Hot Gossip at Hot Topic?

Some odd things have been afoot at retailer Hot Topic (Nasdaq: HOTT  ) . A Form 8-K filed with the SEC last week alerted me to some unusual developments.

In early July, the company disclosed that the president of the Hot Topic unit, Michael Crooke, had left the company. That's not exactly unheard of, of course -- American Eagle Outfitters (NYSE: AEO  ) shares got pummeled on word that its president and chief merchandising officer, Susan McGalla, wouldn't renew her contract.

But here's the twist: Crooke had only been on board for a month. With a stint that short, it's easy to let the imagination run wild and figure that whatever went down, it wasn't very good.

Are you for real?
Crooke's talents were laid out in a press release squeezed in between his swift arrival and departure -- his career included the CEO role in Steve Case's (of AOL and Time Warner (NYSE: TWX  ) fame) Revolution Living endeavor, as well as high-ranking positions at companies like Patagonia. Throw in some time in the 1970s as an elite member of the Navy SEALS and that's one wild resume.

A Washington Post article from several years ago piqued my interest; when Crooke was getting on board at Revolution Living, he commented, "Consumers can smell a rat a mile away ... If it's real and authentic, they will stick with it."

Well, that reminds me: I've long wondered if Hot Topic's biggest challenge is a lack of authenticity. This question has been heightened in my mind by a number of emails from readers recently, informing me that Hot Topic isn't really a Goth-oriented retailer anymore because that's no longer "in."

Oh? Well, it’s easy to miss that fact, given the store’s offerings: black clothing, body jewelry, hair dye (semi-permanent, of course -- what a complete inability to commit), and dashes of what, in my day, was clearly considered Goth or punk style. (I did notice the T-shirts seemed to lean more toward metal in the store I recently visited to see if there were any marked differences from the website.) I guess my own youthful punk past made it even more irksome that Hot Topic looked like somewhere you’d shop for your Halloween costume. As for the general merchandise mix, here's a metaphor: Imagine a store dedicated to '60s paraphernalia that didn't sell anything but Beatles and Rolling Stones and peace-symbol junk.

Many things have changed since my youth, but I still think any sense that authenticity might be sorely lacking is dangerous for a retailer like Hot Topic, which seems to want to put across an air of subculture individuality without digging past the mainstream (ironic, I know).

Similar risks lie in board sports fashion and culture. On one hand, Volcom (Nasdaq: VLCM  ) strikes me as the real deal. Pacific Sunwear's (Nasdaq: PSUN  ) namesake stores and Abercrombie & Fitch's (NYSE: ANF  ) Hollister, which also provide board sports-related apparel? I'm not as convinced. Relative newcomer Zumiez (Nasdaq: ZUMZ  ) may face similar challenges, but I have leaned a bit more positive on that one because it actually offers board sports-related gear as well as fashion.

Easy come, easy go
Well, that was a digression; back to Crooke's abrupt departure. We will probably never know the truth of what went amiss, but digging through SEC filings gives some interesting details.   

The Form 8-K I ran across said the stock-option agreement related to CEO Betsy McLaughlin's appointment of Crooke has now been cancelled. She had had the option to purchase 100,000 shares of the retailer at an exercise price of $5.07 each. (Speaking of stock options, check out Fool Rich Duprey's recent article on some Hot Topic policies.)

Meanwhile, it looks like the red carpet was originally rolled out for Crooke, according to the original employment agreement (attached as an exhibit to an earlier 8-K filing). Crooke's $600,000 annual salary was nearly as much as McLaughlin got last year, and trumped the $450,000 in yearly salary that his predecessor, Gerald Cook, received. (Cook is now chief operating officer.) There were quite a few perks and goodies for Crooke, too, such as a company-leased car and relocation expenses. Man, that's so punk rock (Hot Topic-style, of course).

Maybe Crooke's departure is all for the best, even if it didn't particularly save face. Who knows? However, I'd still think shareholders might feel uneasy about the continued turnaround strategy the retailer's trying to carve out.

Between strange interludes like this one and the fact that I just don't buy this as a very authentic retailer (there are plenty of more promising retail stocks that trade at less than 17 times earnings, too!), Hot Topic's just not top of the pops on my watch list. It's not easy to be a publicly traded purveyor of prepackaged "rebellion," after all.

Zumiez and Volcom are Motley Fool Hidden Gems picks. Pacific Sunwear, Time Warner, and American Eagle Outfitters are Motley Fool Stock Advisor picks. The Fool owns shares of American Eagle Outfitters. Try any of our Foolish newsletters today, free for 30 days.

Alyce Lomax is an alternative-music snob who does not own shares of any of the companies mentioned. The Fool has a disclosure policy.


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