American Apparel Should Hire One of These 6 Executives to Replace Dov Charney

NEW YORK (TheStreet) -- Could ex-J.C. Penney (JCP) CEO Ron Johnson be the next CEO of American Apparel (APP), taking over the reigns once held by the lightening-rod known as Dov Charney?

Such a scenario may seem like a long shot but at least one industry observer suggests that Johnson would be a good fit for the Los Angeles-based T-shirt maker currently involved in a high-stakes game of "Who's in Charge?"

Yet as American Apparel's board attempts to position the company for a second life, a life unlikely to include the controversial Charney, who else would be a good fit as its next chief executive? (John Luttrell, American Apparel's finance chief, was appointed interim CEO last month.)

Besides Johnson, industry sources speculate that Diane Neal, the former CEO of L Brands' (LB) Bath & Body Works would be a good candidate as well as retail veteran Mickey Drexler, currently the head at J. Crew and Australia's Billabong CEO Neil Fiske. Others mentioned as possible replacements for Charney include Tony Hsieh, CEO of the online shoe and clothing retailer Zappos, a unit of Amazon (AMZN), and former American Apparel executive Marty Staff.

"American Apparel is a very strong brand," says Edward Hertzman, founder and publisher of Sourcing Journal, a publication that focuses on the apparel and textile industry. "Replacing Dov [Charney] is going to be essential to turning this company around."

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Things may have settled down somewhat at American Apparel following its agreement with the hedge fund Standard General for a $25 million capital injection along with a reconstitution of its board. The changes created a committee to oversee the investigation into alleged misconduct by founder Charney, who was removed as CEO in June while designating him as "strategic consultant."

Following the investigation, the new board committee is expected to determine whether Charney can return to American Apparel. Few argue that the company would be better off if Charney doesn't return.

"No matter what they do with him, his presence as a leader has to be minimized," says Jason Hanold of boutique executive search firm Hanold Associates who specializes in placing executives in the retail, health care, financial services and technology sectors. "The question has become more about if they really hope to resuscitate -- and I don't mean fire fight -- to really avoid bankruptcy they really need to bring in a new leader. Frankly he's been a huge distraction to the organization."

Yet any new CEO will still have to face multiple challenges. American Apparel has been losing money for the past five quarters and servicing its $251 million in debt. A new CEO will also have to answer to a newly empowered board and a hedge fund with a big stake. 

Longer term, the 250-store chain must face the reality that traditional brick-and-mortar retail stores are losing revenue to e-retailers. American Apparel has a popular and well-known brand, but that may not be sufficient to offset consumers' increasing preference for online shopping.

"They need a leader who can get [employees] re-engaged and give them a sense of where they are going," Hanold says. "I think they need a big leader who brings a sense of certainty and confidence."

Diane Neal would be a good choice, said Hanold, pointing to her experience running Bath & Body Works. "She's a seasoned executive affiliated with lots of very healthy and high-growth companies," he says.

Neal resigned from Bath and Body Works in 2011 and relocated to San Francisco. She was named in April to Abercrombie & Fitch's (ANF) board of directors and also sits on Fossil's (FOSL) board, which Hanold notes is "one of the healthiest organizational cultures in the world."

According to the press release naming Neal to Abercrombie's board, her retail experience includes executive positions at The Gap (GPS), Target (TGT) and Dayton's. Neal also serves on the board of two private companies -- Giggle, a retail chain for babies and infants, and Soft Surroundings, a retailer of women's clothing, the release said.

Similar to Neal, Hanold also speculates that Neil Fiske, the CEO of surf wear company Billabong, would be a good fit. American Apparel's next CEO "needs a certain high-level problem-solving capability and intellectual capacity," Hanold says. "It's that kind of profile I would be thinking about."

