The flashy story about American Apparel over the last year has mostly been about ousted CEO and founder Dov Charney's unethical workplace behavior, but those salacious tales have obscured the other major reason why he was shown the door: The company as a whole has been failing for years. Charney (who has filed numerous lawsuits to regain his position) departed the company after several years in the red, and while stories of his misbehavior make for racy copy, the real reason he was dismissed was probably his sub-standard management skills.
Yesterday, the company announced plans to cut about $30 million in operating expensive the old fashioned way, but closing underperforming stores, shrinking the size of existing stores, trimming payroll expenses and working to move into more profitable markets. The company also has high hopes pinned on its upcoming, revamped fall collection, its first under new CEO Paula Schneider, to drive sales.
The kicker is that the company's management is conceding at the outset that the new plan may not be enough to return the company to profitability. “Even if American Apparel increases revenue and cuts costs, there can be no guarantee that the company will have sufficient financing commitments to meet funding requirements for the next twelve months without raising additional capital, and there can be no guarantee that it will be able to raise such additional capital,” it said in a statement released along with the plan.
Many retail analysts have repeatedly pointed to the company's firm policy of manufacturing its products exclusively in the U.S. as a drain on profits, but the firm has repeatedly expressed its commitment to this strategy as one of the brand's defining values that attracts customers. At this point, the industry is waiting to see if American Apparel can turn itself around without a bankruptcy or being sold to a bigger company that may dismantle its domestic manufacturing policy. To its credit, the company and Schneider are being unusually transparent about the chain's condition in hopes to attract outside investment by showing that they are doing all the right things in the face of difficult conditions, but the news overall is somewhat less than promising. American Apparel fans should be keeping their fingers crossed for the chain's survival.
Two controversial apparel CEOs lost their jobs last year.
One, Abercrombie & Fitch's Mike Jeffries apparently recognized when it was finally over for him and left without creating a public spectacle.
The other, Dov Charney (pictured right), the founder of American Apparel, has been fighting tooth and nail to regain his position and control of the company he created, but it's not looking good. After his initial ouster, Charney joined forces with hedge fund Standard General in an unusual deal that combined his stock with their financial backing to regain control of the chain. Ultimately Standard General wound up supporting the board in its firing of Charney for a host of reasons, the most attention getting being his inappropriate behavior in the workplace over the years as well as allegedly misusing funds. Feeling double crossed, Charney has been pursuing legal action, but new reports have American Apparel gathering a sizable dossier of complaints from employees over the years about workplace conditions regarding their former boss's behavior. According to Bloomberg News, the complaints are recorded in e-mails as well as video and audio recordings and include incidents of Charney throwing a medicine bottle at an employee as well as calling another a "slut" and a "whore". A departing employee reportedly stated, "I’m afraid to return to work and face further abuse," in a resignation letter. An unnamed former American Apparel executive is said to confirm the reports that the former CEO was verbally abusive in the workplace causing several employees to quit as he was given to foul, derogatory language and embarrassing staffers in front of coworkers. Aside from the obvious inappropriateness of the behavior, it seems clear that Charney created a reputation for the company's workplace that made it difficult to retain highly qualified employees as well as attract new ones.
Charney denies the reports, and his lawyers are questioning the authenticity of the documents, though it is known that the company settled several sexual harassment lawsuits out of court during Charney's time running the company. What we do know for sure is that this feud is getting uglier and isn't looking like it will end anytime soon. One would have to ask the question, if Charney did somehow regain his position at American Apparel, how would he and the company look after the dirty fight that would have gotten him back there?
As the company attempts a turnaround under new CEO Paula Schneider, it's stock price has tumbled, and th most recent quarterly reports indicate a wider loss that the company will make up for by selling stock. Charney claims that he has been pushed out because the board wants to sell the company, which it denies, but if business doesn't pick up for American Apparel, it's hard to imagine how it can remain independent for much longer.
This week's twists and turns have brought some temporary resolution to American Apparel's precarious state of affairs from an unlikely source, namely a #25 million deal with Standard General, the hedge fund that initially appeared to be backing disgraced and ousted founder Dov Charney (pictured right) in his efforts to regain control of the company. It turns out that Standard General has been cannier than it first appeared, while Charney has not helped his cause by appearing to violate the terms of his suspension by making an impromptu visit to a Lower East Side branch of the chain earlier this week.
