American Apparle-Marketing Plan by Caitlin Williams

American Apparel  Marketing Plan – Designer Collaboration Initiative Carolina Kim Astrid Hyland Caitlin Williams Madison White Manon Audibert

Table of Contents: I. Company Description II. Business Mission III. Marketing Objective IV. Situation Analysis A. Industry Analysis B. Perceptual Map C. SWOT Analysis V. Marketing Strategy A. Target Market Strategy B. Marketing Mix a. Product b. Place/Distribution c. Promotion d. Price VI. Implementation, Evaluation, and Control A. Marketing Research B. Organizational Structure and Plan C. Financial Projections D. Implementation Timetable E. Summary

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I. Company Description American Apparel is a clothing company, founded in 1997 by CEO, Dov Charney. Originally, American Apparel was a wholesale company manufacturing basic clothing essentials, such as cotton tee shirts and sweatshirts. American Apparel is well-known for their vertically integrated manufacturing system. This means that all the constituents for manufacturing their product reside in the downtown Los Angeles, California American Apparel factory. Unlike many other clothing manufacturing companies, American Apparel does not outsource to other parts of the world; everything is made in the United States. Recently, there has been a decrease in sales at American Apparel. This is where the Designer Collaborated Initiative will become a crucial part to maintaining sales and building momentum, as well as overall image. The Designer Collaborated Initiative is a concept that brings chosen American based designers to create seasonal collections keeping in mind the American Apparel aesthetic. II. Business Mission The Designer Collaborated Initiative is committed to enhancing American Apparel’s image and encouraging sales. It will strive to rediscover the essence of classic products by choosing fresh, creative minds to design fashion forward garments that will appeal to the American Apparel customer. We will follow in suit, as American Apparel currently does, with the vertically integrated manufacturing system, making all the clothes in the United States. This means continuing to promote industry standards of social and environmental responsibility in the workplace. The initiative will target the individual who wants more out of their garment; a special, exclusive item that was made based on their wants and needs. We strive to discover new and upcoming designers who follow the American Apparel aesthetic and style in addition to working to enhance the Made in America concept. III. Marketing Objective The marketing objective is to enhance American Apparel’s image and sales by collaborating with outside designers to create exclusive fashion designs. These collaborations will continue with the aesthetic that American Apparel proudly offers, but provide a surprise to appeal to new clientele. The individual designers will be upand-coming designers chosen from the United States, to carry on the company ideals of “Made in the USA”. These designs will only be available for a limited amount of time in an exclusive set of stores, and there will be a limitation on the number of articles produced and sold. This will give the customer a feeling of exclusivity and distinction from other shoppers. American Apparel has an image of very simple clothing that can be individualized to fit the certain consumer’s personality and lifestyle. The new exclusive lines, although they will be much more

stylized and detailed, will continue with the American Apparel mentality of individualism so that customers are able to show off their personal style. IV. Situation Analysis American Apparel is a vertically integrated manufacturer, distributor, and retailer of branded fashion basic apparel. Over the past year American Apparel has seen a decline in sales, many stores have a closed and a poor internal image has left many customers with a bad taste in their mouth. According to the 2012 American Apparel income report sales of April, May and June of 2012 net sales dropped $15,272. With a total of 249 retail stores in the United States, Canada as well as eighteen other countries it has been very difficult to keep them all in business and running successfully. American Apparel has been bringing about new lines including face and skin care, changing and strengthening their image, and expanding to new countries, to promote and revamp the store and it’s sales. This shows that American Apparel is ready to change and embrace a new consumer and target market and is a perfect time to implement the new exclusive outside designer collaborations. A. Industry Analysis Trends: Our target market loosely follows trends, always aiming to showcase their personal taste over what is most popular on the runways. The exclusive collaborative designer collections will follow along with the current trends, but will most importantly follow the ideals and design aesthetics that American Apparel so proudly offers. American Apparel garments are notoriously clean and simple. They are made in this way so the customer is able to show their personality in styling the certain article of clothing. The new exclusive lines will be more embellished, more detailed, and of course more unique. However, they will most importantly always carry the key concept in American Apparel’s brand: they can be made to fit into one’s own personal style. Customer Profile: American Apparel has a unique and specific target market: females ages 18-30 with very distinct beliefs and views. One of their most important views is purchasing, and even sometimes going out of their way to purchase, items that are made locally. Because American Apparel’s items are all one hundred percent made in the United States, this store is a great fit. These customers are usually more liberal in their choices and do not regularly follow the “normal” thing to do. When it comes to fashion, while trends are still important, it is mostly all about displaying their personal style. This is something that American Apparel takes great strides to achieve. Creating simple and well fitting garments with a solid lifespan that can be added to any outfit to make it unique, is key for American Apparel’s image. This is something that the collaborative designer lines will continue with, while still adding uniqueness and style.

