What's The Future Of American Apparel?
If this new ad is any indication, American Apparel is looking to reshape its image.
Under the caption “In Bed With the Boss,” the advertisement depicts CEO Dov Charney sitting on a mattress, hard at work on his laptop and flanked by his two female creative directors. The biggest difference here is that everyone in the photo is fully clothed. Charney even looks clean-cut. The title may be sexually suggestive, but the image itself is nothing like the kind of lawsuit-magnet for which the company has become famous.
Charney has lately been looking for a different kind of help, preferably from people with experience working with deeply troubled businesses.
American Apparel recently announced the hiring of a new acting president. The new exec, Thomas Casey, brings 24 years of financial management and strategic planning experience. He served as the CFO of video rental chain Blockbuster until just weeks before the company filed for bankruptcy late last month.
At American Apparel, Casey will work closely with the oft-embattled Charney to improve and increase the efficiency of production, tighten internal financial controls and work with CFO Adrian Kowalewski to make sure financial obligations are met in a timely manner, said company lawyer Peter Schey. Requests to interview Casey for this article were referred to Schey.
American Apparel employs about 10,000 people worldwide and operates more than 280 retail locations in 20 countries. The company last year fired about a third of its manufacturing staff – close to 1,800 employees – because of an immigration raid that found many workers were undocumented.
To Occidental College professor Peter Dreier, a longtime critic of American Apparel, Charney fits the archetype of the “charismatic founder” – someone who comes up with an idea, starts a business and makes a lot of money, but lacks the management skills to run the company once it goes big.
“At some point you have to hand it over to somebody who may be better at the day-to-day management,” Dreier said. “A lot of founders of organizations aren’t very good at delegating responsibility. Part of the zeal that gave them the impetus to succeed in the first place is that they have a strong instinct for controlling everything, and sometimes it’s hard for them to give that up, even when it’s in the best interest of the company.”
Critics point out that the management side of the company is too thin to sustain its growth. Schey said the hiring of Casey will take some of the burden of the business’s administrative side off of Charney’s shoulders.
“The general idea is that Mr. Casey will take on responsibilities on the administrative side of management, giving Mr. Charney more time to concentrate on building the brand and building sales, ultimately building revenues,” Schey said.
Schey said in an email that American Apparel will not abandon the principles on which it was built, “including domestic production, a vertically integrated business model, fair wages and healthy working conditions, a strong commitment to diversity, support for discriminated communities including immigrants and gays [and] involvement and support of the local communities in which it operates.”
Schey said they are looking for people with the experience to help the company with its recent challenges.
Charney built notoriety from the start. Detractors have long criticized the company’s racy advertisements, many of which Carney photographed himself. Sexual harassment accusations inevitably sprang up. In two separate lawsuits in 2005, former employees accused him of, among other things, conducting job interviews while nearly naked and giving a vibrator to an employee. An article in Jane magazine graphically chronicled what it might have been like to work for Charney. In the interview, Charney masturbated in front of the reporter.
The company built public goodwill early on because of its oft-touted sweatshop-free, vertically integrated business model. Although his supporters have praised the company’s commitment to making all its clothes at its plant in downtown Los Angeles instead of outsourcing labor to other countries, skeptics are not convinced by the sweat-free label.
Dreier has long argued that American Apparel’s methods are not as progressive as they may seem. He has been especially vocal about the company’s resistance to labor unionization.
Though Charney often spoke about the superior working conditions, wages and benefits in the company’s downtown L.A. manufacturing plant, Dreier said that these claims were not verified by independent sources, unlike Alta Gracia Apparel in the Dominican Republic, which allows a human rights nonprofit to inspect it.
The company’s day-to-day operations account for many of its problems. In June, it failed to file its New York Stock Exchange data on time and faced the prospect of being delisted.
The company fell into financial turmoil this past summer, prompting speculation that the company would file for bankruptcy. Its stock price fell more than 20 percent in August. Its lender, Lion Capital, recently negotiated an extension for American Apparel to meet its financial obligations.
Retail consultant James Tenser, Principal of VSN Strategies, said Casey’s former place of work, Blockbuster, was a good company that became a victim of the changing media landscape.
“Generally speaking, I think they were a well-run company, but their niche in the industry became kind of obsolete,” Tenser said. “So it’s quite possible that some of their leadership, even at the point when they finally started filing for bankruptcy, were still regarded as highly competent people, but they were managing an environment that ultimately could not win.”
The stock price for American Apparel jumped about 10 percent to $1.28 when the company announced Casey’s hiring. The price has gradually decreased since then, closing at $1.16 on Wednesday.
Management itself may not be enough to turn the company around. The recession has put a damper on consumer confidence and the retail industry in general, and people may be less inclined to drop $30 a piece on basic, solid-color t-shirts. The Conference Board recently reported in its Consumer Confidence Index that shopper confidence dropped 4.7 points in September.
People are now less likely to shop recreationally and parents are less likely to indulge their trend-conscious teens, Tenser said.
Changes and troubles at American Apparel are not over yet. The company plans to continue to hire new executives, but it hails the arrival of Casey as a step in the right direction. With more people at the helm on the administrative side, we might get to see Charney in even more of the new ads.
To reach staff reporter Ryan Faughnder, click here.