NEW YORK — Tommy says it’s time.
Now that he’s a men’s wear star and has a major fragrance deal with Estee Lauder, Tommy Hilfiger is planning to get back into the women’s business and has former Liz Claiborne vice chairman Jay Margolis spearheading the effort.
“Timing is everything, and I think the timing is right to reenter the women’s wear market,” says Hilfiger.
Hilfiger, vice chairman of the $200 million men’s sportswear company bearing his name, says the women’s sportswear line will be ready in about a year. He plans to manufacture and market it himself.
Just the fact that Hilfiger can even consider reentering the women’s market, illustrates one of fashion’s most dramatic comeback stories.
In four years, the designer has gone from famine to feast.
After an abrupt split in 1989 with his former backer, Murjani International, Hilfiger scrambled for new financing and put together a men’s sportswear collection that is today one of the hottest sellers at retail, even rivaling Polo/Ralph Lauren. In addition to Estee Lauder, he now has licensees with Hartmarx, Jockey International, Superba, Oxford Industries, Trafalgar and Mountain High Hosiery.
And his publicly traded stock, one of the industry’s most successful IPOs in 1992, is flying high. The company, which now employs 300, went public in September 1992 at $15 a share and had a secondary offering in November 1993 at $31 a share. The stock closed Tuesday on the New York Stock Exchange at xxxxx.
On Monday, the company reported earnings soared 87.8 percent in the third quarter and 72.1 percent in the nine months ended Dec. 31.
Profits in the quarter were $7.7 million, or 48 cents a share, up from $4.1 million, or 28 cents, a year earlier. Sales jumped 66.1 percent to $63.1 million from $38 million.
For the nine months ended Dec. 31, earnings rose 72.1 percent to $17.1 million, or $1.06, and sales climbed 62.3 percent to $159.1 million.
Wall Street analysts expect the company to post sales in excess of $200 million for the year ending March 31, and between $260 million and $270 million in fiscal 1995. For 1993, the company had net sales of $138.6 million and net income of $14.6 million.
All these moves have made Hilfiger a very rich man. He receives an annual base salary of $900,000, subject to adjustments based on sales, and his holdings in Tommy Hilfiger Corp. through Apparel International Holdings Ltd. (AIHL) are worth about $50 million.
Hilfiger owns 17.5 percent of Apparel International Holdings Ltd., which, in turn, owns 57.7 percent of the Hilfiger company. That controlling interest is owned equally by affiliates of Lawrence Stroll and company chairman Silas Chou.
Other owners in AIHL include Joel Horowitz, president and chief operating officer, 7.5 percent, and Edwin Lewis, chief executive officer, 2 percent.
The company’s next step is already in the works. “We’re planting the seeds now [in women’s],” says the 42-year-old-Hilfiger, in an interview in his company’s 40,000-square-foot offices here.
In Margolis, Hilfiger has teamed up with a merchandising veteran who was instrumental in building Liz Claiborne into a $2 billion powerhouse.
After leaving Claiborne last July, Margolis teamed up with Hilfiger investors Chou and Stroll, who are also investors in London-based Pepe Group PLC. Margolis became chairman and chief executive officer of Pepe Clothing (U.S.A.) Inc. and at the same time became a director of Tommy Hilfiger Corp.
“Jay’s first project is that of overseeing and consulting to the Pepe Group,” says Hilfiger. “However, in the very near future, he’s going to devote his time and effort to mapping out a business strategy for [Hilfiger] women’s wear,” says the designer.
While women’s weighs on his mind, Hilfiger’s men’s wear continues to click.
His men’s show Tuesday at his massive showroom — one of his strongest presentations in years — was packed with heavyweights such as Michael Gould, chairman of Bloomingdale’s; Leonard Lauder, chairman of Estee Lauder, and even Bart Oates, center for the New York Giants.
Hilfiger showed smart looking tweeds and his requisite tartans. He also launched a sportswear label, Tommy Hilfiger Surplus, and unveiled his new tailored clothing line.
In describing his female target customer, Hilfiger says, “I want to dress the girl who dates or is married to the guy who wears my clothes. It’s between where Liz Claiborne left off and DKNY begins.”
Hilfiger envisions the collection as weekend casual and wear-to-work clothing.
“It has to be affordable, stylish and well made, like the men’s clothes, but still have an attitude.”
Although the line may include such items as man-tailored shirts and jeans jackets, Hilfiger says, “I don’t want to make a men’s wear line sized for women.”
“There’s a need in the market for comfortable clothing,” adds Margolis. “It will have some traditional base, but it will also have a soft element.”
Hilfiger also doesn’t want to be pigeon-holed into a price range.
“I wouldn’t be caught in that trap of being between X and Y. It’s a big mistake. It prohibits manufacturers from growing the way they’re supposed to grow. Hopefully, we’re intelligent enough to know which price points are prohibitive and which aren’t,” says Hilfiger.
This won’t be Hilfiger’s first foray into women’s wear. The designer’s previous effort in women’s, with Murjani, lasted only a year and was a critical failure. The line started out strong but ultimately suffered from blandness and lack of focus.
Hilfiger says he learned several lessons from that experience.
“I had one design team doing men’s and women’s,” he explains. “Men’s was the focus and women’s was an afterthought. This time I’ll have a separate sales, design and marketing staff, although the inner workings would be the same.”
Adds Joel Horowitz, president of Tommy Hilfiger and previously president of Murjani International: “The main thing I learned is we’re not going to go into a business unless it’s 100 percent. Before, it was people forcing us to do something when the timing wasn’t right. Now we know it’s right, and there’s a need for it.”
