American Apparel’s Sleazy Former CEO Is Leading a Worker Revolt Against the Company
Last summer, American Apparel at last rid itself of Dov Charney, its notoriously sleazy founder and former chief executive. But instead of fixing the company’s problems, that decision seems to be compounding them.
Since being forced from his post, Charney has reportedly begun stirring an “internal revolt” among American Apparel’s workers. Last weekend, he rallied 300 of the company’s current and former textile employees at a secret meeting in Los Angeles and appealed to them to reinstate him as CEO. Charney told the workers that American Apparel’s board had turned against him and had no understanding of how to run the business. Then, he called for the workers to organize.
Several days later, what started as a surreptitious gathering has escalated after American Apparel employees filed two complaints with the National Labor Relations Board alleging that the company intimidated workers and banned interactions with the press. The complaints look pretty terrible for an organization that built its image on being “sweatshop-free” and takes pride in paying workers above the minimum wage.
The first complaint alleges that on Feb. 16 American Apparel dispatched security to a meeting of employees who were discussing concerns about their hours. After the meeting ended, the complaint alleges, one of the employees was “accosted and interrogated by an American Apparel security employee” who “demanded information on her involvement at the meeting and forced her to turn over to him the information flyers that she had received” and seized and photographed her employee ID badge. The second claims that on Jan. 25 American Apparel implemented a media policy that violates the National Labor Relations Act by banning employees from speaking to the press.
American Apparel says it will investigate the allegations and that it is “dedicated to a culture of free speech and social commentary.” Paula Schneider, the woman who replaced Charney as CEO, also emphasized in a recent interview with Refinery29 that the strategy she’s developing for American Apparel is a “bottom-up process.” That said, the week before Charney held the secret L.A. meeting, Schneider sent an email in Spanish to workers pleading for their patience and cooperation. “Please, know that there are external forces trying to cause trouble and affect our business,” she wrote. “I ask you please, do not misinterpret actions.”
Based on this week’s events, though, those employee loyalties to Charney are going to die hard. And it will take more than an email from Schneider to change that.
Ice Cream Startup That Ripped Off Ben & Jerry’s Isn’t Worried About Being Sued
Imitation may be the most delicious form of flattery—especially for startups taking on consumer-products giant Unilever.
Three months after the owner of Hellman’s Mayonnaise dropped its lawsuit against Hampton Creek over its egg-less “Just Mayo,” another small food company is unveiling artisanal versions of Unilever products. This time, organic ice cream startup Three Twins is selling pints that are open riffs on two popular Ben & Jerry’s flavors.
“You could say it’s complementary, you could say it’s a shot across the bow. It’s really up to the beholder,” Three Twins founder Neal Gottlieb said Thursday.
His company’s newest ice creams are the rather innocuously named “banana nut confetti” and “cherry chocolate chunk.” But in case you miss any similarities to Ben & Jerry’s Chunky Monkey and Cherry Garcia, Three Twins’ cartons helpfully spell them out: “We’re not monkeying around with this combination of banana, walnuts and chocolate,” reads the pint for Three Twins’ banana nut walnut ice cream.
Its cherry flavor nods to Cherry Garcia’s namesake, late Grateful Dead guitarist Jerry Garcia: “You’ll be grateful that this sumptuous combination is available in organic.” And the startup’s press release makes it clear that Three Twins isn’t just playing with language: “Rather than a tribute to those that originated this flavor, we think that it’s a great improvement,” Three Twins says of its cherry chocolate chunk.
This sort of close imitation is a potentially risky way for Three Twins to increase its sales, especially since Ben & Jerry’s owner Unilever has recently gone to litigious lengths to defend its product branding. The company last year sued Hampton Creek over its use of the word “mayo,” claiming that “Just Mayo” had no eggs and thus could not meet the definition of mayonnaise.
On the one hand, that worked out well for Hampton Creek: Unilever dropped its lawsuit in December, and the startup pulled down a ton of publicity in the process. On the other hand, Gottlieb seems to be flirting with fire, even though he vetted the strategy through his lawyer (who nixed an earlier name for Three Twins’ banana nut flavor: Cheeky Monkey).