Fiske has a "proven record of turnarounds" and "spent 24 years in the consumer and retail industry as an operator, consultant and investor," according to Billabong's website, including as the CEO of Eddie Bauer and later Bath & Body Works (prior to Neal). At Bath & Body Works "he reversed 26 months of negative same store sales within three months of joining, growing the revenues of the company from US $1.8 billion to US $2.5 billion in just over four years," his bio says. An email to a Billabong spokesman was not returned by press time.

J.C. Penney's former CEO Ron Johnson could also be an interesting candidate for the job, says Sourcing Journal's Hertzman. "He had tremendous success at Target and Apple (AAPL), making Target very cool, very hip. He's gotten some bad publicity over the past few years. His failures at J.C. Penney -- maybe that was a case he was too cool for the chain," he says.

American Apparel's CEO will need to streamline manufacturing and take a hard look at underperforming stores and merchandise performance, Hertzman adds.

"That's very much a CFO, COO-type. What's killing this business is not necessarily a dead brand, but it's a lack of an organization," he says. Ron Johnson "can bring both the organization leadership as well as continue to create that edge and that hip factor that's required for the brand."

Johnson recently spoke out about his J.C. Penney experience calling himself a "terrible fit" for the department store chain. Johnson spoke in May at a Stanford University event in front of students at its Graduate School of Business. According to Stanford's Web site, Johnson is founder of a new investment fund called Johnson Partners. He is also on the board of directors for a fast-casual grilled cheese chain called The Melt. He was not able to be reached for comment.

Another name thrown into the ring by Hertzman is Tony Hsieh, the CEO of online shoe retailer, Zappos.

While he won't be so quick to jump, Hsieh "really embodies the characteristics" needed for American Apparel's next CEO because he's young (Hsieh is 40 years old), he's built a great supply chain, he is all about customer service and would be on board with American Apparel's "Made in USA" mantra, Hertzman says.

An email to Zappos' media relations was not returned. A further attempt to reach Hsieh via Twitter was unsuccessful.

Miro Copic, principal of Bottom Line Marketing and a marketing and branding lecturer at San Diego State University, says the chain not only needs a retail operating veteran, but the executive also needs to be a good communicator, particularly when it comes to keeping the board up to speed, he says.

"Ideally it's someone like [Millard] Mickey Drexler when he first went into The Gap," Copic says. "Having run a complex company [Drexler] knows how to identify talent, allow talent to do their job and fill key roles. [Charney] didn't have key roles filled."

Drexler is currently the chairman and CEO of J. Crew, which is privately held. He also sits on Apple's (AAPL) board of directors.

One issue with Drexler though is his age. He turns 70 in August and may not want to take on a new venture, Copic acknowledges. An email to a J. Crew spokeswoman wasn't immediately returned.

Perhaps the best person to run the job is someone who already knows American Apparel, suggests Judith Russell, an analyst for the Robin Report, a retail strategy newsletter. Russel points to the company's former chief business development officer Marty Staff.

Staff, a retail veteran who's been involved with top menswear brands including Bloomingdales, Ralph Lauren (RL), Calvin Klein and Hugo Boss, worked at American Apparel from January 2011 to March 2012. He is currently running his own retail consulting firm. "He gets the whole structure of the company," Russell says.

In his role at American Apparel, "my job was to bring in new business for the company," Staff said in a phone interview. "I left because I was unable to accomplish that." He declined to elaborate further on the issue or whether he had been contacted by the retailer's board over the past month.

"Dov has done a brilliant job in creating a unique brand in a very loyal customer following. In my opinion there's no direct competitor," Staff says. "The trick now is how to capitalize on that and create a company that has significant value creation. I think honestly it's all in the balance sheet. The debt in the company is north of $300 million already. For a company this size, that's catastrophic."

"I think it would be a fool's mission to accept a job at any company where there is insufficient cash and not a mandate to get things done. The company needs to deal with that if they want to attract top talent. But under the right circumstances ... I think this is an amazing job for anyone," Staff says.

American Apparel declined to comment for this story.

--Written by Laurie Kulikowski in New York.

Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.

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