Competition: By looking at the perceptual map generated, it can be seen that there are other stores who have added outside designer collaborations. This is not something new, and in many areas, is actually becoming increasingly popular. Similar ideas can be seen today in stores such as Target, H&M, and even small town boutiques. When looking at the six other stores plotted on the perceptual map, it can be seen that, yes, we do have competition. But, it is competition that we feel that we are able to beat. There are other stores with lower cost and lower trend conscious clothing, such as Target and Macy’s, as well as stores with much higher prices and more fashion forward clothing such as Topshop and H&M. By plotting these stores on the perceptual map it can be seen that there is an opening for trendsetting fashion collaborations with reasonable price tags. This is the spot that American Apparel will be able to fill. The ability to reach out to customers in want of locally made, trendy, affordable clothing that also has the ability to be transformed by the customer’s own personal style will push American Apparel over top of the competition. B. Perceptual Map

The perceptual map shows six stores that have done similar designer collaborations, as American Apparel would like to do. The stores are plotted within their price range and target market. It can be seen on the graph that there is an opening around the area of a medium price and more fashion conscious target market. Finally, this graph shows that a collaboration of this kind with American Apparel could be very successful. C. SWOT Analysis Strengths: • Founder, Dov Charney is very knowledgeable about the industry, especially in regards to the vertically integrated manufacturing concept. He is personally and financially dedicated to the business and making it a success. • Unique and exclusive style. • Customer base trusts American Apparel to perform consistently with the type of clothing being manufactured. • Maintains a solid and distinct target market. • All articles of clothing are manufactured in the United States creating jobs and bring back the concept of “Made in America”. Weaknesses: • May be considered “too unique”, which limits the size of the target market. • The garments are sometimes too focused on a certain type of clientele. • The advertising campaign can be considered too “risqué” and “overly sexual.” • Images associated with the scandals of Dov Charney. • Most of the advertising seen is strictly focused on print and Internet ads. • Can say that American Apparel has lost their edge by focusing too much on specific and ultimately non-important aspects. • Due to the fact that the products are manufactured in the United States, the cost per garment is elevated, causing retail price to be higher than that of some of the competition. Opportunities: • Appeals to their target’s trends, meaning customers can easily adapt their personal styles to what American Apparel has to offer. • Gives the clientele the opportunity to discover and explore other new designers. • Gives new and up-and-coming designers a chance to promote themselves and make them better known. Will also perhaps open doors for other opportunities. • Sweatshop free and vertically integrated concept can help leverage against other companies that may be a competitive threat. • By promoting the designer collaborated initiative, this will also help promote other American Apparel products by pairing them together. Threats:

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Many people consider American Apparel too expensive for the products they provide. Competitors, such as Target and Macy’s, are likely to have a larger target market. It may be more difficult to lower prices at the current state due to the “Made in America” initiative. Consumers and target market not responding well to the chosen designer.

