to be closed to pornography. Thus, this marketing shift was unappealing to their customers and resulted to negative rapports. On a positive note, this fashion retail company promotes positive labor support and environment conscientious on their products. They have a strong anti-sweatshop commitment with their employees. They provide various employee benefits that are better than other firms within the industry, namely subsidized lunches and transport, and employee stock options. Moreover, the firm is highly environmentally friendly especially with the product materials by using organic cotton and recycled fabric scraps. However, American Apparel had a recent disconnection between their positive labor support and eco-friendly campaigns against their marketing shift plan strategies. Also, CEO Dov Charney is was accused with sexual harassment case by the firm’s employees and models. Unfortunately, the company is also facing a $120 million-dollar debt and laid off 2,000 employees due to immigration issues. With this internal situations, American Apparel’s brand image is at stake and their other stakeholders, as discuss below: Dov Charney - He is the founder and CEO of American Apparel. Under his management, the disconnection occurred. He was also accused of sexual harassment by his employees and models because of his inappropriate behavior. Employees – There are 10,000 American Apparel employees across globally. However, there were 2,000 employees that were laid off because their immigration conflicts but Charney promised to rehire them once immigration documents are fixed. Thus, there will be deficit of employees that would result current employees to work double jobs while waiting for the rehiring process. On the other hand, the company is on debt that may lead to company shut down, and these employees might lose their jobs too. Models - Existing and new models can experience sexual harassment because of Charney’s inappropriate behavior and he is the photographer of their current marketing advertisement campaigns. These models may require posing and revealing their body in line with American Apparel’s campaign of sexy collection.

Customers - Loyal customers are not satisfied about the marketing shift to sexy ad campaigns because it reveals too much that is described as pornography. This could lead to a decline of customers. American Apparel branches - In 2012, the company employed approximately 10,000 people globally and operated more than 253 retail stores in 20 different countries. With the current situation of the company, these branches can lose employees due to their immigration statuses and store shut down because of company’s high debt.

2. Define the Problem Problem 1. Disconnection between American Apparel’s social responsibility initiatives in labor and environmental practices against inappropriate advertising strategies. The company promotes a positive pro-labor support to its employees, antisweatshop commitment and environmentally conscientious strategies; however, they shift their advertising strategy to inappropriate images of women. Problem 2. A shift of promotional plan with images that showed sexual appeals to an extreme level, wherein ads were in the borderline of pornographic. American Apparel is known for advertising its slim-fitting, moderately priced, logofree clothes but they shift to promoting undressed women, aka “saucy snaps.” Problem 3. CEO Dov Charney promotes inappropriate language and behavior within the workplace like walking around in an unethical and unprofessional manner and flirting with employees. The CEO himself would recruit models from the streets of Los Angeles, and upon hiring, they were required to give full length, self-portrait images of them to him. Problem 4. CEO Dov Charney was accused a $250 million-dollar sexual harassment lawsuit because of his unprofessional behavior but all cases were terminated and settled outside of the court. A case was filed about a 17-year old girl, who was pressured by Charney to have

sex with when she turned 18. Also, there are several other employees alleged that he is keeping nude photos of the models and employees. Problem 5. American Apparel is facing a $120 million-dollar debt that could result to a collapse of the company. By 2011, the company confirmed its challenged on repaying its debt and the firm’s financial analysts were covering American Apparel’s story of the prediction of collapse. Problem 6. CEO Dov Charney laid off approximately 2,000 illegal immigrants in its factories. As Charney promised them he would rehire them once their immigration papers are fixed, by that time 2012, American Apparel only have 10,000 employees internationally and locally. Thus, it is almost 20% of its firm and there’s no guarantee those laid off employees will be back

3. Problem Analysis. a. SWOT Analysis Strengths

Weaknesses

Opportunities

Threats

American Apparel has been in the market for a decade since 1998, that is best known for its knitwear, and it's proud made-in-US idea. In 2012, the company have more than 253 retail stores in 20 other countries.

American Apparel do not considered the consumer's mind before designing the promotional plan of advertising casual views about sex.

The fashion retail industry is a wide-range business sector that is fast changing and easily adapted by the consumers.

Fashion industry changes its trend immediately and competition in very high.

American Apparel is known for promoting labor support practices involving immigrants and providing incomparable benefits like free lunches and transport.

The marketing advertisement shift on revealing young adult with sexy poses that are close to nudity.

There are numerous potential models that are willing to pose in sexy advertisement campaigns and famous who can boost the brand's image like celebrities.

Promoting a unique marketing advertisement campaign is a challenge in the industry.

American Apparel has a vertically integrated business process that minimizes using outsourced labor from the US and maintains all manufacturing activities internally.

CEO Charney was accused a $250 million-dollar sexual harassment claim by his employees and models because of his inappropriate behavior, but all those cases were terminated and settle outside the court.

Clothing retail collaboration is a trend in the fashion industry to maintain and sustain the brand image.

Knitwear category in the fashion industry is a very saturated market that would be difficult to create a competitive advantage.

American Apparel pushed to have $120 million dollars debt that are rumored to company closure.

Fashion sustainability with the use of eco-friendly materials are being promoted in the recent fashion trends and highly supported by consumers.

Consumers have different buying behaviors that can affect their preferences in fashion.

American Apparel promotes ecofriendly materials on its products, namely organic cotton and recycled fabric scraps. They also use solar power to conserved energy.

b. Fishbone Analysis Problem 1.

