The Impression speaks with CEO of American Apparel, Paula Schneider.


BY KENNETH RICHARD

If there is one common thread that runs through American ideology, it is that the underdog can win. America is a country of Davids who took on Goliaths to earn their independence, after all. America is also the home of the ‘comeback.’ It is the country where a folklore character named ‘Rocky Balboa’ can remind us that ‘life isn’t about how hard you can hit, but how hard you can get hit and move forward.’

So it is fitting that the hardest hit brand in American fashion today is aptly named American Apparel. And it is also fitting that the brand is moving forward, shaking the blows off, all under the leadership of its new and very focused CEO, Paula Schneider. The Impression sat with the CEO to chat about that momentum, her experience, the new team, being on the street, her strategic plan, the ‘Year of the Factory,’ the brand, and moms.


Hello Paula, how’s it going?
It is going really well, Kenneth! The past few months have been absolutely fascinating. American Apparel has such a dynamic business model and there is so much to learn, it has been like drinking from a fire hose for the last month. However, I think that I’m getting my arms around it. I’ve written a strategic plan that was delivered to the Board; one that I believe is very strong and without a doubt contains all of the elements that we need to be very successful.

Love to dive into that in a little, but before that, can we talk a bit about you and your background? Before coming to American Apparel, you had a lot of fashion experience, but you also had some very interesting experience in working with the Gores Group.
Working for Gores Group was nothing short of an incredible experience for me. When I came to work as a senior adviser in this sector, they were interested in getting into the consumer sector, and more specifically, the fashion side of the business. I was given the opportunity to dive into 20 or 30 businesses, take a look at them, see what was right, what was wrong, and consider if the company is worth buying or should go to the investment committee. For me, the most interesting part was being able to go into a company and very quickly assess whether or not it is a business transaction that you’d like to do. We saw a lot of things that were best in class and a lot of things that were broken. Because the Gores Group was more opportunistic than others, there were a lot of areas of expertise that we looked at and said, ‘we can do that better,’ or ‘what would it take to do that better?’ For us, it was a fascinating experience and one that prepared me to walk into American Apparel.

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Sounds like it. I’m sure you had a ton of takeaways from operations to structure. But can you share a little about navigating different cultures?
American Apparel has a very strong internal culture – it is one of the most creative places that you will ever step into. The average age of our employees – other than on the professional sewing side of the business – is somewhere between 26 and 28. We have a tremendous amount of people who have grown up here, who love to work here, and who have contributed to the evolution of the brand in more ways than one. We are extremely grateful to have a loyal and creative internal culture, but I think there is always opportunity to improve and work on our execution.

This is a company that lost 340 million over the last five years. That loss is not the result of a brand problem; it is the result of an execution problem. The strength of the American Apparel brand is remarkable and people who work here love everything that the brand represents.

That’s excellent to hear. And it’s interesting to hear that you’ve identified it as an execution problem, not a brand problem.
There are a couple of executional issues that have contributed to American Apparel’s current financial position, but the core of the American Apparel brand had nothing to do with that. The brand is not only uniquely distinguishable, it is powerful. For example, you wrote to me back when that model casting guy foolishly said that American Apparel wasn’t using Instagram hoes and thots. I found your email highly amusing, but it shows the power and recognition of the brand that something stupid like that happened in the first place. That was, let’s say, Wednesday; and by Saturday night, we were a skit on Saturday Night Live.

When you reach parody, you know you’re big. Congratulations. How did you and American Apparel find each other?
I was personally recommended by Ilse Metchek, who was the President of the California Fashion Association. At the same time, the Board was starting a search and my name showed up with several of the recruiters that they were thinking of working with. After I was endorsed by Dov, I went through a very rigorous interview process and interviewed with everyone on the Board, some more than once.

I was unaware that you and Dov had a prior working relationship. Do you still chat at all?
I had met Dov during that process. Of course I had knowledge of Dov before because he has been in the industry for many years, as have I. But, I didn’t know him personally before I met him in October and then started the interview process in November. We were in touch for the first part of my tenure here and have not been in touch for the last probably month and a half or two months.

You’ve walked into a public situation. You’re on the street. We can look at your market cap every day. Is that a change for you, finding yourself in the public eye? I’m curious about your thoughts about suddenly running on the street.
It is fascinating. It is a whole new skill set to learn. I’ve worked for public companies before, several times, but I haven’t ever run one. There is a whole new verbiage that one has to learn, a whole set of sequences that have to happen, and it is technical. I do have great guidance – I have great legal counsel and I have a great CFO – so we are maneuvering through that and I am learning a ton. Again, that is part of drinking from the fire hose. In addition to looking at the market, my main goal is operations – running the company and guiding this massive turnaround.