V. Marketing Strategy Consumer Profile: • 18-30 year olds, more directed at females • Liberal • Outgoing, Free-spirited • Yearly pay – $25,000 • Enjoy the organic, sustainable lifestyle • Transportation - Public transportation, bikes, motor scooters Consumer Persona: Wren wakes up at 7:30 am in her studio apartment most mornings to take the perfect “golden moment” photos. For breakfast, she usually grabs a quick bowl of granola, yogurt, and fresh fruit. Before she leaves, she takes a green tea in her reusable loose-leaf tea glass, puts it all in her 2-year old Timbuk2 satchel and jumps on her fixie. She arrives for her first shoot of the day at one of her favorite spots, the Portland MetroArea Farmer’s Market to take photos for a spread in the “Edible Portland”, the local downtown magazine. She looks forward to her next photo-shoot at a music festival an hour outside of town. When Wren isn’t shooting for work, she also works as a part-time model for small businesses in downtown Portland. After a long day of work, she likes to have dinner with her closest friends at a small Thai restaurant. She likes trying new restaurants, especially more exotic and international, but also remains loyal to her favorite spots. After dinner, one of the things she looks most forward to is curling up into bed, with a favorite book and her rescued dog. Even though Wren doesn’t set out to look like one of the typical, overblown, “fashionistas”, she does enjoy looking her best. This means she loves finding unique clothing around town, especially at vintage shops where she knows the owners well, to mix with her classic and versatile American Apparel pieces. In high school she worked at American Apparel, and since has remained loyal to the brand, loving the “Made in America” concept. A. Target Market Strategy Reasons for Designer Collaborations:

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Financial Success Collaborations have seen more than a 40% annual growth since the last decade (Anthes). Reinforce Brand Equity It is important for brands to reinforce customer-based brand equity because, as a result, consumers respond favorably to the brand’s qualities, “identify the brand as a reflection of their main preferences, and consequently buy the product and commit to the brand – creating competitive position advantage” (Anthes). Create Brand Value B. Marketing Mix a. Product

American Apparel’s Designer Collaboration Initiative is essentially a project to promote a new image for the American Apparel brand and to retain customers, while approaching new clientele, and especially to enhance current sales. On a 2 term seasonal basis, designers will be chosen to create a line of clothing in collaboration with the American Apparel aesthetic. The designer selected will, generally, be an up-coming designer from the United States. Each clothing line will run for 2 ½ months, but will not be restocked if all garments are sold out. This is to keep an “exclusive” trademark that comes with each designer collaborated line. All clothing created will be made in the United States at the American Apparel factory, located in downtown Los Angeles, California. This will continue to promote American Apparel’s local manufacturing system, also known as vertically integrated manufacturing. Initially, the designer collaborated initiative will be featured in select stores in the United States. The collections will also be available online at www.americanapparel.net. Chosen Stores: PHASE 1: Los Angeles, California (Flagship) Manhattan, New York (Flagship) PHASE 2: Austin, Texas San Francisco, California Chicago, Illinois Atlanta, Georgia Boston, Massachusetts The chosen stores, we feel, will best support the concept, due to their demographic location and overall target market. We feel that it is best to begin with a small number of stores, to see how profitable the concept is before expanding to other

stores in other locations. In addition to the chosen stores, the designer collaborated clothing will also be featured online where customers can buy directly from the site. The designer that we have chosen to kick off the designer collaborated initiative is Amanda Vaughn-Redmon, an up-and-coming designer. She graduated from the Savannah College of Art and Design in 2005 with a BFA in Fashion Design. Soon after, she was designing women’s clothing for Urban Outfitters. She was chosen as the first designer for the Urban Renewal line; Urban Outfitters’ recycled fashion project which includes handcrafted pieces made from vintage, dead stock, and surplus materials. Her job at Urban Renewal was to work with knits and woven vintage fabrics and fabricate the into “new” eco-chic garments. In 2010, after six years with Urban Outfitters, she broke away and began her own line “Formation” based out of Winston-Salem, North Carolina. Amanda describes her style of designing as unorthodox; therefore, she is not conformed to a certain aesthetic or way of designing. She often designs through experimentation with asymmetrical shapes and through the response of her fabrication and drape. These traits are very evident when viewing her designs. Most of her collection consists of clever color selection and design manipulations. Amanda has now opened her own flagship store in North Carolina and does freelance work with companies such as Belk and Birkenstocks. b. Place/Distribution There are two ways in which the garments will be distributed to the customers. These are through the online store and through select store in the United States. As mentioned above, 7 locations of stores have been selected to feature the designer collaborated lines. This promotes a more exclusive distribution channel. As well, the lines will be featured on the American Apparel online shopping site, however maintaining an online nation-wide distribution. c. Promotion The promotion initiatives to promote the designer collaboration concept will appeal to a mass market. The chosen locations of advertisements and promotion vehicles have closely been selected to attract American Apparel’s current clientele, as well are public enough to draw new customers who enjoy designer collaborations. Budget: $1,000,000/collection • Nylon Magazine Print Advertisements – 1 Black and White ad: $17,530 (Resources for Entrepreneurs) • Catalogue: 12-pages, 5,000 count - $3000 (Color Printing Central) • Social Media Outlet: per month - $1,280/ social media intern • Subway Platform: 1-month – $40,000 for 200 stations (New York Magazine) • Advertising on the American Apparel Site Nylon Ads: One year, total of 4 ads – 2 ads/release of each line.

