the Insiders


April 2, 2010 5:00 PM

Business, Fashion, Retail

American Apparel's Dov Charney Talks Shop

"Einstein said it's important to have a dream and have a vision."That's what American Apparel founder and chief executive officer Dov Charney says is one of his motivating forces as he outlined ambitious plans for the specialty retailer -- even...

"Einstein said it's important to have a dream and have a vision."

That's what American Apparel founder and chief executive officer Dov Charney says is one of his motivating forces as he outlined ambitious plans for the specialty retailer -- even as it faces an array of stiff challenges that have effectively halted the retailer's aggressive retail expansion, at least temporarily. Certainly nobody could accuse Charney of not having a dream or vision for the brand that has turned striped tube socks and slinky V-neck T-shirts into sexy status symbols for the youthful hipster set.

In a phone interview with WWD, the garrulous and enthusiastic Charney, 41, said he doesn't usually open up to reporters these days -- he's been burned once too often in stories -- but proceeded to talk for more than an hour about the challenges and opportunities that lay ahead for American Apparel. And once he gets going, it's hard to get a word in edgewise.

He envisions growing the network of American Apparel stores from its 282 units up to more than 600 in the coming years, which would leverage the potential output of the company's mammoth Los Angeles production facility. He sees a variety of new retail formats that American Apparel could open, including smaller kiosks, airport stores and dedicated shops for men's wear, footwear or swimwear. China and South America hold vast potential for the brand, he believes.

However, at the moment those far-reaching plans are taking a back seat to more pressing, and less visionary, matters. These include turning around an international business hit hard by down economies in Europe and Japan (overseas stores are suffering from double-digit declines in comps), improving productivity at existing U.S. stores (which are turning a corner and flirting with positive comps as the economy rebounds here), dealing with the loss of 1,500 production workers who didn't have legal working papers, and paying down $83.4 million in debt -- including $65.6 million owed to London-based Lion Capital, which carries a steep 15 percent interest rate.

Charney, known to personally enjoy shooting American Apparel's titillating advertising campaigns, is now more focused on prosaic matters like point-of-sale computer operating systems, new antitheft systems and supply chain software.

Analysts and investors are taking a cautious stance on American Apparel's prospects. Net income fell 21.5 percent in the most recent fourth quarter, and the company is predicting a 10 percent comps decline this first quarter -- and the stock has pulled back sharply from last week when earnings were reported.

"I don't look at the share price on a week-by-week or month-by-month basis," insisted Charney, who holds 38.1 million of American Apparel's 71 million outstanding shares. "What I do know is that share price is ultimately controlled by earnings, future earnings and the predictability of those earnings. I wake up every day and go to bed every night working to make sure that we are doing things that will protect the earnings potential of this company. There's no doubt in my mind that we have a very good chance of creating hundreds of millions of dollars of shareholder value by our work."

As he talked on his cell phone, Charney was often interrupted by a stream of other callers and by employees asking questions. Charney is the rare retail chief executive who takes a hands-on approach to the design of his stores' merchandise -- even serving as a fit model for some products. He said he's working on several styles of men's trousers hitting American Apparel stores this spring, along with other key items like women's skirts and hair bows. He's particularly into the hair bows but didn't want to give away too much information on them.

"American Apparel is copied a lot. It's the business we're in," he said resignedly, with a chuckle. "This is a business where the first guy who thinks of a great idea basically stands up on a pedestal, and then everyone tries to clobber him down with the copying and duplicating. And the final bulldozer is Forever 21."

But Charney clearly believes he'll still be standing when the dust settles. "Remember Nobody thought it would survive, and look at it now," he said. "It's going to take five years before we learn how to do everything we want to do. You can't do it all at once, nor should we. But we will."
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