Which is the same goal whether it’s a public company or not, right?
That is exactly right. I have had a ton of help through a lot of the things that happen in public companies, but the big goals are still the same. It is either profit or shareholder value. Here it is both.

Let’s talk about that plan – at least what you can publicly talk about. Certainly all that prior experience has given you the ability to make quick assessments. It sounds like you have a lot of operational issues. Is there anything else that you’re looking at?

First and foremost, we’re in the fashion world. It is about product. Product, product, product. I think that there is always the opportunity to improve the product. Also, there is skew rationalization. The average store has four-thousand styles in it and most of their revenue is based on about a quarter of that, so it is really looking at what is driving the process.

We have three separate businesses. We have our retail stores, which of course are front and center – and that is product. We have the e-commerce side, and that is product. And then we have the wholesale side, which is the imprintables business. And that is also product as well. So product is king no matter which side of the business you are in.

But the skew rationalization of looking at what’s working, what we want to do more of, and then making sure that we have our “best and worst” product meetings, those are all fundamental things that didn’t happen as much as they do now.

You’ve always been involved in that particular process in your career, am I correct?
Yes, that is my wheel-house. I’m very comfortable in the front-end side of the business, which is the product side of the business. I have a degree in design – it was in costume design – but it was always about product. As I came up through the ranks, I learned if you didn’t hit the trend then you missed the season.

Here it is different. It is more stable, because you have the opportunity for all this replenishment business and there is no logo fatigue. So it is really great, we are actually poised for great success because we are in a position of fashion basics and basics are what people really want. You can see that by the results of other companies that have a lot of logo-driven product.American Apparel.002 3

Let’s talk about some of the other changes. You’ve been putting people on the bus recently. You brought Benno back, on-boarded Joseph Pickman, Cynthia Erland, and also you have a Chief Digital Officer, which I’m fascinated to hear about. Can you talk a little about the people you’ve been putting on the bus?
There are specific areas here that are huge opportunities for us. I’m bringing in some new leadership who has great experience from working at other companies and have some best-in-class skills that they can bring to this company.

Thoryn is our Chief Digital Officer, he actually spent the first part of his career working as a molecular biologist. So, he is a data scientist. He is amazing. He has built product and platforms for Fox Network, Fox Broadcasting, Fox Sports and Beach Body. He is eloquent and extremely versed in what he knows and he knows a lot. I truly believe that he is going to be a great driver of our success.

To complement him, I brought on Cynthia Erland. Cynthia has worked in fashion branding for the last 20 years and in PR and entertainment marketing. She was group VP over a whole bunch of different brands at Perry Ellis and launched TNT’s Sport and the E! Entertainment Style Network. So, if you put them together, it is really magical.

We are also working on a complete redesign of the site. From the back-end, we are going to make sure that it is very user-friendly and provides a much better experience for the consumer. From the front end, we are going to make it even more beautiful.

What made you think of this forward, dynamic duo of a data scientist coupled with a marketing person?
Well, I think for us, there is a lot of back-end challenges with our e-commerce site. Typically, you tend to get one or the other – you either get the merchant side of digital or you get the data-scientist side of digital. When I was looking and talking to people about what this role could be, on either side, I thought this duo could be a perfect balance. I’ve had the opportunity to work with Cynthia before and Thoryn had done some consulting for the company, so I really felt like this would be a great opportunity. And it is also a new direction because the creatives who were here before and are no longer here were not designers, didn’t have backgrounds in marketing and didn’t have a technical side with regard to e-commerce – so we are really flipping the script here.

So you also brought back Benno?
Yes, Benno is back in the house! Benno is super and unbelievably talented. He actually got a standing ovation from the marketing team when he walked back in. They were thrilled to have him back. He is a huge part of the DNA of our brand. He has been here for 11 years and is such a talented guy. He is also excited to be back.

He is an insider, but then you literally got yourself an Outsider, right?
[laughs] If you look at the aesthetics, Kenneth, and you know we’re all about the aesthetics, we have a very powerful brand DNA from a product standpoint. I’ve always thought Band of Outsiders was a really cool brand, and the aesthetic is very similar to what we were doing at American Apparel. Our men’s business has been trending down, so we needed new help and a new infusion on the men’s side and I think Joe [Pickman] is the perfect person to bring it.

Now that you’ve got this team together, it is still in the forming stages, I assume. Are there some other players on your horizon that you’re looking at?
We brought in a new CIO as well. Our VP of Systems in IT was moving on, so he is helping us complete a nice transition. Our new Chief IT Officer has a very vast background, which is great because there are a lot of systematic things that we need to do to support growth here. Also, as we continue along, there are lower-level people that we are bringing in. We are sort of finding our way right now.