January/February: Ads are released and line launches in March for the Spring/Summer Line. September/November: Ads are released and line launches in October for the Fall/Winter Line. Phase 1/collection - $35,060 Phase 2/collection - $70120 Catalogue: 10, 000 catalogues ordered total for each line. 50 catalogues to be distributed to the 143 American Apparel US stores. 2,850 catalogues left that can be mailed to customers through the American Apparel website. The catalogues will be launched with the launch of the line, thus every March and October. Phase 1/collection - $6,000 Phase 2/collection – 12,000 Subway Ads: 2 months worth of Subway advertisements – 1 month prior to line launch, and 1 month into the line launch, advertisements will be displayed. Social Media: $15,360 yearly salary for a social media intern, ($8/hour, California’s minimum wage). Phase 2 – New Promotion Techniques to add to the Promotional Mix: $2,000,000/yearly - Bus shelters and online American Apparel advertisements, through Facebook pages, social media outlets and other fashion-related sites. In regards to promotional techniques to get the consumers interested and excited about the product, two main ideas have been chosen to cover these needs. Firstly, there will be a student discount of 20%, with proof of student identification, the first launch day of the line, a point of purchase discount. This means during the store’s hours, 20% will be taken off the total price of a garment purchased within the designer collaborated line on the first day the line is presented. Secondly, throughout the duration of each designer collaborated line, free express shipping (overnight shipping) will be awarded to students, with a valid student email address, on all online purchases, as long as a piece from the designer collaborated line is included within that purchase, on the first day of the launch of the line. Free express shipping will only cover orders shipped within the United States. d. Price The price points for each garment sold have been closely identified to keep the current American Apparel clientele satisfied, while also maintaining current price forecasts, as well to enhance overall sales for American Apparel. According to the data and surveys, customers will pay a premium price for garments that are associated with “exclusive” or “limited” labels. An opinion according to a thesis done

by Laura Anthes states that, “people do not need more clothes but the exclusivity of the collaboration, the limited edition, and the thought of it being a once in a lifetime opportunity generates the desire to buy.” Price points will be determined based on the overall, average price of the garments already sold at American Apparel. The markup should be roughly $10-30 more than the average garment. For instance, if an average shirt costs $20, then a designer collaborated shirt may cost anywhere between $30-50. This is taken on the same strategy H&M used for their designer collaborated line with Karl Lagerfeld, where products were approximately 15% of the price of standard designs.

Cost of Average Garments: (note – 75% markup) Garment:

Blouses Pants Dresses Skirts Jackets Coats

American Apparel Average Garment Price ($): 52 68 51 55 85 108

Average Designer Collaborated Garment Price: ($) 68 85 98 85 125 160

Average Cost of Garment Manufacturing ($): 7 21.25 24.50 21.75 31.25 40

VI. Implementation, Evaluation, and Control A. Marketing Research Target: Go International Designer Collaborations – Price Range of Products: Designer Collaboration: Rodarte (December 2009) Jean Paul Gaultier (March 2010) Zac Posen (April 2010) Missoni (September 2011) Jason Wu (January 2012) Neiman Marcus (November 2012) Prabal Gurung (February 2013)

Price Range ($): 9.99 - 79.99 17.99 - 199.99 16.99 - 199.99 2.99 - 599.99 19.99 - 59.99 7.99 - 499.99 12.99 - 199.99

B. Organizational Structure and Plan C. Financial Projections

Revenues Advertising Expenses

Designer Commissions

Promotional Discount Expenses

Cost of Production Net Profit

2013 2014 $33,690,000 Catalogues: $67,380,000 10,000$6,000 NYLON ad (2x per collection,1): $35,060

