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Can RadioShack's CEO Help Save American Apparel?

By Rich Duprey - Jul 29, 2014 at 1:43PM

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Can the CEO of one failing retailer turn around the fortunes of a second failing retailer?

Source: Wikimedia Commons.

And here you thought American Apparel (NYSEMKT: APP) couldn't raise any more eyebrows after ousting its controversial CEO and bringing itself to the brink of financial disaster by nearly defaulting on its debts. But you were wrong. The quirky retailer also swept out most of its old board of directors the other day, and their replacements might have you scratching your head.

On one hand, it wasn't surprising that hedge fund Standard General sought to place one of its partners on the board. It is extending $25 million to bail out American Apparel from its financial difficulties and would naturally want someone close at hand to keep an eye on its money, in this case, in the form of David Glazek. It's also hardly noteworthy that turnaround expert Thomas J. Sullivan was brought in as well, since the retailer has been on a long, steady decline and is in need of a change of direction.

On the other hand, what ought to make investors go more than "Hmm..." is Standard General also bringing on board two other directors who seem strangely out of place: One heads up a similarly failing retailer and the other's main qualification seems to be that she serves on a lot of boards of directors.

Of the four announcements made thus far (a fifth spot still needs to be filled), the appointment that stands out the most is the position being filled by RadioShack (RSHCQ) CEO Joe Magnacca. His electronics chain is itself in dire straits, with sales falling, customers fleeing, and its ability to contain costs constrained. Its stock is also in danger of being delisted from the New York Stock Exchange. American Apparel investors will rightly want to know what sort of ideas he can bring to the table to help turn around their company that he's not using to bring his own retailer back from the precipice. 

Media reports have lauded Magnacca's service as an executive at pharmacy chains Duane Reade and Walgreen, and to be fair, The Shack's seemingly mortal wounds were inflicted well before he took over the CEO reins last year. However, with his company still flailing in search of the one thing that will allow it to survive, RadioShack shareholders should ask why he's worrying about a clothing retailer's future when his own electronics company might not make it through the year.

As I've noted elsewhere, I like a lot of things that Magnacca's doing at RadioShack, but the company has a fast-closing window of opportunity to make these fixes work. Taking the time out of what should be a busy schedule to fuss over what's going on at American Apparel is curious indeed. Is he hoping to land on his feet at the clothing retailer if the electronics-doodad seller goes under?

The board appointment of Colleen Brown is also worth considering, because for a company whose ex-CEO allegedly conducted his business affairs like he was at a college frat house, the need for a woman's oversight can hardly be overemphasized. Although she'd be the first woman director of American Apparel, her lack of retail experience seems to be a serious omission. 

Brown has served as top executive at several media companies, but also as director to a disparate group of businesses, including a staffing company, a hyperlocal marketing firm, and a land and resource management company. More telling, perhaps, is her service at an investor exit strategy consulting firm. No doubt Standard General is minding its own end game in this affair.

Still, aren't there any top-notch female executives in retail that Standard General could have tapped instead? Apple, after all, has a former Avon Products executive serving on its board; American Eagle Outfitters has a former Sears Holdings executive; and Joe's Jeans has a Fossil executive. Sure, there's a dearth of women in retail executive positions, but wouldn't one of them be a better choice than someone who now needs to devote her time among five different companies?

There's no question that American Apparel needed some fresh faces. But unless the hedge fund operator in control of the retailer is using these appointments as a recruiting tool, I'm not sure RadioShack's CEO can solve American Apparel's woes, and appointing someone without retail experience -- particularly at this juncture when the company is trying to survive -- isn't really the housecleaning this apparel retailer needs and should be another warning flag for investors wondering whether this is the turnaround they've been looking for.

Rich Duprey has no position in any stocks mentioned. The Motley Fool recommends Apple and Fossil. The Motley Fool owns shares of Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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