American Apparel Case Study Analysis

2236 words - 9 pages

Accounting for Decision Making
American Apparel: Drowning in Debt?
Case Study Analysis

Prepared by Group 7-section A:
Ambika Ravi Shankar - 14009
Ashish Sopori -14018
Ashvita Ganesh - 14020
Tamilarasi Rajappa – 14066
Pragadeeshwaran Selvaraju - 14075


American Apparel, is an American multi-national clothing manufacturer, distributor and retailer since 1988based in Los Angeles, California. Dov Charney, a Canadian business man was a founder and former CEO of the company. He was involved in nearly every part of the business process from design and manufacturing to marketing. The Ernst & Young named Charney Entrepreneur of the Year in 2004. He was also ...view middle of the document...

General facts about the company
1) American Apparel (NYSE: APP) is focused on growing by enhancing the number of stores, building good online sales platform, bringing new merchandise for the users and creating strong Information Systems to support Operations.

2) In 1997, it started expanding & establishing manufacturing units in South Carolina and Los Angeles, and as of today the apparel manufacturing operations have spread to 800,000 sq. ft. of facilities in the warehouse district of downtown LA.

3) Its controversial CEO, Dov Charney had been able to sustain the business, with continued borrowing at an exorbitant rate (up to 18%) and additional capital.

4) During 2009, a federal investigation turned up irregularities in the identity documents of immigrant workers from when they were hired. 2000 workers were terminated, leading to an inability to fulfill the demand.

5) As of Feb 28, 2014, the company had approx. 10,000 employees & 246 retail stores in 20 countries. The company has business in the United States, Canada, Mexico, Brazil, United Kingdom, Ireland, Austria, Belgium, France, Germany, Italy, Netherlands, Spain, Sweden, Switzerland, Israel, Australia, Japan, South Korea, and China. The company also operates an e-commerce website with 12 different localized online stores across the world.

6) In the apparel industry, the American Apparel’ faces stiff competition from the Gap, Urban Outfitters, American eagle, and Express.

Financial facts about the company
1) In the year 2008, the sales increased by whooping 40 percent as compared to 2007.

2) The operating profit decreased from $ 36 million to $3 million, a massive decrease of 92% in year 2009 and the net profit drastically fell from $14 million in 2008 to $1 million in 2009, a humongous downfall of 93%

For the first, time the company’s sales declined from $558 million to $532 million, a downfall of 5% in the year 2009. The operating income also fell from $24 million to a negative $50 million which was a significant drop in the profitability by exorbitant 300%.

3) Shattered by the losses and lack of liquidity, the money situation worsened by the first quarter of 2011, and the company stated that it might file a protection against bankruptcy under section 11.

4) The net loss restrained to $39 million in 2011 as compared to $87 million in 2010.

5) In year 2012, the company undertook efforts to upgrade the production forecasting and allocation system, which led to total net loss decreasing from $39 million to $37 million in the year 2012. The sales also started building up. The net sales of the company increased from $547 million to $617 million in 2012.

6) The company implemented two important strategic initiatives in the area of inventory management and the new distribution center in 2013. It also completed its RFID system and implementation of oracle, ATG web commerce application, for its e-commerce platform leading to significant increase of...

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