“I’m not stupid. We’re not going to do something to draw out a lawsuit from Unilever,” Gottlieb told me. Getting sued by a giant competitor “worked out for Hampton Creek, but it probably wouldn’t work out for most companies.”
Three Twins' new flavors were in the works before Unilever sued Hampton Creek, and Gottlieb says he’s hoping they attract a broader audience to the once “pretty boring” organic ice cream aisle: “A big part of what we’re doing is trying to make sure people don’t have to give anything up in order to embrace organics.”
But the brand Three Twins is tweaking has a significantly different consumer reputation than Hellman’s and its mass-market sandwich condiment. While it's owned by the same multinational conglomerate, Ben & Jerry’s has been a pioneer of politically conscious and sustainably produced food, and has remained involved in social and environmental activism even after its 2000 sale to Unilever.
Ben & Jerry's seemed to take the Three Twins tribute in stride Thursday. "If imitation is the most sincere form of flattery ... we'll consider these delicious. Just as long as they don't bump off that fabulous lemon cookie flavor, we're cool with it," said Sean Greenwood, director of PR and communications.
Gottlieb is no stranger to courting controversy. A former Peace Corps volunteer, he became the subject of widespread press coverage in April after he hiked to the top of Uganda’s highest mountain and planted a rainbow flag there. The country’s government had recently criminalized homosexuality and made it punishable by penalties including life imprisonment.
Gottlieb, who lives on a 40-foot houseboat and showed up for a recent meeting wearing a bow tie and trousers printed with images of his company’s green ice cream cartons, started Three Twins in 2005.
The company, based in the San Francisco Bay Area city of Petaluma, had sales last year of $8.9 million. The ice cream production industry had total revenue of $8.4 billion in 2014, according to IBISWorld. Unilever, which also owns Breyers, Klondike, and other ice cream brands, is second only to Nestle in that market, and has annual ice cream–related revenue of $1.5 billion, according to IBISWorld.
Flavors aside, Gottlieb’s activism might be appreciated by Ben Cohen and Jerry Greenfield, who started their ice cream business in 1978. The founders are still willing to talk political and social change, and recently told the Huffington Post that they might consider making a cannabis-laced Ben & Jerry’s flavor in places where marijuana is legal.
Correction, March 6, 2015: Due to an editing error, this post’s headline originally misstated that Three Twins wanted to be sued.
Why Staples’ Terrible Sales Might Be a Godsend for the Company
Staples has been having a rough day. The office-supplies company posted its eighth-straight decline in quarterly sales. It also said that when sales tallies for the current quarter come in they likely won’t look much better. Shares are down a little more than 2.5 percent to just over $16 in midday trading. And strangely enough, these sour results might be just what Staples needs.
Early last month, Staples inked a deal to buy Office Depot for $6.3 billion. If approved, the merger would combine the two companies into a formidable office supplier with roughly 4,000 stores and more than $35 billion in annual sales. When the same merger was proposed in the late 1990s, antitrust regulators successfully shot it down. To get the merger past regulators this time around, Staples needs to prove that things have changed—which is where weak sales come in.
The main argument for allowing the Staples–Office Depot merger to go forward is that the office-supplies retailing landscape in 2015 is fundamentally different than it was in the late 1990s. Today, we have Amazon. We have Walmart. We have Target. We have Costco and BJ’s and Sam’s Club. When Office Depot merged with OfficeMax in 2013, the Federal Trade Commission wrote in its review that “the current competitive dynamics are very different” from when the Staples–Office Depot merger was proposed in the late 1990s, and that “today’s market for the sale of consumable office supplies is broader.”
Despite those arguments, the FTC is expected to closely scrutinize the latest deal. Even with those other retailers—both in the physical world and online—there are only so many places where companies can place their bulk office-supplies orders. As Bloomberg noted in February, mergers often lead to price increases for consumers, and “letting No. 1 Staples eat its combined competition might leave it with excess pricing power.”
