By  on September 10, 2010

One door closes, another opens.

That could easily characterize Tommy Hilfiger's journey through the 25 years of his own business, plus the preceding quarter-century that planted the seeds of entrepreneurship and led to a $4 billion empire.

Like many self-made stories, Hilfiger's includes elements of timing; persistence; a few gambles; some fortuitous twists; not joining an athletic team or two, and meeting the right people —including heeding the advice of a psychic.

Growing up in Elmira, N.Y., Hilfiger took on various jobs: mowing lawns at age nine, having a paper route at 11 and pumping gas at night at the local Hess station at 16. The second of nine children, he attended local public schools, was an admittedly "mediocre student" and loved rock music. The work ethic was instilled early on by his father, a jeweler, and his mother, a nurse.

"We lived a very normal middle American lifestyle. It was a fairly small community where everyone knew each other," said the 59-year-old Hilfiger in a wideranging interview at his West 26th Street headquarters in Manhattan. But becoming an international fashion designer and the visionary behind a global brand was far from his radar at the time.

Hilfiger said he had the typical boyhood dreams of being a football or basketball player. "All the players on my school team were pretty big kids, and I was small. One day, the coach said, ‘I don't think you should play because you're going to get hurt.' I decided to work hard, save my money and buy a car."

While still in high school, he went with two of his friends, Larry Stemerman and Jonathan Cornell Allen, to New York City and bought bell-bottom jeans to sell from the trunk of his Volkswagen. He soon graduated to a small basement shop called People's Place in downtown Elmira.

"We painted it black, burned incense and sold bell-bottoms, peasant blouses and leather jackets. This was in 1969, I was 18 years old, it was the time of Woodstock. There was a fashion and music revolution going on. I had long hair and wore bell-bottoms, and I was in the music-fashion scene," said Hilfiger.

The partners purchased clothes for People's Place from an East Village boutique, Limbo, on St. Marks Place, which is now Trash + Vaudeville. They also bought clothing from manufacturers such as Landlubber, UFO and A. Smile, as well as sold some vintage clothes, jewelry, candles and incense.

The store was a hit. The partners expanded to several college campuses upstate and ultimately opened 10 stores in 10 years. Back in Elmira, they set up a music management department called Further Adventures and promoted local concerts and gigs. People's Place would sponsor rock shows in the basement, and kids would hang out. The store also sold concert tickets, had a hair salon and record shop. They made sandals, belts, bags and fringed vests in an on-site leather shop.

As time went on, Hilfiger said he couldn't find collections he liked, so he started designing his own jeans and hippie-Mod clothes. "The clothes became very successful. I decided I wanted to have my own collection and go into the fashion business," he said.

But he stopped paying attention to the details of the retail business, the bills piled up and in August 1977, he and Stemerman filed Chapter 11 and split up the remaining four stores. (Allen had left the business earlier). Hilfiger couldn't get backing and the People's Place closed.

"It was an eye-opener for me. I decided I should really be more focused on the business, or split my time between creative and business, and not spend all my time on creative," he said.

Hilfiger is still friends with Stemerman, who now owns and operates a men's wear company, Tailor Byrd, as well as Allen, who's an attorney in Canada.

Following the bankruptcy, Hilfiger moved to Manhattan, where he worked for various companies, including Seventies designer jeans pioneers Jordache and Bonjour. "I freelanced for a number of people, and started a company called Twentieth Century Survival, another company called Clickpoint, and one called Tommy Hill," he recounted.

He was later hired to design all the casualwear and denim at Calvin Klein, but before taking it, called Zvia, his psychic. She told him to turn it down because something better was coming along. He took her advice and the next day, received a call from Mohan Murjani, an Indian textile magnate who held the licenses for Gloria Vanderbilt jeans and Coca-Cola clothing.

"[Murjani] said, ‘Why don't you come with me, and I'll back you and we'll start Tommy Hilfiger together?' I suggested they call it Tommy Hill, but he said, 'Let's use your real name.'"

In 1984, they launched the Tommy Hilfiger brand with Murjani International as the financial backer. Joel Horowitz, who was heading up new businesses for Murjani, was installed to oversee Hilfiger's business.

