Dec 22, 2006

Return of vertical integration?

Watching this video of American Apparel CEO Dov Charney on Charlie Rose (I think from July 2006), I was struck by these comments Charney made in response to a question about why American Apparel was so successful (my transcription):

"Its the easiest thing for us to do, in the sense of the way we've set up our business. We have our own retail stores and we have our own manufacturing and we've integrated the two and I can't imagine doing it any other way because its the easiest way to populate our stores with the right merchandise at the right time with properly composed inventory. . .

I think the reason American Apparel works is because we are able integrate manufacturing and retail very closely."

To some extent, this flies in the face of the core competency, edge theories that have been in vogue the past decade or so. For example, John Hagel has argued that integration of content with distribution, in the media world, does not work very well. And more here from Peter Klein.

On the other hand, American Apparel could simply be doing two things well: (a) ensuring design is very close (in terms of physical distance and speed to market) and (b) making a statement (for marketing or other purposes) about their manufacturing abilities (US based, high wages, etc) that fits in with the company's brand and ethos.

Is this vertical integration?