American Apparel suffering because of allegations against its founder

PUBLISHED : Monday, 01 June, 2015, 6:04am
UPDATED : Monday, 01 June, 2015, 6:04am

News broke several days ago that American Apparel had filed a lawsuit against its founder and former CEO, Dov Charney, for breaking the rules of their original agreement. This is the latest in a flurry of legal threats between the former partners.

Sensationalist and sexualised advertising that defined the brand is just the starting point. The hipster fashion label, made in the US, has expanded globally over the years and attracted a growing army of loyal, young, trend-focused followers.

But this success has been offset by abuse claims against the brand's eccentric founder by former employees, the company's termination of Charney as CEO, and ensuing litigation in every direction. Then there was the famous leaked video of Charney dancing naked in front of his employees. The partnership between Charney and hedge fund Standard General, which now controls the brand, has been tenuous, with Charney claiming the fund deceived him about their intentions from the start.

His time at the helm of the brand was also marred by several claims of sexual and physical harassment by former employees, which were settled out of court or dismissed. He was finally fired in December and has been on the offensive since. Last month Charney filed a suit against Standard General for HK$30 million, claiming he was defamed.

Now the lurid details of the employee abuse claims are being bought to the fore with this latest suit filed by American Apparel. The New York Post unearthed some internal company documents that revealed claims that he called employees sluts and pigs, punched tables and threw objects at them. If Charney has been trying to turn the PR tide in his favour since being ousted, he is certainly not winning.

It must hurt to lose the company he launched in 1989 and built from the bottom up, making him worth about US$500 million at one point, according to Forbes. But the accounts of Charney's reputation for perversion and his abuse of power are doing him and the brand no favours.

With such repeated allegations, the belief among much of the public is that there's no smoke without fire. With this latest suit, some of the truth may come out.

So how will this affect an already much beleaguered brand? Has American Apparel had its heyday? Reuters reports that the company has not turned a profit since 2009, and lost US$28 million in the fourth quarter of last year. More legal action will surely drain the coffers and distract from the fundamental purpose of selling its wares to consumers.

The brand has a distinctive identity, owing largely to Charney's marketing and image strategy, although I've never bought into the whole American Apparel craze.

Try as the company might to distance itself from the salacious accusations against Charney, the appeal of the American Apparel brand is in serious trouble.