California Apparel News

When Paula Schneider took over as the new American Apparel chief executive, she didn’t think the job would be so contentious.

But as soon as she landed at her desk five months ago, the company was bombarded with a number of lawsuits filed by former CEO Dov Charney, who founded the company more than 15 years ago but was fired in December for allegedly misusing company funds and failing to stop defamatory blog posts by a former employee. (Charney denies the charges.) Shareholders and former employees have also filed lawsuits against American Apparel in various courts or lodged complaints with the National Labor Relations Board.

On June 1, American Apparel was granted a request for a temporary restraining order from the Delaware Chancery Court to prohibit Charney from making negative comments to the press about the company and trying to remove members from American Apparel’s board of directors. The company maintained that Charney was violating his standstill agreement.

“The court’s temporary order is preliminary and based on pleadings we have not had an opportunity to fully to challenge at this stage of the proceedings,” said Charney’s attorney Stephen B. Brauerman, a director with Delaware law firm Bayard, in an email. “We do not believe this decision has any effect on the other litigation he has filed against the company.”

The legal back and forth has been daunting, but Schneider is pushing on to make the company profitable again. “The losses over the past five years I really truly believe have been based on product and by not introducing newness,” she said in a telephone interview, commenting about the more than $300 million in losses the company has incurred in the past five years.

She ticked off a number of things that needed to change in the company, which employs 10,000 people and is the largest apparel manufacturer in the United States. She noted there were more than 4,000 styles in the company’s inventory and many were not selling well at all. About 25 percent of the merchandise was making up 90 percent of last year’s $609 million in revenues. The company had a net loss of $68.8 million in 2014.

During the first quarter of this year, she said, American Apparel had a massive sale at its 238 stores, where about 1 million pieces flew out the door at discounted prices.

Schneider—whose previous executive gigs were heading Laundry by Shelli Segal, Speedo USA and Big Strike Inc.—took a look at the merchandise American Apparel had been selling for the past four years and analyzed the successes and failures.

“There are hundreds of items that are selling well and hundreds that are not,” the chief executive said. Most recently, items such as pencil skirts, tennis skirts, cropped tops and blue jeans with a pencil silhouette have been hot.

When she arrived on Jan. 5 at American Apparel’s headquarters, which includes a 1.5 million-square-foot factory in an industrial part of downtown Los Angeles, she said, there were only 15 new pieces for the Spring 2015 collection. “That was it,” she exclaimed.

The company started bringing in some newness to the stores’ shelves in late May and early June. Bestsellers include flowy styles such as a crepe tunic dress priced at $54, a silhouette adaptable to many body shapes. It is selling at 30 percent per week.

But the real concentration for Schneider is on Fall 2015. “I said let’s draw a line in the sand and work on Fall and a fabulous collection that is mostly item-driven,” she noted. There will be 70 to 80 new styles for women and 50 for men.

With a young creative staff whose average age is 26, Schneider believes there is no lack of talent within the ranks. “They get who our consumer is,” she said, noting that she understands it, too. Her daughters are 19 and 21.

The design team has expanded the target market for women from young girls who can wear tight dresses and very short shorts to a female consumer who falls into three categories: the teenager in high school who hangs with her friends and is constantly texting, the 25- to 35-year-old woman who is renting her first apartment and buying her own clothes on a budget, and the party girl who hits the nocturnal scene. “We are looking at every body we have ever sold and analyzing all these styles,” Schneider said.

Appealing to the hip, young male customer is a must, too. Recently, American Apparel brought on Joseph Pickman, the former men’s design director at the now-shuttered Band of Outsiders, to head American Apparel’s design team for men. Men’s fashions will be geared toward the 16- to 35-year-old.

Tasi Rippel, who had worked for American Apparel before leaving to work at BCBG MaxAzria, returned in November and is director of merchandising. She and James Yunker, who is vice president of product development and design, are working hard with designers to come up with winning products, Schneider said.

Retail moves

The company’s fleet of stores has been having a tough time breaking into positive territory. Last year, same-store sales dipped 6 percent year over year.
While Schneider said there are some store locations she would like to close, there are more retail spots she would like to open. “We have 10 locations we would like to get out of but have not found a way. And then there are 50 stores we would like to open. We have identified great markets,” she said, not pinpointing where those retail spots are located.

American Apparel is opening up two new stores soon—one in Newport, N.J., and another in Delaware.

In all the controversy surrounding American Apparel, many people have forgotten that the large apparel company owns a small, hip chain of boutiques called Oak, bought under Charney’s leadership in 2013. There are two stores in the New York City area and two in Los Angeles, where chic items sell for $150 to $500. “It is a super-cool brand, but it represents only 1 percent of our revenues,” Schneider said, “It doesn’t get a lot of oxygen at this moment in time, but we are working with them to meet their needs. … Everything is status quo right now.” She said there are no immediate plans to sell Oak.

Many people wonder when American Apparel will return to profitability. Right now, the company’s stock is selling for only about 56 cents a share on the New York Stock Exchange, at the bottom end of its 52-week range, which had a low of 50 cents and a high of $1.30.

That is a question that Schneider has been asked many times. And her response is that it doesn’t happen overnight. “If you have gained 200 pounds, you don’t lose it in two months,” she said. “One or two quarters doesn’t make a turnaround.”