No company quite like American Apparel exists in the United States anymore. It's both cutting edge and an anachronism; a company that defies modern accepted practices. It hearkens back to an earlier era of manufacturing, one that used to flourish here, before it became in vogue to outsource everything and send all production to the Far East somewhere.
If you haven't heard of American Apparel by now, you're probably not paying close attention to the retail industry. Launched by Canadian immigrant and entrepreneur Dov Charney in 1986, American Apparel is a powerhouse clothing manufacturer that makes all of its products right in the heart of downtown Los Angeles, using local labor and all American materials. With over 1.6 million square feet of factory space in LA alone, as well as 250-plus retail stores scattered throughout the globe, this $547 million public company is a model for the way things used to be done around here.
Taking a trip down to Los Angeles' historic garment and warehouse districts reveals a glimpse into the past. Impossibly large and mostly vacant factories dot the landscape; silent testaments to a bygone era when products were actually manufactured here. American Apparel's buildings stand out in stark contrast to the rest of the district. The parking lot is full to capacity; in fact, a good portion of the vehicles are crammed together because there isn't enough room for them all. Workers dart in and out of the building like ants. The place is a bustling hive of activity, one that Charney has created from scratch.
American Apparel's asset protection team includes (from left to right) Tony Kim, Kevin Makoyan, Nelson Sanchez, Andy Flores, and Marylou Vazquez. American Apparel marches to its own drum, a direct reflection of Charney's philosophy. Refusing to outsource anything to companies outside the United States, American Apparel employs over 2,400 Angelinos 24 hours per day in their bustling factory. The place serves as world headquarters as well. Everything is either done, made, or controlled from here. Even American Apparel's advertising campaigns are conceived, designed, and photographed here. Technical support for its retail stores is based here. Web programmers and designers that run and design American Apparel's site work here as well. When Charney states that Los Angeles is American Apparel's headquarters, he really means it.
It's this uniqueness that sets American Apparel apart from other garment manufacturers. While its competitors, such as GUESS and Forever 21, also maintain a manufacturing presence in LA, none of them produce 100 percent of their product in the U.S. American Apparel's ethos exudes patriotism and a pride of manufacturing things right here at home, a sentiment that has been largely forgotten in what once used to be an incredibly industrial nation. Can Charney produce his products for less money in China? Most certainly—but he won't, plain and simple.
The Loss Prevention Challenge
Like any company, American Apparel has its share of loss prevention concerns, exacerbated somewhat by the fact that it has to deal with factory environments as well as retail stores, which means its LP team has to switch gears often. Incredibly, American Apparel really didn't even have an LP team before a year and a half ago, when loss-control efforts were handled by personnel from the IT department, headed by Stacey Shulman, chief technology officer (CTO) for American Apparel. "We knew we had problems in the factory, and that we needed to bring on an LP professional," states Shulman, which they did. Blue Montez now heads up loss prevention efforts reporting directly to Shulman.
Yes, you heard that right. American Apparel's asset protection department reports directly to its chief technology officer. While most LP teams report to someone in operations or finance, American Apparel once again takes a different tack than just about any other company on this issue, due in part to the technological nature of its LP efforts.
Before Montez and his team were brought on, the IT department paved the way for LP efforts by equipping its stores with remote camera systems, employing heavy RFID tags for inventory control, as well as installing EAS gates. Before Montez came along, Shulman and her IT department had the tools in place to prevent the theft, but they lacked the detailed knowledge on how an LP operation was supposed to be run.
"We wanted the LP department to be less like security and more like the FBI," she states. "We weren't getting a lot out of the implementation." While technology is the backbone of many LP operations, it doesn't replace the knowledge of how to prevent the thefts in the first place. And that's where Montez came in.
Blue Montez is a veteran LP professional, and serves as American Apparel's director of asset protection. Based out of American Apparel's headquarters factory in downtown Los Angeles, Montez quickly found out that he had his work cut out for him. Considering that he has to deal with LP concerns within the massive factory—1.6 million square feet of space, packed with 2,400-plus employees, and teeming with easily stolen materials, finished garments, and supplies—not to mention 250-plus stores worldwide, it's an understatement to say he faced serious challenges from day one.
