The World's Weirdest CEO
Dov Charney's antics helped build a retail empire. Now they may be destroying it.
JASON KIRBY AND NANCY MACDONALD | April 23, 2008 |
Like most people, CEOs generally prefer to keep the particulars of their sex lives out of the headlines. For Dov Charney, the Montreal-born founder of American Apparel, waging a campaign of carnal shock and awe helped transform his company into a global clothing empire. From boasting about testing his clothes on strippers — "You get a cross section of chicks," he told a reporter once, "big chicks, little chicks, big-assed chicks, little-assed chicks" — to openly talking about masturbation and threesomes with his staff, Charney's excesses only reinforced the chain's image among young, urban hipsters. American Apparel became the anti-Gap, and it's been wildly successful. In just five years the company has opened 187 stores in 15 countries, with sales of US$387 million.
Those were the carefree days, when the Los Angeles-based company enjoyed the relative impunity of being privately owned. In December, American Apparel went public, bringing in tens of millions of dollars to fuel its bold expansion plans. But the move also invited the scrutiny of investors, lawyers and securities regulators. Now American Apparel's shares are in free fall, and investors are growing frustrated with Charney's wacky ways. The sudden collapse of confidence in one of retailing's hottest brands says a lot about the dangers that arise when freewheeling entrepreneurs and straightlaced Wall Street types collide. More than that, though, it begs the question — what in the heck were people thinking when they gave Dov Charney their money in the first place?
If investors didn't know about the company's outlandish CEO, they weren't paying attention. In January American Apparel was in court to fight a sexual harassment suit, the fourth in three years. (Of the previous three, one was dismissed and two others were settled out of court.) A former sales representative alleges Charney once held a meeting with her wearing only a strategically placed sock. The company has denied the accusations, but its insurer has refused to pay any damages that may arise from the case.
Then, last week, Charney was quoted in the Wall Street Journal shrugging off various financial concerns, such as the fact that when the company was private, it had to restate its results. What's more, he called his chief financial officer "a complete loser." Charney later said he'd been misunderstood, but the damage was already done, and it added to a mounting unease among investors and company watchers who wonder whether Charney is a mad genius of retail, or merely mad. (Charney declined to be interviewed for this story.) Since December, American Apparel's stock has plunged more than 50 per cent, wiping out nearly US$600 million in market value. "The American Apparel concept has been tested all over the U.S., Canada and internationally, and it works," says a fund manager who owns shares in the company. "But Dov is really a kooky guy. Our hope is that will be moderated."
If it seems at all unusual to sing the praises of a business while at the same time expressing deep unease about the man responsible for its success, that's just one of the many contradictions of Charney's dramatic rise to oddball fashion mogul. Born in Montreal's tony anglophone enclave of Westmount (his uncle is famed architect Moshe Safdie), as a teenager he'd cart boxes of T-shirts back from the U.S. to hawk on Ste-Catherine Street. After trying, and failing, to get a clothing manufacturer off the ground in South Carolina, Charney set out for L.A. and a fresh start. Somewhere between the beaches of the Carolinas and California, he made a key discovery: girls were wearing boys' T-shirts in tiny sizes that hugged their figures. At the time, the imprinted apparel industry, which supplies businesses with blank shirts to put their logos on, was pumping out heavy, boxy-looking shirts. So Charney revived the fitted arms and bodice of the seventies, but in softer, lighter fabrics and bright colours. With the backing of a secretive Korean-born businessman, and a loan from his father Morris Charney, a prominent Montreal architect, American Apparel's trendy T-shirts were soon in hot demand.
From the start, Charney eschewed offshore sweatshops and set up a factory in downtown L.A., paying his mostly Latino workforce twice the minimum wage. With thousands of textile jobs being sent to Mexico and overseas, American Apparel stood out for its retro approach to manufacturing. The move won kudos from anti-sweatshop activists and protectionists like Lou Dobbs. What's more, it earned the company extensive press coverage, giving the world its first real look at the maverick behind the company — and what a look it was. The scrawny CEO's sartorial style ran toward big, yellow-tinted aviator glasses, bushy mutton chop sideburns, severe side- parts and other references to the dirty '70's. When he talked, it was at a machine-gun clip, in often-rambling elliptical sentences.