Breakout

At Lululemon and American Apparel two retail icons fight to regain control

Jeff Macke
Breakout

Two controversial retail icons are fighting to regain control of the companies they founded. The question for investors is whether or not they're going to do more harm than good by refusing to fade into the sunset.

According to the Wall Street Journal Lululemon (LULU) founder Chip Wilson is working with Goldman Sachs (GS) to attempt to figure out ways to either regain some control of the yoga-wear maker, or liquidate his 28% stake in the company. Wilson is no stranger to exposure. Last year in the wake of product recalls Wilson suggested the problem wasn't the fabric but rather the heft of the customers attempting to wear stretchy yoga pants. After repeatedly making the problem worse Wilson stepped down as Chairman of Lululemon which has continued to miss product trends and seen its stock folded nearly in half.

Meanwhile at American Apparel (APP) founder and retail pioneer Dov Charney is vowing to sue the company unless he is re-instated as CEO immediately, a post he was suspended from last week. The company has lost $270 million in the last four years and has over $200 million in debt, some at interest rates pushing 20%. The innovative company has run afoul of customers after stepping over the fine line between "titilating" which is good and "super creepy" which is what many considered moves like using merkin-sporting mannequins in the windows of certain American Apparel stores.

These are wildly different companies. For one thing Lulu is worth about $6 billion more than American Apparel. What they have in common beyond salacious backstories is a pair of founders stuck between letting go of the reins and micromanaging. Lulu is fighting to regain trust on Wall Street and American Apparel is fighting for existence. Neither chain can much afford the distraction of former captains of the ship threatening to scuttle the entire operation unless they get their way.

For investors, Lulu is a yoga maker that somewhat ironically lacks the flexibility to turnaround because of an obsession with its past. At American Apparel Charney is making an interesting libertine statement that doesn't dovetail with dollars and cents. For investors both plays are deathtraps. Specialty retail death spirals are dangerous investments under the best of circumstances. Without clear cut leadership they are non-starters. For now, enjoy the show, maybe even dig the products, but consider the stocks only for the lotto-ticket portion of your portfolios.

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