Dov Charney: "Corruption, Greed and Incompetence" has led to American Apparel sale

American Apparel LLC may be up for sale, but Dov Charney, the enigmatic founder and former CEO of the Made in the USA retailer may not necessarily be the first in line to make a bid.

However, Charney says he will keep an “open mind” when it comes to the sale of American Apparel. "I would be open to hearing out their proposal, if they approached me,” he said to FashionUnited on the phone Thursday evening. News began circulating that American Apparel had hired investment bank Houlihan Lokey to explore options for a sale earlier this week - just six months after the fashion retailer emerged from Chapter 11 bankruptcy.

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At the time of the court’s ruling in favour of American Apparel's bankruptcy exit plan in January, Andrew Herenstein, co-founder of Monarch Alternative Capital - one of American Apparel's bondholders that became co-owner of the retailer when it's exited its bankruptcy - said they looked "forward to continuing to partner with the company’s management team and all its stakeholders to build a better and stronger American Apparel." Paula Schneider, Chief Executive Officer at American Apparel noted that it was the "start of a new day.” At the time both these comments, combined with their court approved restructuring plan suggested that the new owners and management team were committed to rebuilding American Apparel and in it for the long-run. So why are they keen to sell American Apparel now?

Charney, who made a 300 million dollar bid for American Apparel together with Hagan Capital Group and Silver Creek Capital Partners in December 2015, thinks that the timing of the sale "appears to be an indication of weakness – the assets are likely continuing to severely underperform.” Back in 2013, a year before Charney was ousted as CEO, American Apparel had its highest sales record: 634 million dollars. Now Charney estimates that American Apparel annual sales have dropped down to under 350 million dollars, in spite of its efforts to cut down on inventory and expand product categories. At the moment it is not possible to check the company’s sales, because as a private business, American Apparel no longer publishes its financial information.

“I can’t believe what happened - corruption, greed and incompetence led to this. This was a Wall Street raid and an asset strip. The company was illegally stolen from its shareholders, including myself and the workers many of whom were also shareholders.” Charney explains that the events leading up to the sale all the way back to December 2014, when he first offered to buy American Apparel with another investor. The company, which was controlled by hedge fund Standard General, refused his offer and then proceeded to exculpate him from the company, according to Charney. Less than 9 months after he was removed, American Apparel went bankrupt zeroed out all shareholders and vendors and was ultimately taken over by its bondholders.

“I can’t believe it happened - corruption, greed and incompetence led to this.”

Dov Charney, founder and former CEO of American Apparel

Charney sees the sale as “part of a progression of events that stems from his illegal firing and disenfranchisement as a shareholder,” matters that continue to be litigated both in California and Delaware. “It appears they are doing running a sales process now because the plane is heading down into the field and they know it,” says the outspoken Charney. “With a cloud of fraud hanging over their head coupled with poor performance, some may wonder why would any institutional company want to get involved.” The former CEO believes that it is also the new owners lack of vision and appreciation for the brand's values which contributed to American Apparel downfall. “The hedge funds which took over American Apparel are not from Los Angeles nor do they have a background in manufacturing, retailing or apparel branding. I do not believe they have a full understanding of what the brand represented or the philosophy behind it.”

Part of the brand’s identity stems from the fact its apparel is designed and made in downtown Los Angeles, in sweatshop free conditions. However, over the last few months alone over 500 employees from American Apparel garment factories in LA have been let go, as part of a redesign of its production process. In addition, American Apparel has begun outsourcing the production of items which fall out its core range (think denim and sweaters) to other factories across the city. Even more so, American Apparel is said to be contemplating moving its manufacturing facility in Los Angeles to Tennessee, or North Carolina in a bid to cut down on costs as employee wages will be lower there, reported the New York Post. Combined all these changes highlight the owners continual disregard for the brand's LA roots and values, according to Charney.

"People used to buy American Apparel because the company had good aesthetics, a great story which involved the fair treatment of workers and provided the market place with a good quality product that would last years...I think the customer understands what happened here which you can tell from the sales, which have declined almost 50 percent since my removal,” says the former CEO. In addition to cutting down its local workforce, American Apparel has also shut down it’s dying and finishing house in Hawthorne, a move which further weakens the appeal of American Apparel in Charney eyes, as the company was once seen as one of the largest apparel manufacturers in the Western hemisphere. “I do not believe they are at the level they need to be at to attract a new owner at a reasonable price - I think the issue of valuation is potentially going to be a big challenge. At this point people should be objectivity questioning them and asking what they are doing.”

"At this point people should be objectivity questioning [American Apparel] and asking what they are doing”

Dov Charney, founder and former CEO of American Apparel

A photo posted by Dov Charney (@dovcharney_la) on

But even though American Apparel is looking for a new owner, Charney has yet to hear from them. "No one has contacted me, so I have no idea what the terms are or what any deal would look like,” he adds, appearing undecided in the matter. When asked who he think would be interested in taking over, he says he is not sure, but is afraid that it is likely to be someone who will fail to fully grasp the American Apparel culture. The last valuation of American Apparel was based on researched carried out by Moelis & Co. last October which valued the retailer at 180 million dollars to 270 million dollars - a far cry from the close to 1 billion dollar valuation from its peak in late 2007..However, bids for the fashion company may be significantly less as conditions has declined since filing for Chapter 11.

In the meantime, Charney is busy working on a new apparel line which “will surprise everyone.” “I am going to build something that culturally challenges the industry and I want the new company to become a leader in the realm of sustainable high wage manufacturing and advanced design,” he says unwilling to give too much away about his new venture. He does reveal that they are preparing to launch the range online within the next few months, as he wants to make it easier for his product to reach the end consumer, but will be looking for wholesale partners as well. “Our first markets will be the US, Europe and the UK. The items are very easy to digest, simple but well made and beautiful.”

A photo posted by Dov Charney (@dovcharney_la) on

In addition, Charney will be working hard to ensure that his new business will be free of any institutional control wall street hedge funds. Nevertheless Charney is still working with Hagan Capital, one of the investors who back Charney in his last bid for American Apparel, who confirmed he was working with the former CEO to WWD. "The new line will be exclusively produced in South Central, Los Angeles. We are putting together an amazing team of creative thinkers, manufacturing experts and workers, all of whom will have an ownership interest in the new company. I am very exciting of the products we are developing."

He adds that on the back of the new company labels there will be a short description which explains the heart of his new apparel venture: "We will know the face of our worker. Our workers will be part of our company; we know their names and faces and we are committed to making products in a way that advances their lives and the community.”

Photos: American Apparel, Facebook

 

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