Why Do Customers Go Bananas For American Apparel?
- Posted by Michael Bigger
- on April 19th, 2012
A few weeks ago, I met a friend at Jones Beach Parking Lot 6 (P6) for a kiteboarding session. We decided to do a downwinder; leave a car at P6 and drive to Robert Moses parking lot 5 (P5) for a 15 miles kiteboarding session (I sometimes sneak away from the trading desk to pursue these kinds of activities).
While on our way to P5, he told me that he had just returned from Puerto Rico. He saw a Crocs store in San Juan and thought it was a very good looking store. He asked me how I figured out the business would change in such a dramatical way when it hit bottom in 2008. I repeated to him what I wrote about Crocs ($CROX) in the book The StockTwits Edge. To learn more about the $CROX thesis you will have to read the book because this post is not about $CROX. It is about something that could have a similar spectacular run.
I told him that I was now buying American Apparel ($APP). He interjected,”Holy cow this is awesome. I think you will do well with that. I love the brand. I love the fact that the clothing fits people nicely and that it carries no brand label on the clothing.” The American Apparel brand resonates with young urbanites.
His comments help me understand how the customers think about the brand. Discovering the things that get the customers to go bananas for the product is integral to understand the top of mind positioning of the American Apparel Brand.
I am still discovering new facets about $CROX and I have been invested in the stock for 5 years. Here are some tidbits about $APP that I have collected to help me form my opinion of the company. This is a work in progress.
- The slim fit of the clothes. It is not baggy like The Gap. It appeals to a young, sexy group of customers.
- There are no labels on the clothing. Who wants to be a billboard for a company? Brands like Hollister, Nike ($NKE), Oakley, Abercrombie and Fitch ($ANF), etc. have their following, but American Apparel appeals to a very different, more free-spirited demographic.
- Dov Charney, the CEO, is a character. His personality is definitely controversial. His passion resonates with me in this CNBC interview. I would not be surprised to see him on the air more often. It moved the stock quite a bit after this interview.
- Charney is not afraid to do something different. The concept of American manufacturing could be considered a relic of the past, yet he sees it as the future of the industry. He understands the business and the benefits of local manufacturing to the economics of his business.
- Charney has built a $600mm business from selling t-shirts. Here is a challenge: Could you do the same? Pretty smart isn’t he? At a minimum, he must be doing something right. It’s a great story.
- Teenagers are rebellious. Dov resonates with them.
- Sex sells and although some people think American Apparel’s advertising goes over the edge, I find it edgy and I don’t get intimated with a little bit of skin being exposed.
- In a world of free and perfect information, gaining attention is next to impossible. American Apparel has no problem gaining attention. Branding like this is hard to build and it is worth a lot.
- Very good integration of blogging into the Americanapparel.net property. Check it out for yourself, it is brilliant. The bloggers featured on the site have quite the following.
- American Apparel website is art. It seems to me that the web business is not being pitched aggressively. With a little focus and attention, its growth which is good could become phenomenal.
- Weird is good and American Apparel is weird. Seth Godin wrote a book about this: We Are All Weird.
Now I need to investigate why some changes made to the 125th Street store in Harlem produced a sales increased of 70%. I will report on this and other discoveries within the next few months.
What say you? Anything else?
P.S. Don’t go out and buy the stock. This is a highly distressed situation and it is not suitable for the majority of investors. The purpose of the post is to write down how I think about this and share it with you.
The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.blog comments powered by Disqus
Michael Bigger is an investor and a trader who has been involved with trading technologies for more than twenty years. In 1992, Michael joined Citibank as head trader of U.S. single-stock derivatives, where he managed a $5 billion portfolio of equity derivatives. In 1998, he joined D.E. Shaw & Co., L.P. to trade the U.S. equity derivatives portfolio. (More)