Staples, on the other hand, would like regulators to believe that a merger will not hinder competition, but help it. The logic here is something like Staples is no longer equipped to compete with the big-box retailers and the e-commerce giants of the world, and that once it merges with Office Depot it will be more of a competitive force to reckoned with, thus helping consumers. This may or may not be true, but continually weak sales are certainly a good way to help sell it. “One of the biggest takeaways from Staples’ earnings is the importance of a merger with Office Depot to get this company back to underlying EBIT (earnings before interest and tax) growth,” Credit Suisse analyst Seth Sigman wrote in a note Friday morning.
For Staples' shareholders, two years of declining shares may hurt. But if the FTC approves the merger, they also might have been worth it.
We’re Adding Jobs Aplenty. But Why Aren’t Workers Getting Bigger Raises?
The job market continued its pleasantly healthy growth streak in February, as payrolls increased by 295,000 and unemployment fell to 5.5 percent, according to the Bureau of Labor Statistics. Here's the long-term picture:
But at this point, the big news in the jobs report isn't really about jobs anymore. It's about wages. And on that front, the news was seemingly more mixed. Over the year, hourly pay is up 2 percent, which is typically considered low. While retailers like Walmart and TJX have recently made headlines after announcing they would hike pay for their workers during the coming months, it still seems like American workers are still broadly waiting for a raise.
Or are they? In general, 2 percent wage growth is considered low because it's right around the inflation rate (or at least, the Federal Reserve's ideal inflation target). But, thanks to the welcome return of cheap oil and gasoline, prices have have been dropping recently. Over the 12 months ending in January, the consumer price index actually fell 0.1 percent. If you take food and energy out of the math, the result changes a bit—so-called core inflation is up 1.6 percent. But that number matters more for monetary policymakers. For consumers, putting a meal on the table and filling up the family car are major budget items. Those expenses have become cheaper, meaning that families feel richer, and on top of that, they've gotten a 2 percent raise.
It's a little harder to tell exactly what those pay hikes say about the strength of the labor market. When employers set pay, they aren't necessarily just thinking about the inflation rate. They're just trying to compete with other businesses for decent workers. Two percent wage growth doesn't seem like a sign that managers are getting desperate in their search for talent. But the fact that pay is growing faster than other expenses at least suggests companies are feeling some pressure to compete.
Wage growth has also varied a great deal by industry. Aside from the information business, over the past year it's been fastest in low-pay sectors like retail and leisure and hospitality, while in some higher-pay corners of the economy, like manufacturing, it has been quite a bit slower. My guess is that may have to do with recent state-level minimum-wage increases, and would explain partly why companies like Walmart are moving ahead on compensation. If state minimums are playing a major role, that would suggest the labor market isn't actually super-tight.
Again, the reason wages matter so much right now (aside from the fact that we all like rising living standards) is that the Federal Reserve is on high alert for any signs of coming inflation, and quickly rising pay would be a telltale sign. If it comes, the central bank will likely raise rates and cool off the economy, trimming those rosy jobs numbers we've gotten used to. But as of right now, the wage picture is mixed, and as for actual inflation—well, that seems a very long way away.
McDonald’s Is Finally Phasing Out Antibiotics in Chicken. Thank Chipotle.
The battle by McDonald’s to bring customers back into its stores has been long and fraught. Don Thompson, the company’s former CEO as of March 1, couldn’t turn the chain around after more than two years at the helm. Nor could Ronald McDonald’s makeover or a transparency campaign featuring TV star Grant Imahara. Chances are the “Pay With Lovin’ ” campaign didn’t do it, either. But the latest attempt from McDonald’s to woo consumers isn’t a cheap publicity stunt, or a terrifying mascot rebranding, or even a limited-time offer of the McRib. Instead, it’s something an overwhelming number of consumers desire and seek out—and you should thank Chipotle for that.
McDonald’s said Wednesday that over the next two years it plans to phase out all “antibiotics that are important to human medicine” in the chicken it serves. Already, the move is being praised by advocates of sustainable and responsibly produced meat. McDonald’s is one of the biggest purchasers of chicken in the United States and bought up an estimated 3 to 4 percent of the nation’s 39 billion pounds last year. If the company decides it’s done with certain antibiotics, you can bet that the agriculture industry is going to listen.
