T-shirt trouble

Last week, American Apparel named a new chief financial officer, the latest in a string of short-lived executives tasked with saving the sinking clothing chain once heralded for its ethical manufacturing and trendy cotton basics. John Luttrell is a seasoned retail CFO who previously held posts at retailers Old Navy and Wet Seal Inc. But the veteran faces some extraordinary challenges at American Apparel. The shakeup comes one week after the company negotiated a break on loans with some of its lenders, narrowly fending off bankruptcy.

For the last two years, the L.A.-based firm has fallen far from its perch as retail’s edgy wunderkind. In July, it was dropped by its auditors over concerns about the reliability of its 2009 annual report, and later was nearly delisted from the New York Stock Exchange—all amid consistent quarterly losses. Company debts have mounted to more than $130 million. Luttrell’s job will be to cut costs and boost sales within AA’s current business model of fair wages and in-house manufacturing.

“I don’t think the new CFO can make any real change as long as the company founder is still there,” says David Ian Gray, principal with DIG360 Consulting in Vancouver, referring to Montreal-born Dov Charney. “[Luttrell] can maybe make some improvements, but not any deep change.” The infamous Charney still holds a majority stake in the company. His reputation as an exhibitionist who uses risqué ads to sell AA has long overshadowed his progressive labour and immigration ethics, which put his company on the map in 2004. “He’s definitely a detriment to a positive AA brand,” says Gray.

American Apparel’s near collapse has been blamed on a number of factors: Charney’s controversial persona, the costs of his fair-trade manufacturing model, hasty store expansion and a stagnant product line. Though stocks have climbed above penny territory with Luttrell’s appointment, analysts agree that Charney should step aside as CEO, while there’s still a slim chance of salvaging the brand.