Label Networks%uFFFD Brand Profile Report: American Apparel

Recession? What recession? American Apparel continues to blaze trails, with their 4th quarter earnings report coming out on Tuesday, March 17 indicating that company profits rose 30% and sales rose 31%. As we also reported in the Retailer Round-up for March, American Apparel got investment capital March 13th from London-based private equity firm Lion Capital LLP of $80 million. In a time when most retailers and brands are desperately trying to make ends meet, clearly American Apparel is a diamond in the rough. Analysts think so too as Lizard Capital Markets re-iterated their statement to “buy.”

As a quick recap, American Apparel is a vertically integrated manufacturer based out of Los Angeles. This means that they manufacture and distribute right in the same facility, providing them with terrific advantages of being ahead of trends with fresh styles produced in a timely manner, quick distribution, and lower costs for distribution because they’re made in the USA (which has also tapped into the growing importance of “Made in America”). American Apparel is also one brand that continues to be a strong favorite among youth culture, and has literally launched the blank-branded movement that so many other brands now try to follow. The trajectory of preferences for American Apparel, the brand, and store, among 13-25-year-olds in North America and Europe, as reported in our Global Youth Culture Studies, continues to show that there is innovation and market opportunity in some of the most obvious of places -the 1st-layer apparel industry.

Last year in April, 2008 their retail stores sales for March 2008 compared with March 2007 were up 28.7%. They also opened six new retail store locations in the first quarter: Mannheim, Germany; Antwerp, Belgium; Melbourne, Australia; Chung Dam, South Korea; Dae Hak Ro, South Korea; and King of Prussia Mall, Pennsylvania. More stores to launch are in the works for 2009 and 2010.

Based on American Apparel’s recent financial posts, we wanted to take a closer look at the brand based on youth consumer preferences both for the brand and retail from North America and Europe and top T-shirt brands in general. Clearly, as indicated by the chart from our North American Youth Culture Fall Study 2008, when asked “What is your favorite T-shirt brand?” among 13-25-year-olds in North America, the “blank” T-shirt market continues to increase in preferences among today’s DIY generation. The leader of this movement has been American Apparel. This is quantified by having the highest percentages for favorite T-shirt brand, topping the marketplace at 15.7%, which is a significant increase from the Fall Study 2007 at 10.8%. As we noted back in the Fall Study 2006, there’s a growing “middle ground” or mid-tier T-shirt brand of fashion that includes brands made in the United States, but aren’t necessarily extreme expensive, such as many brands made for Wal-Mart. They are also not necessarily specialty brands with higher margins either, but generally are pitched as an average American brand. American Apparel has been the leader in this growing mid-segment of fashion, also known as the “blanks” as indicated by coming out on top for the last 2 years. Now, it’s almost twice as high in percentages in just 6 months.

Chart from Label Networks Fall Study 2008 on Top T-shirt Brand Preferences from the North American Youth Culture Study

There are many reasons for this increase in preferences for American Apparel, including the variety of styles, which females particularly like for their current, yet retro combinations, fitted silhouettes, the thread count of the fabrics, the unique advertising and marketing campaigns, and the fact that many styles today include aspects of layering.

As we’ve noted for subscribers to our North American Youth Culture Studies, American Apparel, like Hot Topic and Volcom, were the brands to watch in the past few years within this category especially. However, even though Volcom still ranks high in preferences among 13-25-year-olds in North America, American Apparel continues to increase, (as does Hot Topic), beating out old classic brands. By age groups, it has switched it’s percentages from being higher among older demographics, to higher among younger demographics, particularly 13-14-year-olds and 15-17-year-olds. This is important to note because often when a brand has preferences that are higher at younger age groups, that indicates a new marketplace coming in that’s wearing that brand and may continue to do so the older they get. To compare for example, Hurley, which ranks within the top 10 also, is just the opposite -indicating not a “new” audience for the brand, but rather, a growing older audience. While right now Hurley isn’t in a bad position, when this happens, it’s very important to stay on top of the new market of consumers or else have a declining marketplace overall, as is the case for Quiksilver, whereby young people simply don’t wear it.

American Apparel has also increased as a favorite store to shop in when looking at our retail data. As a brand and store that has been strategically placed in key cities they’ve also been able to gain consumer support in retail. However, perhaps their real genius, other than revolutionizing the 1st layer industry, is offering up their blanks on the wholesale market for other brands to print on, essentially getting others to do the branding for them.

Taking a look at their expansion in Germany, this was a wise move based on our European Youth Culture Study covering 15-25-year-olds across Germany, the UK, France, Italy, and Spain. In our Pan-European Report, American Apparel ranks 14th overall as the top preferred brand, but even higher among young people in the UK, tied with Zara, and then in Germany. However in preferences for top T-shirt brand, it ranks 10th overall, tied with Levi Strauss, and again, peaking in the UK, then Germany. Interestingly, the older the age group, the higher the preferences for American Apparel, however we predict that like North America, the percentages will continue to increase among younger demographics, which right now are still quite dominated by H&M -both as a “brand” and store.

In a final note about American Apparel and their success story, it’s important to note their marketing and ad campaigns, which have revitalized old-school borderline porn, mixed with a modern-edge of today’s everyday girl or boy (i.e. the gym class hero look with pulled up tube socks and sweatbands), and their website. Their site offers stories from their workers, pictures, selections of top styles, and other interactive features. It also has a political bent to it as well with their “Legalize LA” campaign about immigration policies and workers. (There’s also a massive banner on their building here in downtown LA that says Legalize LA). And they’re last print ad campaign didn’t even feature a new style of American Apparel, but a worker at the factory, and a message that they provide jobs. In many ways, the brand crosses several boundaries in terms of marketing with several messages, yet maintains cred in youth culture with their constantly fresh retro styles and provocative campaigns. It’s a brand that indicates the wave of the future -not only for fashion but for retail as well.

For more information about Label Neworks%uFFFD North American and European Youth Culture Studies and the Premium Subscription, email; (323) 630-4000.