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American Apparel Board Fires CEO Dov Charney

In what many in the industry and on Wall Street believe to be a long overdue move, American Apparel’s board fired Chairman and CEO Dov Charney Wednesday, following an ongoing investigation into alleged misconduct.

Charney, 45, who founded the business in 1989 and has been at the helm since 2007 when the company went public, has been named in several lawsuits alleging inappropriate sexual conduct with female employees.

In 2011, a former employee accused Charney of keeping her as a teenage sex slave, amid threats she would otherwise lose her job. She also sued American Apparel and its directors for failing to stop Charney from acting as a “sexual predator.”

Though several of the lawsuits have been settled, others are still pending.

CFO John Luttrell has been named interim CEO, and board members David Danziger and Allan Mayer appointed as co-chairmen of the board. The company has begun working with a search firm to find a new CEO.

In a statement, Mayer said the decision to replace Charney grew out of an “ongoing investigation into alleged misconduct.”

Mayer said, “We take no joy in this, but the Board felt it was the right thing to do.” He added, “Dov Charney created American Apparel, but the company has grown much larger than any one individual and we are confident that its greatest days are still ahead.”

American Apparel has been fighting to lift sales after years of lackluster performance and rising debt. The company said Charney’s dismissal may trigger a default under its credit agreements, and indicated it would talk with lenders about its obligations. Last year, the company reported a net loss of $106.3 million on sales of $633 million, compared with a loss of $37.3 million in 2012. In February the company reportedly hired restructuring advisors after it had reached $240 million in debt and had come close to breaching loan covenants, debt terms designed to protect its lenders. In March, the retailer announced plans to sell $30.5 million of stock to meet debt payments.

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The company’s stock has lost more than 80 percent of its value in the past five years, though news of the ouster helped prop the share price today, the first trading day after the announcement. According to company filings, Charney owns 28 percent of the company stock, making him the top shareholder.

American Apparel has approximately 10,000 employees and operates 249 retail stores in 20 countries, including the United States, Canada, Mexico, Brazil, much of Europe, Australia, Japan, South Korea and China. It also operates a global e-commerce site that serves over 60 countries.

The brand, known for its racy advertising and brightly-colored “Made in America” product, has a loyal following among Millennials. For this reason, some in the industry feel American Apparel has the potential to grow into a major lifestyle brand, and credit Charney’s innovative product and marketing skills with laying that groundwork.

Marty Staff, former Hugo Boss and Joseph Abboud CEO who more recently was Chief Business Development Officer at American Apparel, told Sourcing Journal, “Dov is a visionary who created this amazing brand which to this day has incredible loyalty among his target consumers. Dov got it to where it is now. There remains opportunity through product, channel, and territory expansion to do a lot more, and the business needs to convert from a single individual doing everything to a business with a team of talented empowered individuals with a common vision maximizing opportunities while operating efficiently.”