"The first line I designed was preppy all-American men's wear," said Hilfiger. "I really wanted to go back to my roots; I was brought up wearing preppy clothes, and wanted to redesign all the classics. That preppy all-American men's wear took off in 1985. It was successful right out of the box."

Among the details were contrast stitching on the buttonholes, pastel fabrics lining the collars and the small flag emblem.

Murjani hired advertising power player George Lois to do the ads and he came up with a provocative campaign based on the word game "Hangman." It catapulted Hilfiger's name onto the fashion map. A Times Square billboard asked, "Who Are the 4 Great American Designers for Men?" and answered it with the initials: R____ L_____, P____ E____, C_____ K____ and T____ H_______, audaciously putting Hilfiger in the company of Ralph Lauren, Perry Ellis and Calvin Klein. 

According to Hilfiger, "George Lois said, ‘if you run traditional advertising, it will take years and years and millions of dollars to get anyone to take notice.' Although I was apprehensive, I said, 'OK, let's do it.' It made history."

Three years later, Murjani ran into trouble with his other businesses and needed to sell the Hilfiger company, which was generating around $30 million in volume. In 1988, Hilfiger met Silas Chou, a Hong Kong sweater manufacturer who owned the South Ocean Group. Chou was a partner with Lawrence Stroll in Polo Europe. Chou and Stroll decided to buy the majority of the Hilfiger company from Murjani, with Hilfiger and Horowitz as minority investors.

"Murjani didn't really want to sell, but he was running into stressful times from overexpanding the Gloria Vanderbilt and Coca-Cola clothing lines. They were big businesses that really needed big funding. He [Murjani] had a lot going on. Tommy Hilfiger was one of the smaller brands," the designer recalled.

Business doubled the first year under the new ownership, and virtually doubled every year after that during those early years. The company went public at $15 a share in September 1992, when it was generating more than $100 million in net revenues, in one of the industry's most successful IPOs. It had a secondary offering in November 1993 at $31 a share. These moves made the four partners extremely wealthy.

Hilfiger expanded into other categories such as fragrances, women's apparel, children's wear and home furnishings. He jetted around the country, appearing at department stores from coast to coast; sponsored rock concerts, including The Rolling Stones and Lenny Kravitz, and spent millions of dollars on marketing and advertising to create a megabrand. The company signed licensing deals with firms from Estée Lauder, Hartmarx Corp., Jockey International Inc. and Superba to Oxford Industries Inc., Trafalgar and Mountain High Hosiery Ltd.

In the mid-Nineties, the Hilfiger brand found a niche in hip-hop circles when rappers started wearing its baggy jeans, oversize athletic jerseys and big logos. A defining moment came in 1994 when Snoop Dogg performed on "Saturday Night Live" dressed in head-to-toe Tommy red, white and blue clothing. However, the hip-hop community eventually moved on to other lines — many coming from the artists themselves — and Hilfiger, which had lost its core preppy customer, struggled with its identity.

In the meantime, Stroll and Chou engineered some key moves, such as the $1.15 billion acquisition in 1998 of two of its sister companies: Pepe Jeans USA Inc. and Tommy Hilfiger Canada. In 2001, Hilfiger, which by then had reached $1.9 billion in revenues, completed the acquisition of its former European licensee, TH International NV, for $200 million in cash.

Yet these moves couldn't staunch Hilfiger's eroding customer base.

After a decade of furious growth, the company's earnings started to plunge. By 2000, the brand had become oversaturated in department stores and was struggling to regain traction. Fighting the promotional environment, the company decided to pull out of many department store doors and cut back its space in others.

As the U.S. business floundered, the European business under Fred Gehring,chief executive officer of Tommy Hilfiger Europe, continued to deliver consistent growth at premium positioning. In 2005, the company retained J.P. Morgan Chase & Co. to try and sell the business, with the strength of its European operations a prime attraction for bidders. Following discussions with several companies, Apax Partners bought Hilfiger in 2006 for $1.6 billion and took it private. Gehring was named ceo of the entire group, which embarked on a major effort to shore up its U.S. wholesale business. He radically slimmed down the business, cut jobs and brought some of the licensed programs in-house. He also tried to reenergize the U.S. brand by upgrading fabrics and raising price points.

