What happens to American Apparel after Dov Charney's ousting?

Following the news breaking of American Apparel ousting the notorious Dov Charney as president and CEO for the brand, stocks for the brand rose more than 19% for the brand.

Charney has over the years become synonymous with the American Apparel brand name, known as the creative genius behind the provocative advertisements American Apparel has produced over the years. But Charney’s tenure has also been marked with various allegations of sexual harassment, which has now cost him his role.

While the dust settles on Charney’s departure, John Luttrell will step in as interim chief executive officer. Luttrell has been with American Apparel since February 2011 and currently serves as executive vice president and chief financial officer.

Meanwhile, Allan Mayer and David Danziger will take on the role of co-chairmen to replace Charney as chairman of the board. Mayer, who has been a member of the board since the company went public in 2007, has served as its lead independent director for the past three years.

“We take no joy in this, but the board felt it was the right thing to do,” Mayer said. “Dov Charney created American Apparel, but the company has grown much larger than any one individual and we are confident that its greatest days are still ahead.”

“We have one of the best known and most relevant brands in the world, with employees who are second to none; I believe we have a very exciting future,” said Luttrell.

“Our core business—designing, manufacturing, and selling American-made branded apparel—is strong and continues to demonstrate great potential for growth, both in the U.S. and abroad. This new chapter in the American Apparel story will be the most exciting one yet.”

Riding on controversy

Under Charney’s leadership, American Apparel has always taken a controversial stance for its marketing efforts.

Just this year, the brand featured 62-year-old Jacky O’Shaughnessy as its lingerie model and then shortly after it released a controversial ad featuring a Bangladeshi model bare-chested with the words “Made in Bangladesh” sprawled on breasts.

“Dov Charney was very much synonymous with the brand name and the provocative ads it created. When a CEO is so hands on with the marketing for the brand and the creative execution, what do you think it would mean for the brand when he is replaced?

In some ways American Apparel is cut from the very fabric of Dov Charney. He is to American Apparel what Hugh Hefner is to Playboy,” said Robert Gaxiola, creative partner of Mangham Gaxiola.

Gaxiola added that creative execution aside, the vision for American Apparel is clear. “I hope the boards next decision can take the brand further without losing its very raw and Americana nerve. The stocks are already up, so the shareholders are feeling a little better today. But let’s see how they feel a year from now. That will be the real test of fire,” he added.

What happens now to the brand now?

“The American Apparel story displays the double edged sword of having a CEO and founder who has not only driven the brand but pretty much created it,” said Dominic Twyford, client director of Landor.

In many ways, said Twyford, Charney was the brand, his vision, attitude and creativity played a major part in its success. However, on the flip side, the all consuming passion and power of a founder can sometimes become a liability when a company grows and attracts investors.

“All of a sudden there are new stakeholders and the very founder that established the brand becomes more accountable. In the case of American Apparel, with all of the negative publicity, it was clearly felt that the brand builder was now becoming a liability, damaging the very brand he created,” said Twyford.

Should it step away from scandal?

In such situations, changes in brand direction can undoubtedly be expected.

Mylinh Cheung, founder of Epic PR said: “Losing a long term CEO is never easy on a brand, but if it was a sinking brand that was not making a profit and getting a bad reputation for real misdemeanors, it could also pave the way for welcomed growth in a new direction.”

What the brand now needs to do is redefine its direction going forward, she adds.

Twyford too thinks the brand needs to re-evaluate who they are in many ways. Do they carry on in the same edgy, one-step-away-from-scandal vain that has defined Charney's leadership, or do they take this opportunity to evolve?

“With Charney at the helm, the brand and its current positioning may feel rather hollow and less 'authentic'. This change is leadership is likely to signal a period of soul searching as an organisation, as a culture and as a brand,” said Twyford.

However, Melvin Kuek, managing director of creative agency Y&R is positive that Charney was polarizing enough of a character to have been able to create a powerful cult of personalities within the company to carry on the brand vision without him.But not all are as positive about going forward.