The funny thing is that McDonald’s decision really didn’t start with McDonald’s—it began with fast-casual chains like Chipotle. The Mexican grill chain that won the hearts and stomachs of America has gone to great lengths to distance itself from the traditional fast-food sector. And it’s accomplished that largely by emphasizing its sustainability and leading the charge into antibiotic-free meat. In May 2012, NPR reported that the still-tiny antibiotic-free meat industry was receiving a sudden burst of attention because of Chipotle. Since then, consumer spending on chicken raised without antibiotics has surpassed $1 billion and retailers as mainstream as Walmart and BJ’s have begun stocking it.
Of course, Chipotle can’t claim all the credit. Lots of other restaurant chains—smaller than McDonald’s but still significant—have hopped on the antibiotic-free train, including Panera and Chick-Fil-A. At the same time, Chipotle has probably been the most instrumental in raising consumer awareness of antibiotics in meat. “I don't think that Chipotle has directly put pressure on McDonald's,” says Darren Tristano, executive vice president of restaurant industry research firm Technomic. “I think that Chipotle’s use of proteins that don't have antibiotics has educated consumers and raised consumers’ expectations about what kind of food they find healthy.”
The World Is Running Out of Places to Store All of Its Oil
The world is now pumping so much more oil than it needs that corporations are apparently running out of space to store the stuff. If the globe were a giant gas tank, its meter would be getting close to full. Here's how the Wall Street Journal sums up the situation in numbers today:
U.S. crude-oil supplies are at their highest level in more 80 years, according to data from the Energy Information Administration, equal to nearly 70% of the nation’s storage capacity. A key U.S. storage hub in Cushing, Okla., is expected to hit maximum capacity this spring. While estimates are rough, Citigroup Inc. believes European commercial crude storage could be more than 90% full, and inventories in South Korea, South Africa and Japan could be at more than 80% of capacity.
The main cause here, again, is that oil production is still outstripping demand. But the problem is being exacerbated because the crude market has entered what's known as contango, which is when buyers are willing to pay more for oil delivered a few months from now (when supplies might finally drop and bring up prices) than they are for oil delivered today. Investors have responded by snapping up cheap crude now, putting it in storage, and locking in futures contracts that amount to guaranteed money. (Good news for them: There's even talk of the market hitting "super contango.") As a result of all this activity, the Journal reports that the cost of storage itself is rising, which is leading to the creation of the brand new trade in oil storage futures. Weird things are happening.
As storage space becomes ever more scarce, it could ultimately force prices lower, as drillers find themselves with fewer customers who have the capacity to hold onto the crude. That's one reason Citibank analysts have suggested the cost of a barrel could potentially drop to around $20. That said, if the situation gets bad enough, drillers may finally just choose to leave their oil in the ground. Also, companies are presently building more storage capacity, which could alleviate the problem a bit.
But anyway, the main takeaway here is: If you happen to have a large backyard swimming pool, or just a really big ditch, put oil in it. Lots of oil. It's a sure bet. No, no need to thank me for the advice. That's just what we're here for at Moneybox.
There’s Nothing Quaint About Etsy’s IPO
Etsy, the artisanal online marketplace and standard-bearer of the “quaint economy” and burgeoning Brooklyn startup scene, did a very unquaint thing on Wednesday: It applied to be listed on the Nasdaq Stock Market in an initial public offering that, according to preliminary documents, could raise as much as $100 million.
Etsy, which values itself at about $1.7 billion, has yet to turn a profit. In 2014, it recorded a net loss of $15.2 million, according to its prospectus. The two years before that, it lost $796,000 and $2.4 million. At the same time, its revenues have grown substantially. In 2012, Etsy said it produced $74.6 million from its marketplace, seller services, and “other” things; in 2013 that figure climbed to $125 million and in 2014 it reached nearly $200 million.