In October 2007, Hilfiger signed an exclusive distribution agreement for men's and women's sportswear with Macy's Inc., starting with the fall 2008 collection. At the same time, the brand continued its successful expansion in Europe, which grew to generate more than 50 percent of revenues. European sales last year hit $1.13 billion with the collection selling in 5,000 small stores there.

The turnaround at Hilfiger was further evidenced in September 2009 when the company opened a 22,000-square-foot flagship on Fifth Avenue in Manhattan, featuring the designer's runway styles and European sportswear and denim lines. As the brand regained momentum in the U.S. and continued its successful expansion abroad, Apax considered another IPO, but decided instead to sell the business to Phillips-Van Heusen Corp. for $3 billion this year.

Here, WWD talks with Hilfiger about the highs and lows of the past quarter-century, how the brand managed to survive the difficult patches and flourish, his philanthropic efforts, connections to the music world, his management teams and the sale to PVH.

WWD: Which years in the business were the most meaningful to you?
Tommy Hilfiger: The beginning was the most meaningful because we really positioned the business to be what it is today. It is preppy all-American with a twist. It's cool American classics. It's casual, colorful, youthful and spirited. Taking the company public in the early Nineties was a milestone. Also, when we launched the Tommy fragrance and took the brand overseas, those were meaningful moves. Today, we have over 1,000 retail stores. [Other milestones were] when we took it private in early 2005 with Apax, and sold it again to Phillips-Van Heusen this year.

WWD: Which years were the toughest?
T.H.: It was the late Nineties, early 2000. We just became too big, too ubiquitous. The brand became too popular and too available. Meanwhile, in Europe it was growing slowly, surely, steadily. Our growth was so accelerated in the U.S., it was a simple matter of being too big. When you become too popular, there's a backlash.

WWD: Do you feel that going through that hip-hop phase was good or bad for overall brand recognition? Did you think it would ever recover?
T.H.: We were always a preppy all- American brand. That was the trend for the urban youth at the time. We were the first in and the most soughtafter, but it was a trend at the time. It taught us not to follow trends, to stay true to ourselves. If you chase a trend, you are really in the trend business, and the trend business is very dangerous. The demand [for large logos] was so big. And we kept feeding that demand. Everything was fun, except when it all slowed down. I didn't think it would come back so strong so fast. I thought it would take many more years of reestablishing ourselves. Our deal with Macy's was made in heaven. It gave us a singular focus, gave us exclusivity and helped relaunch the brand in the U.S. I have to credit Fred Gehring and Terry Lundgren.

WWD: Do you feel that the Macy's deal prevents you from growing with other retailers?
T.H.: I would rather have one great home than 10 condos.

WWD: Why do you think Fred Gehring was so successful in the European market?
Everything he was doing in Europe was true to the heritage of the brand. It was better quality, slightly higher price points, more focused. We took a page out of that book [in the U.S.]. We've had very smart business management during the current economic downturn. A lot of people panicked and tried to reinvent their businesses during that time, closed things down and pared back too much. Fred made the decision to stay consistent, keep on track, and be smart. He tightened the belt and continued doing what he had been doing. When you make the decision to do what you do best better, you can't really lose.

WWD: How was the business going in the U.S. before the Macy's deal?
T.H.: The organization had to be trimmed back and tightened. We went on a diet. We were opening our own stores and continued to open stores. We believe retail is important. We closed some stores that weren't working. We opened stores in new locations. We then opened the Fifth Avenue flagship, which has had amazing traffic. We also have a denim store on Lower Broadway that is really doing well.

WWD: Is it confusing today that there's one Tommy Hilfiger line at Macy's and a more expensive line under the same name at your freestanding stores?

T.H.: The flagship carries mostly the European Hilfiger line. Most of the Fifth Avenue customers are foreign, although Macy's caters to a lot of tourists, too. Macy's carries a more department store-focused line and the freestanding stores have a more specialty store-focused line. Previously, we had so many different names: Tommy, Tommy Girl, Tommy Jeans, H; we went down that road. We decided to focus our thought process. We'll carry the same looks [that are shown in the ads]. It might be wool at Macy's, but cashmere on Fifth Avenue. The New York flagship is a window to the world and it enhances the brand. Right now, we have 15 freestanding stores and 200 outlet stores in the U.S.

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