The Factory Environment
In and of itself, American Apparel's factory represents a formidable challenge to an LP professional. The sheer size of it, not to mention its porous nature of multiple entrances and an abundance of property to steal, makes it a challenging environment in which to keep losses in check.
Before Montez and his team arrived, Shulman makes no bones about the fact that "shrink was out of control." In her estimation, American Apparel was suffering from a corporate culture problem first and foremost. "Books were being written online about how to steal specifically from American Apparel," says Shulman. "Employees posted on social media networks that the reason why they took jobs with us was so they could steal."
Shulman quickly realized that the culture was to blame for this, and sought to change it. "Theft impacted more than just the shrink; it lowered morale," she explains. "We needed to educate our people that our items have value; that every item counts."
In case one thinks that poor working conditions were to blame for this culture, consider that American Apparel pays above-average wages to its employees and supplies them with some of the most amazing and unusual perks in the industry. Charney subsidizes their on-site lunches for starters. But amazingly, he also has installed a full medical center within the factory, filled with state-of-the-art equipment and staffed with a medical doctor in order to care for his employees, both for injuries and preventative care. Charney also hired a team of seven masseuses who make their way throughout the company and give employees back massages...free of charge.
"It's the complete opposite of a sweat shop," states the on-site doctor, clad in his immaculate white lab coat. American Apparel's employees are among the best treated factory workers in the country, and yet there was still rampant theft.
After bringing Montez on, the first order of business was to announce the formation of the asset protection department and the company's new emphasis on controlling loss. In cooperation with the in-house advertising department, Montez formulated an awareness campaign that was designed to encourage employees to report theft and make them aware that changes were afoot.
A confidential tip line was also put in place. The campaign wasn't designed to be intimidating. Rather, it was designed to make employees feel like they had an outlet to avail themselves of, a place where someone would listen to them and what they had to say.
As in most companies, American Apparel's workers are a mirror of society—the vast majority of them are excellent and honest employees, and a select few are where the bulk of the problems come from. The awareness campaign was designed to appeal to this vast majority in order to get them to help the company by rooting out the problem employees.
Montez immediately began drawing on the strength of his IT department as they learned from internal investigations and identified areas of opportunity. "We had situations where we could not effectively control what an employee was working on," states Montez. "We would see them sewing something on a machine, but we couldn't be sure if it was for their own personal use (considered theft) or part of a job."
The IT department installed timekeeping/productivity devices at each work station that require an employee to sign in and enter the order number he or she is working on in order to use the machine. The system provides exceptions on employees' productivity and, more importantly, ensures that employees are working on valid orders they have been assigned to, thus closing that loophole for all intents and purposes. Ultra-high-tech biometric punch clocks also ensure that the employees' time is also closely monitored and accounted for.
The Internal Investigations Process
Montez instituted an internal investigative model to pursue the less casual thefts, and has a team of people closely watching the goings on at the factory both visually and through surveillance. Montez also forged new allegiances with his department managers, encouraging them to work closely with him to take care of their theft and related personnel problems.
Montez's initiatives have resulted in the construction of an interrogation room on site at the factory. Essentially, the in-house LP team compiles evidence based on surveillance or investigation and then requests that the employee come in for an interview. "The interviews last about two hours," says Montez. The employee is brought in and questioned on his or her activities, and then Montez's team decides what needs to happen to that employee. "Sometimes we find the employee has made an honest mistake," states Montez. "They may have been told something was okay to do by someone else, and there is no malicious intent." The employee is then educated on how not to repeat the error, thus helping to curb shrink a little at a time.
In other cases the interviews will reap full-on malicious activity, and the employees are prosecuted criminally. Montez's biggest case to date culminated in the bust of a ring of employees who had stolen over $180,000 worth of materials and finished goods. The employees in question had setup a scheme where both first- and second-quality finished goods as well as materials were being moved out of the factory, in some cases using American Apparel's own FedEx accounts. These goods were then being fenced locally for great profit.
How many of these interviews occur at American Apparel? "I would say in the neighborhood of five or more interviews a week," states Tony Kim, corporate asset protection manager for American Apparel. Montez estimates that this year alone, they will process between 200 and 300 cases in-house, with the corresponding number of interviews. "I expect the number of interviews to go down as we get up to speed," Montez adds.