Standard General has been buying American Apparel stock recently in a plan that appeared to have it lending Charney the money to purchase it and presumably increase his stake in the company and regain control. It's not that simple. It turns out that their combined total is 44% of the company's stock, but under a new standstill agreement that halts any further purchasing of stock by the hedge fund, Charney is not allowed to vote those shares without Standard general's consent. In addition, the Hedge fund has agreed with current management to give the retailer $25 million to repay loans that triggered defaults upon the removal of Charney as CEO. This leaves Standard General with a great deal of influence in the company but under the agreement which lasts until the 2015 Stockholders' Meeting, it will limit its votes to no more than one third of the company's shares on any issue subject to stockholders' votes. What it will get for its investment is a reconstituted board that will still include current cochairmen Allan Mayer and David Danziger. As for Charney, who is still in arbitration over his dismissal, he will now hold the temporary title of strategic consultant pending the outcome of the continuing internal investigation over his alleged misconduct. That investigation will now be overseen by an independent board committee that will include cochairman Danziger, one Standard General designee and one joint designee yet to be named. Charney's ultimate role in the company, if any, will determined based on the results of the investigation.
So there. That's a lot to digest, but the take-away is that the chain is now financially stable for the time being, and its current management can now focus their energies on correcting the merchandising and operational problems that have sent American Apparel into a downward spiral over the past few years without Charney's interference. Other suitors, eager attracted by the prospects of molding a new American Apparel without having to deal with Charney have now been held at bay for the time being and maybe, American Apparel will become a cool place to shop again.
There is a peculiar sort of schadenfreude surrounding the ongoing saga of American Apparel founder Dov Charney's unceremonious ejection from his company. Information is streaming from multiple sources but, unsurprisingly, little of it conflicts with the conventional assessment that Charney was booted because his legendary sexual misconduct showed no sign of abating and also because he was misusing company funds and, possibly most importantly, failing to reverse the poor performance of his company.
The most interesting bit of commentary (and there is a lot of it) comes from our friends at The Cut, who cleverly chose to interview five unnamed American Apparel employees at the store level, none of whom seem to be sad to see Charney removed. Sexy stories aside, they paint a picture of a shoddily run company suffering the consequences of Charney's micromanagement and whimsical hiring policies. We hear of poorly prepared shipments, pointless transfer orders and a poorly made and merchandised product line that is failing to resonate with customers. "We interact with people in the corporate office pretty frequently, and there are a lot of truly incompetent people," says a backstock associate. Another tells of erratic merchandise deliveries and inefficient transferring of product from store to store to store, also revealing that rather than having an online distribution center, internet orders seem to be fulfilled from the retail stores, creating more inconsistencies and potential for careless mistakes. Store managers complain of poor upkeep. "We didn’t have an alarm system at my store for like three months, which was kind of sketch. I would be worried if I had that much merchandise in a store," says one, and another points out that Charney's micromanaging tendencies kept him from dealing with larger, more pressing, systemic problems. "Whenever he comes to New York, everyone is super-scared because he’ll just stay stuff that’s like, 'Whoa'," says a sales associate, "But I think it will be better, to be honest. It can’t get any worse than this." When the stockpeople are rolling their eyes at the CEO's incompetence, you know that the problems go way beyond his inappropriate behavior.
Meanwhile, this particular story has the unique quality of being relevant in both hard business press outlets and lighter gossip sources, so there's plenty of news to go around. Buzzfeed has a copy of the actual letter delivered to Charney informing him of his termination and explicitly enumerating the reasons including a Breach of Fiduciary Duty, Violation of Company Policy and Misuse of Company Assets specifically, and noting that his behavior has degraded the company's reputation and therefore made it difficult to find adequate financing with him in charge. The Financial Times has the only interview with Charney, so far. “This is the year American Apparel fully recovered. This has to manifest itself to its full conclusion, with me there,” he tells them. “I think I will be back in my office before long. I will make this company happen with me still at the helm.” He is reported to be looking to combine his shares with those of supportive shareholders to subvert the board's decision in addition to pursuing his lawsuit demanding reinstatement. Major investors, however, do not seem interested in taking his side, and the company's stock prices immediately rose upon news of his firing, suggesting that the business world has been waiting to see him ousted. Today's report from WWD has newly appointed cochairman Allan Mayer promising that even without its original creative force, the company would remain true to its familiar aesthetic. “There is something at the core of the American Apparel brand that is slightly transgressive,” He says. “That is not to everybody’s taste — and sometimes it’s not to my personal taste — but it’s what the company is and we’re not going to change.”