Where is all this revenue coming from? Etsy says it had 1.4 million active sellers and 19.8 million active buyers as of Dec. 31, 2014, and that year the average seller on it platform contributed $1,400 of revenue. That said, it also defines these things rather loosely. An active buyer is someone who had made “at least one purchase in the last 12 months”; an active seller “has incurred at least one charge from us in the last 12 months.” Etsy makes money by charging 20 cents to sellers for each product listed on its platform and taking a 3.5 percent cut of each transaction.
With its IPO plans, Etsy sees itself capitalizing on several promising economic trends, or what is best summed up as the quaint economy (TQE). These include increased consumer interest in local or handmade products, a trend toward freelance work, and of course a ballooning market for mobile and online shopping. Etsy notes in its prospectus that failing to maintain the image of an “authentic, trusted marketplace” that values “unique offerings” and “handmade goods” could be a risk to its business.
And yet, sellers on Etsy’s platform are among the first to admit that the company long ago departed from its authentic and handmade roots. In late 2013, Etsy changed its policies to allow sellers to partner with outside manufacturers to produce their goods. The shift angered many of Etsy’s earliest users, but some still found it hard to leave because of the company’s huge customer base. “I think Etsy has already lost some of its quaintness, but as long as buyers can differentiate between the genuine handmade goods and the imported impostors, then it’s OK,” Rachel Pfeffer, a jeweler on Etsy, wrote me in an email.
It’s anyone’s guess whether Etsy will be able to hold onto what’s left of its image as it goes public. The important point would seem to be that to succeed it might not have to, despite what the risk factors say. The inherent irony in the quaint economy, after all, is that so much of “quaint” is tied up in keeping things small, and so much of “economy” is about scaling up to just the opposite. There’s nothing quaint about an IPO being led by Goldman Sachs, Morgan Stanley, and Allen & Company. And similarly, there’s nothing quaint about a $1.7 billion valuation, no matter how many ceramic water-lily coasters are behind it.
Ringling Brothers Will Drop Its Elephant Act
It's 2015, and compassionate human beings are beginning to feel queasy about watching charismatic megafauna poked and prodded to perform tricks for children's amusement (see SeaWorld's crashing attendance and financial troubles). So today, Ringling Bros. and Barnum & Bailey Circus is announcing it will retire its famous elephant act by 2018, according to the Associated Press. "There's been somewhat of a mood shift among our consumers," an executive at Feld Entertainment, the circus' parent company, told the wire service. "A lot of people aren't comfortable with us touring with our elephants."
This is a win for animal-rights groups that have long accused Ringling of abusing its pachyderms. Much of the controversy has focused on the circus' use of bullhooks, the long, steel-tipped rods that handlers wield to control and train the elephants, and look a bit like large fire pokers. PETA, for instance, has released undercover video of the animals seemingly being beaten with the instruments. Ringling and its supporters insist that the hooks don't inflict pain thanks the the elephants' tough skin, and are mostly used to nudge and guide the animals around. But some of the film can be a bit rough to watch.
In 2000, a former Ringling employee named Tom Rider, backed by animal activists, sued the circus alleging that its treatment of elephants violated the Endangered Species Act. But the case ended rather poorly when it finally went to trial nine years later. A federal judge concluded that Rider, who had received at least $190,000 in support from activist groups, was a "paid plaintiff" and ruled for the circus, which later brought a racketeering case against its accusers.1 By 2014, the Humane Society of the United States, the Society for the Prevention of Cruelty to Animals, and other organizations ended up paying $25 million to Feld Entertainment in order to settle various claims.
While their courtroom efforts can only be described as a misbegotten legal disaster, animal groups have been successfully pressing their case in public. Cities including Oakland, California, and Los Angeles have passed bans on the bullhooks, which Ringling said would prevent them from bringing the elephants—or the rest of the circus—to town. Feld Entertainment President Kenneth Feld told the AP that the proliferation of those laws was a major reason the company is dropping its elephant act:
Another reason for the decision, company President Kenneth Feld said, was that certain cities and counties have passed "anti-circus" and "anti-elephant" ordinances. The company's three shows visit 115 cities throughout the year, and Feld said it's expensive to fight legislation in each jurisdiction. It's also difficult to plan tours amid constantly changing regulations, he said.