Has the investigative model and interview process worked thus far at American Apparel? "Absolutely," states Kim unequivocally. "We have been able to work alongside security at the factory, and since the inception of the LP department, we have been able to bring in new methods, added resources and skill sets that have made a huge impact here at the factory."
Marylou Vazquez, AP corporate analyst (right), conducts a store audit on her iPad with store manager Sandy Altamirano. Asked about the success of the program, Montez is guarded. "Have we addressed it entirely? I feel strongly today we have greatly raised awareness and implemented intelligent programs that have established the foundation of our department's future," he states, fully realizing that reigning in shrink within his massive facility is a work in progress.
Employee morale is also increasing tremendously in conjunction with the new LP initiatives; after all, no one wants to work in a culture of theft and dishonesty. Montez claims that morale "has definitely improved for the better, and we are viewed as a partner to many factory department managers. Today there is a sense of importance that we have implemented where the factory employees are aware of the role we play within American Apparel."
The Retail Stores
When sitting in Montez's office, the headquarters within a headquarters at American Apparel, it's easy to forget that Montez has retail stores to deal with as well, one of which is housed within American Apparel's own factory.
American Apparel's model is to produce the garments in Los Angeles and then move them out to its retail stores for sale. American Apparel boasts 142 stores in the United States alone, as well as stores in twenty countries, including Canada, Japan, Korea, Israel, Australia, France, the United Kingdom, Italy, and Germany—250-plus stores in total.
American Apparel's revenue includes both their retail stores as well as American Apparel's wholesale customers—companies that take American Apparel's clothing and brand it with their own name.
The asset protection team meets quarterly to discuss, results, initiatives, and future strategies. The stores are another area where American Apparel's unique LP model, headed by IT, really shines. Being headed up by an IT department has its advantages, and one of them is seamless technology integration with loss prevention efforts. The stores are heavily reliant on RFID technology for loss prevention and inventory-control purposes, and Montez's team does lots of remote monitoring of its product. "Just by showing the stores how to properly sensor tag the product, we were able to prevent $30K per store in losses," states Montez, a testament to the fact that technology alone does not solve LP problems, but that technology, married to good LP practices, definitely makes an impact.
Montez's team works on a hybrid LP model where the stores are concerned. The actual security and external investigative functions are outsourced, allowing Montez's department to be a little leaner. The team focuses mainly on shrink-prevention awareness programs, internal investigations, financial-fraud prevention, remote store audits, and remote viewing. All of American Apparel's stores worldwide are extensively monitored with cameras, except where local laws prevent such video.
Much of American Apparel's LP efforts related to the stores are centered around inventory discrepancies, with an extra close eye given to American Apparel's high-shrink markets. "We're essentially concerned with internal process operations, auditing, and reviewing store footage," Montez states. However, Montez does not take outsourcing lightly. "You can only outsource something that you have mastered yourself," he adds, referring to the fact that his highly experienced LP team knows how to oversee critical store LP functions without actually having to perform the task themselves. American Apparel's LP team isn't beholden to their outsourced in-store LP teams while being left in the dark. They are firmly in charge of them.
The corporate culture change envisioned by CTO Shulman has also trickled down to the retail stores, where efforts are underway to bring store managers into the new culture of accountability. In a break from the norm, store managers are encouraged to directly communicate with Montez and his team, and he hears from them frequently regarding the issues they are experiencing.
American Apparel Today
A year-and-a-half after a massive LP paradigm shift within American Apparel, the results are already apparent. While Shulman feels that within the past year the foundation has been laid for future efforts, positive results are already starting to show. According to Montez, American Apparel's CFO is already receiving compliments on the job that the IT department...and thus, the LP department...is doing.
What's it like being headed up by an IT department? "Technology groups are just more creative when it comes to LP issues," states Shulman, and Montez concurs. "It improves and modernizes the asset protection department," he believes.
It's no coincidence that American Apparel, a company known for being completely different in almost every way to its competitors, uses a novel...and frankly unorthodox...model with which to run its LP efforts. And like everything else American Apparel does, its fledgling LP department is enjoying much success, with an increasingly bright future in store...and in factory.
