By  on May 12, 2008

NEW YORK — Construction is under way on the 12th-floor executive offices of Calvin Klein Inc.'s West 39th Street headquarters here with minimalist spaces being reconfigured and white paint still fresh on the walls.

The changes are emblematic of a larger undertaking at CKI to transform the Calvin Klein Collection into one of the top American designer businesses — now that it has taken that business back in-house after years of outsourcing manufacturing and distribution. The plan is to bring back some of the retail real estate Collection has lost in recent years, and ultimately, start growing the Calvin Klein freestanding store network again.

Women's creative director Francisco Costa's efforts had been hampered by the licensing structure set up when Phillips-Van Heusen Corp. acquired CKI in 2003. The floundering fortunes of first licensee Vestimenta resulted in issues such as delivery problems and fit inconsistency. In January, CKI acquired its most recent Italian licensee, CMI. Since then the company has made several strategic moves to integrate the licensee into its operations and set up a platform that will allow Collection to rebound. But executives maintain the strategy is less about building a multimillion dollar revenue model as it is about correcting problems and rebuilding it in top doors to help inform the perception of the entire Calvin Klein brand.

"For a number of years, we have been wanting to get this business back in-house," said Tom Murry, CKI's president and chief operating officer, who conceded the licensing model works well at other Klein tiers, but not at the Collection level.

"It's not a business you normally get into to make money," he said. "The primary reason to be in that business is to set the image for all the other businesses, set the image for the brand, create the halo for the brand. It's difficult for a licensee to justify making the necessary investment to have an excellent and well-executed Collection business."

With the business back under the company's belt, CKI has begun making organizational changes in the Collection infrastructure, resulting in several hires. These include Robert Vignola, an alum of Judith Leiber and Burberry North America, as president, Calvin Klein Collection. Since joining in January, Vignola has studied the business and set out to make several strategic changes, from building a New York-based sales and merchandising team that will service the global distribution network to negotiating with retailers about reinstalling some of the real estate Collection lost in the past few years."By bringing it in-house, it also enabled us to make this a more U.S.-focused business," Vignola said. "It's very important that we build the Collection from here, and our feeling is that if it works right for the U.S. market, it will work right for most of the world. That's driving a lot of our decisions about the product development, pricing and deliveries. This should not be the tail, it should be the body of the business."

Vignola explained the company is taking an "inside the box" approach to building Collection. "It's the fundamentals that needed to be addressed," he said. "We want to build a successful business platform under Francisco and Italo [Zucchelli, men's creative director] and focus on the key things that need to be done in order to be a viable Collection business, and also be important to the retail partners that we're targeting."

To that end, CKI hired two vice presidents of merchandising: Nicole Kamen-Weiss for women's and Ernest Hernandez for men's. Both joined from Giorgio Armani, where Kamen-Weiss was director of women's merchandising and Hernandez was senior director of men's merchandising.

The executives will work closely with the creative directors to develop the lines, putting more emphasis on such elements as local markets, fabric weight concerns, color hues, fit consistency, quality and pricing.

"We are putting a lot more focus on earlier deliveries with stores," Vignola said. "Our resort collection is getting more attention from us. We anticipate it could be as much as 70 percent of the actual business."

Calvin Klein will stage its resort presentation at its showroom on May 19.

"We are really addressing it as a new business opportunity, building it up from the ground," Vignola said, adding there will be additional spring deliveries on Nov. 1 and Dec. 1 that hadn't existed in the past.

Murry added, "One of the reasons the business is small in the U.S. right now is that the operating center for the business has been in Italy, and the European and Asian calendar is much later than the U.S. calendar. Robert and his team are building a whole business around the U.S. calendar, which means having new product on the floor the beginning of every month. That calendar works for the U.S., and it works for the rest of the world."Since an earlier delivery cycle requires adjusting the Collection development and overall design calendar, CKI is also rebuilding its sales teams in New York and Milan and adding staff in Hong Kong. For instance, it recently hired Joy Corson as vice president of sales from Hugo Boss, where she was director of women's sales.

"We most certainly want to grow it and want to bring back some of the trading partners that haven't been trading with us in recent years," Vignola said. "This business is really not motivated by broadening the door distribution but it's really about what we call the halo effect...having Collection in the right stores in the right environment so that it really shines down on everything else at Calvin Klein."

Much ink has been devoted over the past few years to Costa's frustration with the absence of a sample room in New York. Fabio Fusco, Collection's Milan-based chief executive officer, is overseeing the construction of a large atelier at the company's Milan headquarters. Murry said the move was made because most of the manufacturing takes place in Italy. Costa will have a small studio here, and members of the Milan team will be flown in well before the runway shows to help put collections together.

Costa said the growth of the team makes the Collection seem more "substantial and real. The challenge is to build up more product, add more categories, expand in terms of the needs of the market. We really haven't done that because we have been very limited."

According to Murry, Collection's wholesale volume in men's and women's apparel is between $30 million and $35 million.

"Once we begin to get critical mass, and confidence, we will begin to open freestanding stores again," Murry said.

CKI owns the flagship on Madison Avenue, and there are five other Collection boutiques around the world operated by retail partners. The company has been holding back on expanding the retail front until it improved on the execution, Murry explained, adding he hopes to be able to open a freestanding store in Tokyo as early as spring 2009.

The first collection fully produced in-house will be for spring 2009. That said, Murry doesn't anticipate this to be a big money-maker for the brand, at least not in the immediate future."It's not particularly important that this business is a profit vehicle," he said. "This is really a marketing and image-building business for us. Certainly the losses will decrease over time as the volume grows, but we will continue to make the necessary investments in the business to make sure that we really have one of the top global luxury businesses."

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