Without question, there will be more coming on the 23 or so days until Charney's suspension becomes a termination. Stay tuned for more developments.
5 American Apparel Employees on Dov Charney’s Ousting By Katie Van Syckle (The Cut/NTMag)
You didn't think it would be that simple, did you?
Suspended and soon to be former American Apparel CEO Dov Charney (pictured at right) is reportedly mounting a legal battle to retain his position in the company he founded despite being suspended with the intent of termination last week. Given the choice of remaining as a consultant or being fired, Charney chose to be severed from the company. His attorney immediately sent a letter to the company which board co-chairman Allen Mayer called "...exactly what we’d expect to get from Dov’s lawyer in a situation like this. We continue to believe we did the right thing, for the right reasons, in the right way. We are very confident we are on very strong legal ground."
Charney's firing was specifically with cause, meaning that according to his contract, he will be ineligible for the multi-million dollar "golden parachute" severance package he would otherwise be entitled to. While the board has been vague about exactly which cause led to their actions, new reports suggest that, among other things, Charney independently authorized the release of nude photos of one of the former employees who was suing the company as well as the creation of a fake website that could be considered defamatory of her. This may have been the proverbial straw that broke the camel's back amidst a series of similar lawsuits that the company settled combined with the entire company's poor performance over the past few years. As predicted, the weekend press has included a detailed recounting of Charney's sordid history of harassment lawsuits and his defiant refusal to admit wrongdoing amid reports of asexually charged workplace atmosphere under his stewardship. In addition, an explicit video of a nude Charney dancing around while talking on a phone surfaced on the internet for the benefit of those who needed to see every (and we mean every) last detail. It couldn't help his case much, but the incessant rehashing reflects poorly on the brand in general just as it may have the opportunity to finally leave its shady behind-the-scenes reputation behind. The board's biggest risk, however is not renewed discussion of corporate scandals, but the fact that Charney's firing may have triggered a default under its credit agreements that could a bankruptcy if lenders do not provide waivers for the brand to proceed with re-organization. This could set the company up for an acquisition which in turn could put in jeopardy the label's core value of exclusively manufacturing its goods in the United States. Wall Street, however, responded favorably to Charney's removal, however with the company's stock rising 6.7% upon the news of his firing. It looks like the business world as has a it more faith in the brand without its controversial mastermind than it dis with him in place. More to come on this story as the 30-day suspension period plays out.
It's been a rough week for the fashion world's resident creepers.
First, embattled star photographer Terry Richardson offers a weak defense in New York Magazine for the multiple allegations of molest-y behavior on his non-commercial photo shoots, and now, the board of American Apparel is pushing out the company's founder and CEO, Dov Charney. WWD reports:
Charney has been suspended from his executive roles and his termination will be effective following a 30-day "cure" period stipulated in his employment agreement.
The decision to remove Charney comes after ongoing investigations of alleged misconduct. Though news has been quiet on the American Apparel front in recent months, Charney has famously been at the center of several lawsuits against the company alleging sexual misconduct on his part. The brand's history of sexually charged promotional imagery, much of it photographed by Charney himself, didn't help his public image although none of the seven lawsuits had ever made it to a trial. Instead, they were dismissed, remanded to arbitration or settled with no liability to the company. Though they were mostly irrelevant in respect to the legal cases, billboards and window displays focusing on scantily clad models (including the occasional porn star) in suggestive poses have repeatedly raised the ire of feminist and neighborhood activist groups. One particular billboard featuring a film still of Woody Allen in "Annie Hall" brought yet another inevitable lawsuit from Allen and his film studio as well as accusations that Charney was using the company and its resources for his own personal aggrandisement. Charney's own position in the company has been weakened as its rapid expansion over the past 15 years required public offerings and investment from other investors that brought on board members with less patience for Charney's autocratic style. Though the sexual misconduct lawsuits brought negative publicity, it may have been Charney's competence as a financial leader that has ultimately brought him down, mainly by diluting his ownership and the control he would have had over his own professional fortunes. The company's CFO John Luttrell has been appointed as interim CEO, and the board promises that the brand's core concept of manufacturing exclusively in the United States will remain intact. More information is expected to emerge over the next few days, so stay tuned, but exactly how the company and its offerings will change without its main creative force remains to be seen.