2015

2016

2017

$47,240,000

$73,591,000 $87,639,000

2.5% of revenue from collection ($855,000) $140,240

$2,000,000

$8,437,500

6% of revenue from collection ($4,042,800) $325,600

6% of revenue from collection ($2,834,400) $353800

6% of revenue from collection ($4,415,460) $353800

6% of revenue from collection ($5,258,340) $353800

$23,257,260

$16,875,000

$16,875,000 $16,875,000

D. Implementation Timetable The designer collaborated initiative collections will be released two times per year: Spring/Summer and Fall/Winter. 2012: Planning -Designer plans & choosing pieces for collection 2013: Phase 1 -Produce garments & prepare for fall launch -Fall, launch preliminary designer collaborated initiative collection in flagship stores: Manhattan and Los Angeles. 2014: Phase 2

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-Spring, launch second DCI collection in the original flagship locations along with five additionally planned stores: Los Angeles, Manhattan, San Francisco, Atlanta, Boston, Chicago, Austin. E. Summary

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VII.

Indices

Research: • “One of the most important factors is the target audience and their expectations, which are also related with the four P’s of the marketing mix (Pickton & Broderick, 2005). For example, in H&M’s case it was discovered that it is important to price co-branding collection accordingly consumer’s expectations. If the collection’s price range does not reflect consumers’ anticipations, the consumer will perceive a lower price-value for the collection – reflecting then in bad reviews and negative sales.” – Fashion Co-Branding: A Case Study of Successful Co-Branding Factors from a Social Science Perspective by, Laura Anthes <pure.au.dk/portal-asb-student/files/.../Laura_Anthes_Thesis.pdf>

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“H&M has had a long list of collaborations, ones more successful than others. After having applied Helmig’s et al. (2008) modified model to some of H&M’s cases some significant findings can be identified. On the one hand, it is noticeable that if most of the factors that characterize successful collaborations are covered, it could lead to success. On the other hand, it was discovered that some collaborations failed because H&M misjudged consumers’ predilections – for example in the case of Marimekko. Consumers are willing to pay the “extra price” for design and quality. If collaboration is missing one or both of these features, the co-branding case most likely will fail. – Fashion Co-Branding: A Case Study of Successful Co-Branding Factors from a Social Science Perspective by, Laura Anthes <pure.au.dk/portal-asbstudent/files/…Laura_Anthes>

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“Despite concerns that the commonplace appearance of designer names at stores like Macy’s, Khol’s, Wal-Mart and even Payless ShoeSource would eventually lead to shopper fatigue, such collaborations are proving to be both a reliable business model for retailers and a business in themselves. And designers, even those who have far less name recognition than Ms. Versace (H&M), are finding these collaborations to be increasingly lucrative. While few details about financial relationships have ever been made public, the typical fees paid to designers have generally more than doubled over the last five years, according to several participants in recent deals, though each seems to follow its own rules.” – A Marriage of Economic Convenience by, Eric Wilson for The New York Times <nytimes.com/2011/11/17/fashion/designer-retailer-union-remainslucrative.html>

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“To hear it from designers, these collaborations offer a fast infusion of cash while helping to expand their awareness and making them seem almost populist in the eyes of many consumers. In the early days of fast fashion, retailers needed a big

name to entice consumers, but consumers are now much more aware of a broad spectrum of designer names. Perversely, selling clothes at Target has become a status symbol for up-and-coming designers.” - A Marriage of Economic Convenience by, Eric Wilson for The New York Times <nytimes.com/2011/11/17/fashion/designer-retailer-union-remains-lucrative.html> •

“Fashion tycoon Sir Philip Green has pledged to help more young people get ahead in the designing and manufacturing of clothes…He said, “Now more than ever it is important that we continue to help develop all the young talent we can”…”We are ourselves manufacturing more goods in the UK these days, and if we can help get more capacity here, I believe those retailers will tell you there is now opportunity to be competitive and produce in the United Kingdom.” – Topshop Tycoon in Drive to get Young People into Clothes Manufacturing by, Jennifer Cockerell for The Belfast Telegraph < http://www.belfasttelegraph.co.uk/business/business-news/topshop-tycoon-indrive-to-get-young-people-into-clothes-manufacturing-16119930.html>