Problem 2.

Problem 3.

Problem 4.

Problem 5.

Problem 6.

4. Identification and Evaluation of Alternatives

1. American Apparel should recalibrate its advertisement strategies in an ethical way by giving more importance to the moral values of the society. Pros:    

It will help the company to retain its reputation and public image. Will attract more customers to the company. Helps the company to satisfy the needs of its stakeholders. Will help the company to increase its revenue.

Cons:  More careful studies about the market and society is needed.  The company needs to restructure its whole promotion strategies.  A financial burden to the company. 2. Avoid sexual contents and nudity from the advertisements. Pros:    

It will help the company retain its public image. The company can act in a socially responsible way. The company will get more viewers for its advertisements. Will help the company from legal consequences

Cons:  The company might lose the attention of some of its target groups.  The company needs to find new advertisement strategies, which consume more time and money. 3. The company should replace their current CEO Dov Charney and elect a new and ethically suitable one to that position. Pros:  The company will get new innovative ideas to come out of the present situation.  This will help the company to get a fresh start.  The company will get more support from the public and its employees.  It will give employees a safe and respectful working environment without Charney’s accused sexual harassment actions.

Cons:  The company might lose the support of employees who follows and supports Dov Charney’s vision and strategies.  If the replacement CEO cannot solve the problems efficiently, it will adversely affect the performance of the company again. 4. The board of directors of the company must concentrate more on the problems and issues happening in both inside and outside the organization. Pros:  The company can maintain a professionalism all over the system.  Will help the company to solve problems in a faster and regular basis.  Improves the overall performance of the company. Cons:  Lack of true information will cause problems internally.  It will take more time for the organization to solve the problems. 5. The company can add new brand ambassadors and celebrities in its advertisements instead of its own employees. Pros:    

This will create more positive publicity to the company. It will attract more customers. Generate more sales and revenues. It will create more opportunities and target customers to the company.

Cons:  A financial burden to the company.  This might create internal problems when the company replace its employees to celebrities in the advertisements. 6. The company should reconsider the practices in the selection of its employees. The human resource department should give extra care on the legal requirements before selecting an employee. Pros:

  

Increased employee retention of the organization. This helps the company to avoid legal consequences in the future. Reduce employee termination.

Cons:  Need more attention while collecting the required documents.  Chances of fraudulent activities such as the submission of fake documents to get the job. 7. The company should hire temporary/contract-based employees in replacement with the 2,000 employees who violated the immigration requirements. Pros:  It will provide a job positions for laid-off employees once they accomplished their immigration requirements.  Company will gain trust from the employees because they have the assurance of coming back. Cons:  Company will have to train new temporary employees again.  There will be no assurance that other laid-off employees can accomplish their legal immigration requirements.

5. Recommended Course of Action Recommendations Recommendation 1: American Apparel should restructure its advertisement strategies by giving more importance to the moral and ethical values.

Explanation and Rationale

The company needs a well-organized advertisement strategy which gives more importance to the moral and ethical values of the society and its customers. This will help the company to retain its reputation and public image.

Recommendation 2: Replace the company’s current The company must replace its current CEO and

CEO and elect a new one to the find a new one to the position as the immediate position. step to solve the present problems facing by the company. This will help the company to get a new leadership and effective solutions for its problems. Recommendation 3: The company must avoid the The company should respect the moral values of contents of sex and nudity from the society and create advertisements its advertisements. accordingly. This will help the company to get more attraction from the market to its advertisements and also the company can keep its public image in a responsible way. Recommendation 4: The board of directors of the The board of directors must give proper attention company should properly monitor to the company’s policies and strategies and take the issues facing by the company. instant solutions to the problems facing by the company. They should find out the reason behind the problems and act immediately to avoid the further consequences. Recommendation 5: The company can restructure its marketing and promotional activities by adding brand ambassadors and well-known celebrities in their advertisements.

This will highly influence the customers and helps the company to get increased sales and additional revenue to the organization. This act can also help the company to sort out its current problems.

Recommendation 6: The company should fulfill all the It is necessary that the company should check legal requirements before and verify all the documents like the current selecting an employee. status of the applicant to know whether he/she is eligible to work or not, background check and police verification. This will help the company from future legal consequences.

6. Develop an Action Plan

Immediate Actions:    

Replace the current CEO Dov Charney who have faced sexual harassment lawsuit. Eliminate the database of CEO who is accused of keeping sexual and nude photographs of models and employees. Change the company's existing workplace ethics and inculcate a code which matches with the societal morality. Remove the existing advertisements which includes sexual contents.

Short Term Actions: 

     

The management including CEO, supervisors and managers will take initiative to get trained on getting confidence and motivation to address unwanted behaviors happening inside the company before they escalate. Give training to the employees and management about professional and ethical workplace behavior. Provide training to employees for professional communication skills at workplace. Implement dress code policy for employees and authorities which will restrict them to be in workplace in unethical way. Will encourage the staffs to report any kind of unwanted behaviors they face from the colleagues. Will bring in new celebrities and models for new advertisements. Take down advertisements which included company employees.

Long Terms Actions: 

Set up a timely professional behavior evaluation for all the employees which will assess and ensure their good workplace behavior.

  

Conduct behavior assessment test before hiring new employees. Implement strict actions taken against workplace harassment. Focus more on environmental conscious clothing and give more importance to

  

pro labor policies. Will stop t...