American Apparel: Vertically Integrated in Downtown L.A.

Topics: Strategic management, Vertical integration, American Apparel Pages: 6 (2164 words) Published: May 29, 2012
American Apparel: Vertically Integrated in Downtown L.A.

1. The textile/clothing sector is vertically de‐integrated: design, textile manufacture, clothing manufacture, distribution are undertaken by specialist firms. Why? In this case, clothing firms like American Apparel have vertically integrated, in order to get time to market, increase resources availability, and cost efficiency. However, many textile/clothing sector is vertically de‐integrated which means that their design, textile manufacture, clothing manufacture, distribution are undertaken by specialist firms. (De-verticalization) is the process of separating functions and services from a once-integrated business model. Companies such as Levi Strauss & Co., who emphasize the need to build global brands, frequently through acquisitions of related consumer products lines, while many of their production facilities are being closed or sold to specialist firms. For company whose controlling power is stronger, vertically integrated is more benefit for them. For example, they can have their own sources to be more competitive in the industry. The Company can directly face consumers and can control the services quality and deal with consumer’s complain immediately. However, the above is all for the companies whose controlling power are stronger, like Zara, American Apparel. Still, textile/clothing sector is vertically de‐integrated. (De-verticalization) and outsourcing permit efficient sharing of resources and thus enable the realization of economies of scale and learning-by-doing effects in particular tasks which provide the companies who chose (de-verticalization) significant reductions in the costs of market creation, expansion differentiation. It’s risky to count on several suppliers, but owning whole supplier chain has much more risk. Many companies think that they don’t want to have their own factories because of the low profit and high pollution risk. The factories have to burden the up-grade cost. And if companies are getting too big, the risk might get larger. Then the managers have to learn how to take care of the whole supply chain which they might not be familiar with. Investing profitably in industries that are (de-verticalizing) requires understanding where the industry is in the transition and companies’ positions within it. We think that companies who are (de‐integrated) their production activities in favor of building up the marketing side of their operations by capitalizing on both brand names and retail outlets. For example, Sara Lee Corporation, one of the largest apparel producers in the United States—who’s stable of famous brand names includes L’eggs hosiery, Hanes, Playtex, Wonder-bras, Bali, and Coach leather products. It recently announced its plans to ‘de-verticalize’ its consumer products divisions, According to a Sara Lee spokeswoman, ‘‘the operating model for today’s exemplary companies no longer needs to include significant manufacturing assets . . . We’ve determined that we no longer need to own all the assets needed in manufacturing the products we sell’’ (Miller, 1997, p. A3). Therefore the risk of longer lead times , opportunistic suppliers , building arms-length relationships are some of the causes why American Apparel is so successful even with the advantages of focus core competences, logistics of better/cheaper and flexibility to cope with volatile industry all rest on the bottom line of trying to achieve a higher profit margin.

2.1 Why is American Apparel successful? There are several main factors attributed to American Apparel’s success: 1. Creating Controversy. Like the successful stars, Madonna and Lady Gaga, American Apparel continuously catch people’s attention by progressive social issues and sexuality implication patterns. The special and effective marketing approach makes it famous in the garment market. 2. Vertical Integration Business Model. The vertical integration makes American Apparel respond to garment market in a...
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