American Apparel Gets Adult Supervision

On a recent conference call with American Apparel (APP) store managers, someone asked how to fix a printer. Embattled founder and Chief Executive Officer Dov Charney, whose company lost $86 million in 2010 and disclosed last month that a cash crunch could tip it into bankruptcy, piped up that he would look into it. "He should have said 'I will have somebody else do it,' " says Martin Staff, a veteran apparel executive brought in last month as chief of business development. "That's the conversion from a small company to a large company, and I think he's still learning."

At the urging of creditors, Charney recently brought in professional managerial help. Besides Staff, a veteran manager at Ralph Lauren (RL) and Calvin Klein (PVH), former Blockbuster Chief Financial Officer Thomas Casey is acting president. The company also named John Luttrell chief financial officer, a post he previously held at Gap's (GPS) Old Navy chain. Staff says American Apparel holds promise. "I don't want to say this is low-hanging fruit," he says, "but this fruit is almost on the ground."

Charney already has been rocked by the fallout of a 2009 federal crackdown on undocumented workers that resulted in the departure of 2,500 employees from American Apparel's factories in California. He says production problems due to that staffing disruption are to blame for much of American Apparel's recent turmoil. "We've made it through the worst," Charney says.

Staff plans to take the brand's T-shirts and casual wear beyond its 273 stores, as he did at Calvin Klein in the 1990s. He got the designer's merchandise into other retailers and signed licensing deals for everything from aftershave to lingerie. "I have great respect for his talent," says Klein. "He's capable of running a company, and he has the experience of running all aspects."

This week, Staff says he met with executives from upscale retailers he won't name about selling American Apparel garments. The company already offers its wares in Galeries Lafayette in Paris and Selfridges in London, and both luxury chains want to put the merchandise in more of their stores, Staff says. Its wholesale business also holds potential, he says. It generated more than a quarter of the company's $532 million in revenue last year by mostly selling blank T-shirts to screen printers, who put logos on them for sports teams, companies, and special events. Staff says he's received interest from retail chains and competing fashion brands to use American Apparel's excess factory capacity, in part because its U.S.-based plants can turn around orders faster than Asian rivals. Charney says the company made about 47 million garments last year but could expand production to 70 million.

First American Apparel's new executives are coaxing majority shareholder Charney to avoid the minutiae of the business and concentrate on strategy while his team puts stronger inventory and logistics systems and financial controls in place. Casey says overlooking such basics is typical of fast-growing companies: "It's a fairly straightforward turnaround, but it's not done until it's done." Retail consultant Robin Lewis, who has watched Staff for three decades, says he has the "creative and marketing genius" to revive American Apparel. Then again, Lewis says, "they didn't hire him as CEO."

The bottom line: American Apparel recently brought in seasoned managers to help it revamp its business. It still may need a cash infusion.

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