Well, it sounds as though you’ve got a pretty packed bus there and you’re about to start driving. Can we talk about where you’re going to start driving to?
I think first and foremost, when you are talking about a turnaround of this magnitude, which is really massive, it is not an overnight fix. It took five years to lose 340 million dollars; it doesn’t take one minute to get it back. I’ve been here for 14 weeks now, three-and-a-half months, and have developed a plan. The plan was built by each department – so retail built theirs, wholesale built theirs, marketing built theirs, and finance built theirs. And now we have to execute that plan.

This is the first time we have a bottom up budget. We had been doing more top down budgets, but this approach establishes a lot of accountability. When we built this plan, it was very inclusive, so that people can understand where we’re trying to take this. Now, after delivering the plans a week and a half ago to the Board, my goal is to start having group meetings each day— and there are a lot of people here so it takes a long time to do. But, we are communicating what the overarching plan is and each group leader is delivering the plan for their area so that they can go off and execute.

So, product is number one; skew rationalization is number two.

We must have a point of view with the product, so that when you go into the stores we have a point of view. Market that point of view and then create an omni-channel of marketing, so that the stores look really good and the e-commerce site sort of marries to the stores. We bring a lot of stuff in, but we do not necessarily have a point of view. And I think that we need to establish a stronger point of view.

Additionally, e-commerce has tremendous growth potential for us. The conversion that we spur is quite different from others — we get customers to our site. It not a brand problem; it is an execution problem. It is just making sure that they execute and actually buy.

Wholesale has opportunities as well. We have a very large wholesale business and it is mostly with imprintables. If you think about getting a USC t-shirt, it is probably printed on American Apparel. The majority of all of that business is done in the U.S. and there are a ton of opportunities there.

There are also opportunities for a lot more retail stores once we have stabilized. We only have about 240 stores around the world and, in a lot of places, we only have one store in a country, which may or may not make any sense.American Apparel.002

It’s nice to have a cluster, I’m sure.
Yes, from a cost standpoint it is and then the supply chain and having demand planning are key. Of course, we have always had some planning here because you cannot make 50 million units a year without having demand planning. But, what we did not have was the demand planning that worked back to a financial plan that worked back to every single store, which worked back to the turn on those stores, how much you should buy for each store and what should it look like.

We have had times where we delivered bathing suits at the end of July and flannel shirts in March. Being on a design calendar gives you the opportunity to protect your business and to protect all of the volume that you have. We need to make sure to consider the demand side of it — what you need, for how long and when you need it — and infuse our basics and our replenishment groups with some relevant fashion that can also work back to it.

So, there is an incredible amount of opportunity. It is just a matter of taking the creative, harnessing it, and using process and procedures to drive it through. And when you do that, then you have supply chain agility. You do not start and stop every long run that you are doing, so then there is cost saving. And there are more opportunities for more cost saving, because we can forecast what we are going to make for wholesaling for the entire year, and wholesale is about 70 percent of our total unit. So, if we know that, then we can buy raw materials up front, we can program them out better, and we can get better costs. Every action, even if it is little, has a big reaction down the chain.

Paula, you keep talking like this and you’ll be keeping some other retailers up at night.
[laughs] I’m already working half the night.

That’s the plan. We have to clean up our own house first and we are working on it — we have just the right team to do it.

Sounds like you’ve got the plan to do it. Let’s talk a little about the labor force because I know it’s been in the news lately. If you had something to say to the labor force of your own organization or maybe the labor force of the U.S. apparel industries overall, what would it be?
I think we have the wind in our back with having domestic production. Right now, all of the big companies are trying to figure out a way to have domestic production, but it is an insanely high barrier of entry. So for us to have that with what we do and with our consumer base (e.g., the millennial consumer) we can actually own it. We are very interested in making sure that we have a voice, because this is one of the most-talked-about brands on the planet. I think that there is a big opportunity for us to grow this business.

In regards to labor shifts, if you are looking at skew rationalization and productivity on the floors, and you are cutting down the skews that you have, following that through means fewer people on the manufacturing side. This is not the first time that American Apparel has laid off people and this is not the seventh time that American Apparel has laid off people. This just happens to be the most public time that American Apparel has laid off people. In 2013, American Apparel laid off 160 people and only gave 10 percent of them severance packages. In 2014, in the first half of the year under past management, they laid off 238 people and only gave 10 percent of them severance packages. We very systematically looked at what we need from the labor force, to right size the amount of people we have, laid off 180 people and offered every one of them a severance package on the manufacturing side. We do things very methodically and very thought out. We just get a lot of press because it is interesting to talk about it.

