Once upon a time in America(n) Apparel…..a CSR fable

I tend to write about CSR (Corporate Social Responsibility) a few times a week on the blog and the focus is typically on companies that are expanding their corporate responsibility initiatives and the dividends that this so frequently brings. Naturally however there is also a downside to CSR when a company struggles to overcome actual internal mistakes or indeed the public’s perception of how a company is actually operating. With the rapid rise of social media and customer interaction via blogs, twitter and Facebook and the very nature of a two-way street when it comes to communication means that a company’s reputation can greatly be enhanced by social media but just as easily damaged by the same tools.

One such company that has been enduring an horrific public relations issue in recent times is also the largest clothes manufacturer in the US, American Apparel has seen their very future lying in the balance over the last few months as a series of corporate blunders have been magnified by the blogosphere and social media to the extent that the company was rumored to be winding up as recently as a month ago. The rise of American Apparel was as rapid as it was broad and the first decade of this century saw the company leap from strength to strength by combining savvy marketing with key use of corporate responsibility phrases designed to very acutely appeal to what they targeted as the hipster population. A striking use of phrases such as ‘sweatshop free’  and a progressive approach to political issues such as prop eight in California meant that the company not only was achieving rapid growth was also on everyone’s lips as a retailer that took activism more rapidly into the commercial/retail world than was being seen by the competition. It might be that the company was so adamant about the ethics they upheld that the subsequent backlash from numerous corporate scandals has rocked the company so severely. You can read you numerous stories online about the issues the company has recently had revolving around the hiring of numerous illegal immigrants at its Los Angeles headquarters which flew in the face of everything the company said that it stood for.

Stock prices nosedived as the story broke this spring and the same customers who shopped with the company to qualify their hipness were now turning their back on the retailer just as rapidly. It’s an extremely thorny issue which has overshadowed more than 20 years of a truly progressive corporate responsibility program including a carbon neutral program, all organic materials in their clothing and a philanthropy program that compares favourably with anyone’s. Many analysts don’t feel the company has sufficient liquidity to survive much longer with share prices having fallen by more than two thirds in the last 12 months and customers now shying away from a company suddenly viewed with suspicion rather than cooler than cool.

If American Apparel does get wound up many will cite that their over aggressive marketing and brash approach left them far too vulnerable to a scandal where your requisite hip audience will hasten the demise of a brand seemingly overnight. While American Apparel became experts at creating brand awareness amongst consumers they seemed to fail at creating perhaps the biggest requirement for a consumer, loyalty.

The story in this week’s Wall Street Journal explains that the company may be getting a stay of execution from the threat of delisting from the New York Stock Exchange. The company delayed filing its second-quarter results which they put down to the resignation of their accounting firm in July. The NYSE has given them until November 15 to become compliant which saw their share price rally immediately by 17%. The story is not yet over but it should serve as a warning for others.