Shareholders will be looking to Paula Schneider to win back shoppers

Shareholders will be looking to Paula Schneider to win back shoppers

Ten days into her new role as American Apparel CEO, industry veteran Paula Schneider sounded a confident note as she told investors and analysts this week that she is ready to build on the solid foundations of the business.

Shareholders will be looking to Dov Charney's replacement to win back shoppers, after the company's founder was fired last month following allegations of sexual misconduct that threw the company into turmoil. As a result, Schneider has inherited a brand with a poor reputation and successive quarterly losses.

In November, the fashion retailer posted another loss in its third-quarter on lower retail and online sales. Interim CEO Scott Brubaker, however, pointed to a 38% year-on-year improvement in adjusted EBITDA.

Schneider used a company conference call this week to offer some confidence to investors that there is a light at the end of the tunnel, and of course, a strategy to return the company to growth.

"American Apparel is one of the most recognisable brands in the world and it's an honour for me to join the team," she told listeners. "I believe there are four priorities that will form the business strategy for this company and I believe these priorities will help grow American Apparel to help the company achieve its potential and to create shareholder value. We've made some progress against these priorities since the fall but there is a lot of work to do."

Four-pronged focus
The first priority will be to "build some strong business fundamentals" that will allow American Apparel to compete successfully in the marketplace and capture the attention of its customers.

"There is tremendous competition out there for consumer dollars, and we're bringing to our store, both in bricks and mortar and in e-commerce, great products and experiences that will differentiate us from our competitors. We can't and we don't take anything for granted in this retail environment. To achieve these goals we're developing our best in class fundamentals, in planning and forecasting, product development, SKU rationalisation, in marketing, sales and in the supply chain."

She also spoke of the need to invest in, and grow the brand.

"The fashion landscape has become increasingly competitive, and we'll continue to be creative and we'll continue to be bold when we relate to our consumers. The essence of the American Apparel brand will remain the same, as will our commitment to an innovative marketing programme that shares our unique and really iconic branding message. We're continually evaluating who our consumer is and aligning our products with their beliefs and fashion tastes. We'll be focusing on these efforts more in the next few months."

Thirdly, Schneider pointed to her belief that by implementing the first two priorities, the foundation will be laid for increased EBITDA and earnings.

"Our EBITDA has improved substantially over the course of the year and we have the opportunity to build on these historical levels," she explained.

"Fourth, we place a strong focus on liquidity. As you know American Apparel has experienced liquidity challenges from time to time. However, I think many of the short term challenges say less about the underlying strength of the brand and more about a lack of strong fundamentals. We're focused on balance sheet management and profitability, which we believe will have a positive impact on liquidity and on cash flow," she added.

Industry veteran
There is no doubt Schneider has a mammoth task on her hands, but her experience places her in a strong position, and she may just have what it takes to turn the company's fortunes - and its reputation - around.

She has spent her entire career in leadership positions in the apparel industry. At lingerie and swimwear giant Warnaco, which makes items for Speedo and Calvin Klein, she oversaw a 25% increase in direct operating profit in two years. Following on from that, she joined junior sportswear company Big Strike, where she helped increase revenues by 19% between 2010 and 2012.

Schneider has also earned a reputation for improving the financial performance and operational efficiencies of numerous global fashion brands. Other gigs have included Gores Group, BCBG Max Azria, and Laundry by Shelli Segal.

"During my career I've overseen every aspect of a fashion business from marketing and sales to design and manufacturing," she told analysts. "I'm excited that I can bring that experience to American Apparel having seen first hand what a vertically integrated fashion company needs in order to build successful brand strategies and improve our operating income."

Investors clearly have confidence in her too, with her appointment sending American Apparel shares up 8.6%.

With any new tenure there is a risk that a new strategy will bring massive changes, but Schneider is keen to emphasise that she is dedicated to making American Apparel a better performing company, not completely a different one.

She added: "As we continue to try to optimise the performance of the company, we have a huge competitive advantage, with manufacturing right here in LA. Our vertically integrated business model provides speed to market and the ability for us to take more market share."

Also to remain untouched will be American Apparel's commitment to producing clothes that are made in the US, which Schneider says are "sweatshop free and with fair wages for employees".

Indeed, the apparel retailer derives 75% of its sales from its staple, US-made basic products like T-shirts, sweatshirts and accessories.

Inevitably, however, while Schneider has her eye on her four priorities, she will no doubt look to the low hanging fruit first, and that could mean cost cutting and store closures.

She responded to one analyst: "When you're a retailer, you have to look at what your performing stores are and your underperforming stores and that will be a normal course of events for us. I'm in the process of clarifying our objectives and our plans for 2015 and it's really the business fundamentals and a lot of that is planning and forecasting."

Beyond that, Schneider says a strategic plan will be established that will build on the initiatives already in place.

"A lot has been accomplished but there is a lot more to do. The foundation of the company is solid. We're starting with a great platform."