I think most people understand that at times you need to prune for growth. I just think your timing was a challenge, that’s all.
And I would have to agree, timing was a huge factor in the amount of press the layoffs received. I do want to reiterate how incredibly disappointed we were that we had to make such a difficult decision. But, we have a job to do, and that is to turnaround this company and set it up for success. Unfortunately, difficult decisions, such as this one, come with a job of that magnitude.

The other thing that people like to talk about with you is the one thing that it sounds like you’re not challenged with – that it’s not a brand issue. But they love to talk about your marketing. I’d love to talk about your marketing – I love marketing!
I know you do!

I’m concerned, Paula, that I’m going to end up reading your blog this upcoming summer and wondering where is all the good media that we’ve come to know. Is it too early for all of that stuff?
You know, I’ve always been a fan of the American Apparel marketing, but I will say about 10 percent of it went over the line. However, in the grand scheme of things, I always thought it was really interesting and revolutionary to use regular girls and not have them all made up. There are some things that have crossed the line because of the whole back-story surrounding it, which probably made it more confrontational than it needed to be. But marketing is fluid, as you know, because you’ve been in marketing forever. I think that our consumer is interested in social consciousness, and obviously sexy is important. But I don’t think that that’s the only thing that we can talk about.American Apparel.002 2

I think that we can talk about immigration reform; we can talk about all of the pertinent and relevant social information. It also aligns with my own personal, liberal beliefs. So it is easy to get. But I am not the only arbiter of good taste here. In our marketing team – every single one of the people who work here – they are the consumer. When I asked them who we are designing for, they wrote a letter from the voice of the person that we were designing for. There are three different girls we’re designing for and two different guys we’re designing for. And it was super interesting because you could absolutely hear the voice and know who it is that you are designing for. So, we have all the creativity here, but it is really up to the management to harness that and put it out there. I am not the voice on the blog and I am not a millennial consumer. All I am doing is guiding the ship, so that the people who work here can have their voice.

That makes complete sense. One of the things that you have been speaking of is women. That’s maybe one of your platforms. Can you elaborate a more about the role of women and women’s support that the company has?
Fifty-five percent of all of the people who work here in the office staff are women and a lot of the management here are female. I would also say that there are a high percentage of women on the sewing staff. I have noticed that it has become a more interesting story being that I am a woman, it is sort of the pitting of the pack CEO, who is a man, against the woman in a battle of the sexes. But at the end of the day, that is not what it is about and that is not why I am here. It is about empowerment and not only just of women.

I have daughters. I believe that women can do anything and everything. I will vote for Hillary. I am very pro-women, of course. But that really is not the message here.

I think one of the biggest messages that we have to talk about right now is that we are in the Year of the Factory. The fact is that the majority of people I talk to – and I get to speak with a lot of people right now – are not aware that American Apparel is the largest apparel manufacturer in North America.

They just do not get that. They have heard about American Apparel, but a lot of it is the back noise and not all the good stuff that we do. So, yes, this is the Year of the Factory.American Apparel.002 4

We have a new video that we just launched called ‘Hands.’ It is really quite incredible. It shows how it takes 86 hands to make one pair of jeans and it shows the whole social component of our production. This is a call to action that says “you should care that this company needs support, because there is no other company like it.”

If you come to one of our stores and you just sit there, people will walk by and there will be commentary. All kinds of commentary – good, bad, all kinds of commentary. At any of our competitors, they either like the clothes or they do not like the clothes. But the concept of the business itself is not all that interesting.

We have the voice. I want our new blog to be authentic, I want it to be in the voice, I want it to be from the people who work in our stores to the people who shop in our stores, highlight the people that work here. We just did a beautiful Mother’s Day shoot where we took a lot of the factory workers and invited them to bring their kids with them. It is really the American Dream, because you have some single moms that have worked here for years and raised their kids, who do not even speak English, they only speak Spanish. We have a worker whose son is a Casting Director, one whose son is now going to law school, you have got college graduates, it is fabulous, and it is a really compelling story.

Paula you’re tearing me up here!
I know, right, are you starting to cry yet?

I’m like, ‘Mom!’
I am passionate about this because there is nothing else like it.

 

It is a very iconic story and you’re right, it’s much better to have a brand that people will walk by and at least talk about. You’re lucky to have that.
Yeah, but that is what makes us different and that is also what made it really interesting for me to step in here. I knew this was not going to be an easy task, by any stretch, but I knew it would be a fulfilling journey with a successful ending.

On that subject, were there any major surprises for you?
Oh, every day! Most of the stuff that happens here you cannot make up. It is going to make the greatest movie ever. The next Wolf of Wall Street.

Alright, we’ll save that for when you are releasing the film! Paula, we really appreciate it and thank you so much for the time to chat.
Kenneth, it was a pleasure speaking with you.