LOS ANGELES — American Apparel can’t seem to catch a break.
This story first appeared in the September 23, 2016 issue of WWD. Subscribe Today.
Chief executive officer Paula Schneider, who was originally tapped to lead a turnaround at the Los Angeles-based firm, is leaving amid plans to sell all or part of the retailer. These latest developments come about seven months after American Apparel exited bankruptcy, leaving a question mark over the future of a company that was once a bright spot and case study for U.S. manufacturing. Employees have been told it’s business as usual at the firm.
The shift in leadership was first reported by WWD.com Thursday, when workers were notified of the change. A company spokeswoman declined comment on the news.
But things appear to be happening fast and furiously, with Chelsea Grayson, the company’s general counsel and chief administrative officer, moving to transition into the role “pretty quick,” a company source said. She officially assumes the title Oct. 3 when Schneider departs.
The American Apparel board underwent a shake-up of its own with the recent departure of former Liz Claiborne Inc. chairman and ceo Paul R. Charron, who was appointed chairman in March. He was succeeded by Brad Scher, the founder and managing member of New York consulting firm Ocean Ridge Capital Advisors, which specializes in working with companies in turnarounds.
The company source said Schneider’s departure was her own decision and Scher’s appointment was aimed at providing a stronger financial backbone to the board.
“She certainly knows what’s going on there,” said California Fashion Association president Ilse Metchek of Grayson. “She’s been a partner since Paula took over and she knows the company.”
A sale is now likely imminent with this latest development, according to Metchek, and “hopefully it will be a sale that maintains the premise that the company stays in L.A., none of which we know.”
Schneider’s resignation letter, which was obtained by WWD, said the “sale process currently under way for all or part of the company may not enable us to pursue the course of action necessary for the plan to succeed nor allow the brand to stay true to its ideals. Therefore, after much deliberation, and with heavy heart, I’ve come to the conclusion it is time for me to resign as ceo.”
She said in her letter that little could be done in her first year in business, blaming the company’s debt and “macroeconomic headwinds in retail that have proven challenging for American Apparel along with most other specialty retailers in the U.S.”
Following the company’s exit from bankruptcy in February, she wrote, “we have begun to maintain optimal inventory levels and to ship our first full delivery under the plan for fall 2016. We are experiencing strong initial sell-through rates in retail, wholesale and online with our new product.” Schneider also pointed to a 30 percent cut in expenses since she took the top spot.
It’s unclear whether a shift in strategy would take place under Grayson. The company source said it’s still early days for Grayson and her broader focus is “to continue to try to draw that Millennial customer into the store.”
Who would buy the firm is just as unclear. Ron Burkle’s Yucaipa Cos. had reportedly taken a look at the company more recently.
Chad Hagan, managing partner of Hagan Capital Group, went in with American Apparel founder and ousted ceo Dov Charney on a $300 million bid for the company in January. Their consortium was the last to publicly express interest in the company.
“This takes away any interest that we had,” Hagan said of the appointment. “We are not interested. It’s not progressing in the way I’d expected it to.”
Charney, who has been railing for some two years now in and out of court that the company was stolen from him and shareholders by the New York hedge fund Standard General — which he had initially aligned with in hopes of regaining control of the business — had his own thoughts on the latest news.
“This is a transfer of wealth from Main Street workers, artists and vendors to Wall Street hedge funds, law firms and consultants,” he said. “It’s a Wall Street takeover of an apparel company. It’s Wall Street versus Main Street. It’s Wall Street versus an apparel company. Appointing Chelsea Grayson as ceo of American Apparel is emblematic of their thinking.”