Amazingly, I actually support this decision. I admit, I have no clue what American Apparel is, but if it is a fashion oriented mall-type store, then yes, employees should be wearing the clothes they sell, and yes, employees should look the way the customer hopes to look in those clothes. When selling fashion, the employees act as low level models, in a way.
As a fan of comic books, wrestling and heavy metal, I am of course dead sexy and a gift to women everywhere, so I'm exempt from all of this.
However, it will HURT business if you hire a team of obese people to sell donuts. It will HURT business to hire people to sell clothes who dont look good in those clothes. It will HURT business to hire someone with acne to sell an acne medication. It will HURT business to hire a male dancer at your strip club (though sometimes I wonder about some of those girls...)
Once again, this is trying to force businesses to lose money because of personal shortcomings. The policy should be unspoken to avoid hurt feelings, but I have no problem with the unspoken policy existing.