The
calls intensified last week for Dov Charney to step aside as chief executive of
American Apparel.
That’s
nothing new. Even I opined in late 2008 that Charney should become chief
creative officer or some such, and turn over the CEO duties to an experienced
hand. What’s new is that virtually every analyst and stockholder now is
screaming it.
On
the face of it, such calls make sense. Charney’s stewardship of the
clothing company in recent years could be characterized as dismal. American
Apparel has been criticized for its provocative ads and Charney is forever
branded as a one-man generator of sexual harassment lawsuits. The
company’s financials have long been shaky.
It suffered after a crackdown
from immigration officials last year and its accounting firm resigned last
month in such a manner as to make that red flag a bright one. But last
week’s announcements were maybe the grimmest yet: Sales are slumping,
losses are expected, a looming debt may not get paid and the company’s
status as a going concern is officially up in the air. Shares last week crashed
into penny stock territory as equity owners fear a haircut in a bankruptcy
court.
Since
all that happened on Charney’s watch, the opinion among many
professionals is that it’s time – maybe past time – to let a
turnaround expert take command.
But
before Charney gets poked aside by all those folks with torches and pitchforks,
let’s take a moment and think about that.
Look
at what he has done for the company. For one, starting from zero, he created a
sizable enterprise – 10,000 employees and 280 stores (albeit shrinking)
in 20 countries. He took his vision and relentlessly pushed it, thanks to his
ADD-like workaholic devotion. Charney has the rare talent to design clothes
that are fashionable yet classic; they don’t quickly go out of style. And
the clothing is durable and reasonably priced.
What’s
more, he may be one of American’s sharpest marketers. Admit it. Those
provocative ads – many of which were created and photographed by Charney
– you may love or hate but you must
pay attention to them.
The
result of all this: Most everyone knows about American Apparel. The company has
an image of being sexy, hip and reliably outrageous.
He’s
also made some noteworthy decisions. He famously put health clinics in his
plant for his mostly immigrant employees, and he has not offshored his
production (his big factory remains near downtown Los Angeles). As a result, he can say
American Apparel is the largest apparel company still manufacturing in America.
Those
are aspects that customers like and admire about American Apparel. It makes the
company different and even special. And people closely associate Charney with
all those things, as well as with the company itself.
So
the question is: If an expert manager comes in, takes over and saves the
company through highly efficient management, what might be lost? Will the
durable clothes become lower grade? Prices no longer quite so reasonable? Will
production be offshored to save money? Ads turned over to Madison Avenue to
make them safer but blander? Clinics closed to save money?
In
short, if an expert takes over, will American Apparel be "saved"
financially but ultimately doomed because it will shed what people like? Will
it be another formerly interesting company that has become just like All The
Rest?
I
can’t help but think of how another terrific company, whose products were
fun, interesting and even sexy in the 1950s and ’60s, was taken over by
pod people with M.B.A.s in the 1970s. That was General Motors. (Remember Chevy
engines in Oldsmobiles in 1977? Now that
was some smart cost-cutting for you!)
To
be sure, American Apparel needs to be saved financially (and bankruptcy
reorganization is a possibility). Expert managers are needed.
But
on reflection, I think it would be shortsighted and perhaps ruinous if Charney
had to surrender the reins. I hope he remains as CEO and drafts a competent
outsider to be chief operating officer. Charney shouldn’t let his company
lose what makes it special. And that’s Dov Charney.