Whether the bad publicity was cutting into Ringling's profits is a bit difficult to say. Feld Entertainment was reporting record earnings and attendance as recently as 2012. But the private company is an entertainment conglomerate that also stages shows like Disney on Ice, Monster Jam truck rallies, and Marvel Universe Live! Whether bad press was leading to empty seats at the circus is a bit unclear. Though, it's worth noting that its wildly successful competitor, Cirque du Soleil, is animal-free. It seems reasonable to guess that audience tastes have been changing.
So, what happens to the elephants once they're no longer marching around in a circle? Feld Entertainment says that they'll be moved to its Center for Elephant Conservation in Florida, a 200-acre property where it already keeps some of its animals. I guess there are worse places to retire.
1In order to bring the suit, Rider was required by federal law to demonstrate that he had an emotional attachment to the elephants. The cash, suffice to say, raised questions about the purity of his intentions.
All Hail Austin, Texas, the Boomingest Big City of All
Stories about America's urban renaissance have become something of a cliché by now. But there's a reason for that—they're true! Big cities are growing faster than the country as a whole, which is basically for the best (dense urban areas tend to be more efficient and economically productive, after all). And today, the Census Bureau shared its estimates of which locales have expanded quickest in these post-recession years. Among the 25 largest cities in the country, top prize goes to Austin, Texas, which experienced a 12 percent population surge between 2010 and 2013.
It's not much of a mystery why Austin has fared so well. The city was only lightly affected by the recession, thanks in part to the fact that Texas was generally spared a housing bust, and its local economy is anchored by a state government, a massive university, and a tech scene. And yes, it's fun and still at least a tiny bit weird (RIP Leslie). But what's interesting here is that all over, large cities are outpacing the U.S. writ large. It's not even about regional migration: The South and West grew at 3.3 and 3.2 percent rates, slower than cities like Denver, Phoenix, and San Diego.
Of course, there are exceptions. Los Angeles, Chicago, and Philadelphia are lagging behind the national growth rate. And poor Detroit.
To be clear, meanwhile, we are talking about cities specifically here, not metro areas that encompass the suburbs. The Census Bureau is specifically analyzing growth patterns in "incorporated places," the legal entities you and I know as cities, towns, and so forth.
One other interesting tidbit: As a group, the largest cities, with populations exceeding 1 million, are growing far, far faster than before. During the entire first decade of the 21st century, they expanded by 2.1 percent. Between 2010 and 2013, though, they've bulked up by 3.1 percent. Though the Census Bureau doesn't break down the numbers on this front, my guess is that mostly has to do with fast-growing cities in the South and West crossing the 1 million threshold then continuing apace.
Anyway, well done Austin. Have a Lone Star.
Just Over Half of Americans Want Congress to Fix Obamacare if the Supreme Court Wrecks It
The Supreme Court is hearing arguments right now in King v. Burwell, a case that could thoroughly wreck Obamacare by nixing the insurance subsidies provided by the law for Americans in the 37 states that didn't set up their own health care exchanges. Earlier this week, I noted that a number of Republicans were getting nervous about the political ramifications of such a decision and were suggesting that Congress pass a "transitional" bill to keep the subsidies alive temporarily in order to avoid voter outrage over nightly news stories about sick people losing their coverage. If the justices gut the law, I argued, political expedience might save it for a while.
I might have spoken a little too soon. According to a new NBC/Wall Street Journal poll, just 54 percent of Americans say they want Congress to pass a law fixing the subsidies should the court strike them down. Thirty-five percent said Congress definitely should not. The rest said "it depends" or weren't sure. But crucially, there was a severe partisan split: Eight in 10 Democrats want lawmakers to restore the subsidies, while only 1 in 4 Republicans want them to. Since House GOP members are by far most concerned with placating their base and avoiding primary challenges, that suggests they won't have much reason to take action in the wake of a court ruling against the administration. Maybe public opinion will shift once voters actually witness the results of eliminating the subsidies, but that's obviously a hypothetical.