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“Topshop believes that creative input is the key to staying fresh…Topshop is the single biggest supporter of young fashion talent in the UK, and its carefully selected sponsorship arrangements are an important aspect of its promotional strategy, not only helping create the next generation of style gurus, but also adding credibility and authenticity to its brand in the eyes of consumers.” – Topshop Tycoon in Drive to get Young People into Clothes Manufacturing by, Jennifer Cockerell for The Belfast Telegraph < http://www.belfasttelegraph.co.uk/business/business-news/topshop-tycoon-indrive-to-get-young-people-into-clothes-manufacturing-16119930.html>

• Survey Monkey Questions: 1. What is your age range? - Under 20 - 20-30 - 30 and Up 2. How much money do you spend on clothing each month? - 10-50 - 50-100 - 100-200 - 200+ 3. How much money would you spend on a single article of clothing? - 0-45 - 45-75 - 75-125 - 125-200

4. Where would you prefer to shop? - Target - Forever 21 - Urban Outfitters - Free People 5. Do you, or would you go out of your way to shop at a store with outside designer collaborations? - Yes - No 6. Will you, or would you spend more money on an item that was manufactured locally? - Yes - No

Interviews: Amanda Vaughn Redmon, Freelance Designer 1. What is your design aesthetic? My design style/aesthetic has always been pretty consistent: I love asymmetry, drape and mixing fabrications in my work. I tend to also stay with a warm/dark color palette. 2. Having designed for Urban Outfitters, how is the experience of designing for a company that might have certain regulations versus your own personal line? When designing for a corporate company such as Urban, you can expect to design "in the box" to a certain extent, because there is a certain customer base that the company has built their "aesthetic" for. Luckily Urban also gave me the freedom to express my imagination through my designs at the same time. There was definitely a balance. Designing for my line is more challenging at times, but the reward is greater, as I can make my own decisions when it comes to the concept. 3. Did working for Urban Outfitters open doors for other new opportunities? Most definitely! I had several companies reach out to me during my time at Urban, and I have made some amazing connections in the industry over time as well. 4. Any other suggestions for other designers that might be interested in design for American Apparel? This one is hard, because I have never been a huge fan of the company. They are good for basics, but I think they have lost their edge and the "thing" that made them stand out when they first got big. Not only that, but I feel that designing for AA would put me in an even smaller box, when

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it came to design freedom. 5. How would you feel partnering with American Apparel due to the problems and images associated with the company? I think partnership is what they need right now, actually. Reaching out to other big name designers for collaboration projects would be good for them, and might bring them back. 6. How much money on average does it take to design a collection? That would depend on several factors: How many styles there were, the quality of the fabric, where you purchased the fabric and how you planned to market the collection...for example. I would expect to put no less than $10-15,000 on a casual line of 10-15 styles, for example (and that is taking into consideration the production/units) 7. What was your salary at Urban Outfitters compared to Belk? “These are two different scenarios first off. I was a full-time designer for UO whereas I am a freelance designer for Belk. This is so I can continue to work on my own line as well as projects with other companies.”

Hanna, Savannah Target on Victory Manager (case #3-846390148) 1. Do you get all Designer-Collaborations or only select ones? “Based on what will sell in the target market for the store.” 2. How fast do you see it leaving the store? “Depending on the collection, and the market for the store some collections fly out if they’re from a really popular designer.” 3. Are Designer-Collaborations ever reshipped/restocked? “It depends on the collection.” ---If so, how does that second shipment sell in comparison? “Haven’t noticed a difference in sales from the initial introduction of the collection.” 4. Do you see sales increase when you introduce Designer-Collaborations into your store? “Absolutely. They are very popular with customers. There is a difference in sales between the two Targets in Savannah due to the different markets. Victory Target has a lot of SCAD student customers, which affects sales of the designer collections. ---If so, by how much? “N/A*” 5. On average how much do you profit from Designer-Collaborations? “N/A*”

*Unanswered questions: Directed us to call Target Corporation to answer sales figures inquiries.

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