Saks isn't the only New York store that got a new owner this week. In a surprise move, sportswear chain American Apparel has purchased the New York boutique mini-chain OAK including both of its stores, its online e-commerce site and its wholesale business. This is the first time that chain has acquired another retailer, which it plans to continue operating separately from the main chain under its founders Louis Terline and Jeff Madalena. “This is their division. They are being empowered to grow their business,” AA Chairman and CEO Dov Charney tells WWD. The pair will also offer creative input for the American Apparel chain. Oak currently operates two stores, one in on Bond Street in NoHo and another on Nassau Avenue in Greenpoint, Brooklyn. Compared to its new owner's affordable basic sportswear, it operates in an entirely different category offering much more exclusive, directional and expensive merchandise in the contemporary price range. The new deal will allow Oak to expand both overseas and in the U.S. with potential possibilities including Seoul, South Korea where AA has available space, and Los Angeles where its new parent company is headquartered and the brand's spare, modern fashion sensibility would have natural appeal. In addition, the stores will be able to take advantage of more sophisticated back office and e-commerce systems as well as in-house manufacturing capabilities for its wholesale collection, so faithful customers here in New York can expect to see a stronger and possibly bigger Oak in the coming months.
American Apparel Purchases N.Y. Specialty Retailer Oak (WWD)
OAK (Official Site)
The retail industry is focused on American Apparel once again this week, but it's not because of the chain's risqué ads or questionable employee dress codes. This time it's pure business as the company's stock plummets after reports of missed debt payments, SEC inquiries and subpoena's from the U.S. Attorney Office for the Southern District of New York. Among other woes, the company's auditing firm, Deloitte & Touche has resigned which delayed its ability o properly report its business. It's California factories were hit when the brand was forced to terminate over 1,500 workers over lack of documentation, thus hindering its ability to quickly respond to market trends.
Put simply, the company has been in chaos all year, and WWD points to CEO Dov Charney's lack of management skills and running the company "as a perennial start-up" as its main problem.
We doubt that American Apparel is ready to totally collapse, but it's now a safe bet that the 279-store chain is in for some major restructuring, and possibly a reduced role for the overwhelmed Charney.
American Apparel and Woody Allen have settled their lawsuit for $5 million.
You may recall that Allen was suing the growing chain for its California billboard (pictured above) which used an image taken from his film, "Annie Hall" without authorization. Allen sued the chain, asking for $10 million in damages. The billboard was removed after a week.
AA Chairman Dov Charney indicated that the settlement was at the behest of his company's insurance carrier, which would seem to suggest that the case would inevitably have been a loser for the company. Charney released the following statement regarding the settlement:
Is there anyone out there who thought that Charney had a snowball's chance in hell beating the suit.
American Apparel, Woody Allen Settle (WWD)
There's always a line on the sidewalk somewhere in this city. After a while, New Yorkers tend to credit their appearance to one of several standard options, including sample sales, open auditions, special celebrity appearances, iPhone launches or giveaways.
In this case, it's jobs.
This was the scene over the weekend outside American Apparel's Flatiron branch at 19th and Fifth where the chain was holding an open call for potential employees.
Most retailers are in retrenchment mode these days, laying off workers and closing underperforming branches, but not AA.
Despite its ongoing legal embattlements, American Apparel is continuing to open new stores, which means it has jobs to offer, hence the line of hopeful shopgirls and boys willing to spend the afternoon standing out in below freezing temperatures.
Apparently, this will be taking place every Sunday through the end of February, so interested parties still have a chance to freshen up their resumes and get in line.
We suggest you go early.
After the jump, more info regarding times and places