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9B12A032
AMERICAN APPAREL: UNWRAPPING ETHICS1
Brittany Schuette and Professors Seung Hwan (Mark) Lee and June Cotte wrote this case solely to provide material for class
discussion. The authors do not intend to illustrate either effective or ineffective handling of a managerial situation. The authors may
have disguised certain names and other identifying information to protect confidentiality.
Richard Ivey School of Business Foundation prohibits any form of reproduction, storage or transmittal without its written permission.
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Copyright © 2012, Richard Ivey School of Business Foundation Version: 2012-08-13
American Apparel will live beyond my lifetime. We’ll be a heritage brand. It’s like liberty,
property, pursuit of happiness for every man worldwide. That’s my America.
American Apparel CEO Dov Charney2
In 2012, after three years of losing money, American Apparel forecast a turnaround by 2015.3 There
appeared to be a disconnect, however, between the company’s socially responsible initiatives in the labour
and environmental realms versus its increasingly controversial advertising strategies. If Chief Executive
Officer (CEO) Dov Charney really wanted to build a lasting brand, some observers suggested this
disconnect should be addressed.
COMPANY BACKGROUND
In 1998, Charney launched American Apparel in Los Angeles, California.4 As a publicly traded, unisex
clothing manufacturer, American Apparel became best known for its knitwear, such as T-shirts and
underwear. The organization’s downtown L.A., seven-story, pink warehouse looked like something
straight out of the 1940s, while its sexy ad campaigns embodied style from the 1970s. 5 American
Apparel’s marketing campaign was unique from other businesses in that it targeted 20+ young adult
consumers who sought natural beauty through their fashion; it did not push consumers to idolize photo-
1 This case has been written on the basis of published secondary sources. Consequently, the interpretation and
perspectives presented in this case are not necessarily those of American Apparel or any of its employees.
2Quoted in ABCNews article “American Apparel CEO Dov Charney: A Tarnished Here?”
http://abcnews.go.com/Business/american-apparel-ceo-dov-charney-tarnished-
hero/story?id=16229958&page=2#.UBLBcY7va-8, accessed July 25, 2012.
3 Ibid., ABCNews.
4Polly Vernon, “Label of the Year: American Apparel,” The Guardian, 2008,
http://www.americanapparel.net/presscenter/articles/20081130guardian.html, accessed: May 08, 2012.
5Linda Baker, “Made in the U.S. of A.,” Salon.com, 2004.
http://www.americanapparel.net/presscenter/articles/20040211salon.html, accessed: May 08, 2012.
Authorized for use only in the course Managerial Decision-making at Ala-Too International University taught by Peter McCann from Sep 24, 2020 to Dec 31, 2020.
Use outside these parameters is a copyright violation.
Page 2 9B12A032
shopped models. To that end, American Apparel used real, non-photo-shopped, airbrush-free models in its
advertising campaigns, symbolizing the raw beauty and natural elegance in its fashion.6 Within several
years of its inception, American Apparel became well known for its slim-fitting, moderately priced, logo-
free clothes.7 By 2012, American Apparel employed approximately 10,000 people globally and operated
more than 253 retail stores in 20 different countries, with 50 additional stores expected to open by 2015.8
American Apparel was favourably known for its stance on pro-labour practices involving immigrants.9 The
company enforced a vertically integrated business model, minimizing the use of labour outsourced from
the United States. All manufacturing activities – such as knitting, sewing, dying, distribution, marketing,
and design – occurred locally, and the company was proud of its made-in-USA ideal. American Apparel’s
Los Angeles-based factory employees, who were primarily legal immigrants, were paid nearly double
California’s minimum wage and received very generous benefits, including free English language classes,
subsidized lunches and transport, free onsite massages, and employee stock options.10 American Apparel’s
manufacturing facilities also featured an onsite medical clinic that offered a variety of care (primary care,
urgent care, and preventive care) for workers. Importantly, American Apparel guaranteed job security and
full-time employment for its employees, which constituted a highly uncommon practice in the garment
industry. When it was discovered that American Apparel employed approximately 2,000 illegal
immigrants in its factories, Dov Charney laid off these workers to comply with immigration laws, but he
promised them that once their papers were in order, he would rehire them.11 For Charney, the “sweatshop
free” concept was never about criticizing other businesses; rather, it was about building relationships with
company employees and providing them with a fair wage.12
Moreover, American Apparel prided itself on being an environmentally conscientious firm. Several of its
products were made from organic cotton and recycled fabric scraps, and this practice seemed to be
increasing over time. 13 Additionally, American Apparel used solar power, thereby promoting
environmentally friendly practices in its production methods.14 The company also supported a variety of