It was Mohan Murjani — owner of Murjani International — who originally put Hilfiger’s name on the map. Murjani, who had turned Gloria Vanderbilt and Coca-Cola Clothes into marketing sensations, set out to work his magic on Hilfiger.
When he met Murjani back in the early Eighties, Hilfiger was a freelance designer for several apparel companies, including Jordache and Click Point.
“He was looking for a new American designer to back,” says Hilfiger. “At that time I had been talking to Perry Ellis and Calvin Klein about designing Perry Ellis America and Calvin Klein Sport or Jeans. I was at a crossroads in my career,” he recalls.
Hilfiger struck a licensing deal with Murjani in 1985, but because of restrictions with Click Point he couldn’t initially design a women’s line. So Hilfiger started with men’s wear and launched his line of what he calls “preppie classics.”
Then, in 1986, in one of the brashest apparel advertising campaigns of all time, Hilfiger was compared to such leading men’s wear designers as Ralph Lauren, Calvin Klein and Perry Ellis. A Times Square billboard carried the message, “The Four Great American Designers for Men,” featuring the initials of Calvin Klein, Perry Ellis, Ralph Lauren and Hilfiger, and leaving blanks to be filled in for the rest of the names. It advised consumers they would be hearing about “Tommy” soon. Similar ads were featured on telephone kiosks and magazines.
“Right after it ran, I was very embarrassed,” recalls Hilfiger. “I asked myself, how do I live up to this? I think it’s what drove me.”
During the four years under Murjani’s wing, Hilfiger’s men’s sportswear grew from $5 million to $25 million. Hilfiger’s name and flag logo got attention and wide exposure with George Lois’s bold ad campaign as well as lavish promotional giveaways, such as the ubiquitous red, white and blue gym bags. But when Murjani’s Coca Cola Clothing business fizzled, causing the company deep financial problems, Hilfiger wanted out.
Hilfiger then formed a partnership with Horowitz; Chou, a leading Hong Kong manufacturer, and Stroll, who at the time owned Polo/Ralph Lauren in Europe. They bought back the company from Murjani in 1989 for less than $10 million and formed the new Tommy Hilfiger Corp.
Stroll then divested himself of the Polo business in Europe, while Chou kept his ownership of South Ocean Knitters Ltd. — a subsidiary of Novel Enterprises (of which he’s an executive director) — one of the largest manufacturers of textiles, sweaters and yarns in the Far East, Together, the new team set out to rebuild the Hilfiger business with an eventual goal of taking the company public. Hilfiger said he immersed himself in the business, working 14- to 16-hour days. He moved his family from Greenwich, Conn., to Manhattan so he could be closer to the company. He’s since moved his family back to Greenwich.
“Over the past four or five years, I’ve done absolutely nothing but focus on the business,” says Hilfiger. “I’ve done very little socializing as compared with before.”
With the startup of his new company, Hilfiger aggressively began visiting stores, making appearances and boosting the company’s promotional activities.
In December 1990, the company brought on Edwin Lewis, a former executive vice president of Polo/Ralph Lauren, who had also spent some time as president of Ralph Lauren Womenswear. Lewis became a partner in the Hilfiger business, as well as chief executive officer. Lewis’s mission was to rebuild the department and specialty store business, as well as expand it.
“We set up a strategy, and we all followed the course,” adds Hilfiger.
“Silas created the ultimate plan; Lawrence was very involved in formulating the expansion of the product line; Joel was literally immersed with the investment bankers and the lawyers, and Edwin was paving the way at the retail level,” says Hilfiger.
The designer, meanwhile, was involved in production, advertising and marketing “and really getting out and seeing the customer face to face.”
“I had this wonderful, unusual opportunity to build the business into a very well-respected business. I’ve surrounded myself with great partners,” he says.
Previously, says Hilfiger, “I didn’t have the financial resources and management behind me. Now I do.”
Among the steps taken was setting up Tommy Hilfiger Far East, its own buying office in Hong Kong. It also strengthened its business with department stores and expanded an in-store shop program. The company added more product people and improved quality.
“The quality wasn’t what it should have been,” says Hilfiger of his previous venture with Murjani. “Fabrics and deliveries were late and we weren’t using the best factories. We began sourcing directly with the mills,” he says. Hilfiger manufactures primarily throughout the Far East, and uses some of Chou’s production facilities for sweaters.
Hilfiger’s sport shirts primarily retail from $55 to $70. Pants retail for $36 to $62.50, and sweaters average $78 to $98 but go as high as $195 for hand-knits.
Unquestionably, the biggest boon to the company was its initial public offering on Sept. 29, 1992. The company issued 3,565,000 ordinary shares in an initial public offering for which it received net proceeds after expenses of approximately $46.9 million. The proceeds were used to repay indebtedness and for capital expenditures — mostly for expansion of the company’s in-store shop program — leasehold improvements and management information system upgrades, according to a filing with the SEC.
“The reason for going public was to accelerate the in-store shops to over 400,” he says. Today, within department stores, there are about 400 in-store shops for men’s sportswear and 240 boys’ fixtured areas. The company launched a boys’ wear division for fall 1993.
Horowitz said Hilfiger’s largest customers, in order of purchases, are Dillard Department Stores; Federated Department Stores; May Department Stores Co., and tied for fourth, R. H. Macy and Belk Stores.
“Certainly the success of the men’s business in department stores is going to give us great entree into the women’s business when we go in,” adds Horowitz.
“The proven formula of what we’ve done in men’s can be translated into women’s, although the product will be different.”
Bloomingdale’s Gould says a Hilfiger women’s line would definitely be welcomed at Bloomingdale’s.
“He’s performing spectacularly in men’s wear. He’s a great partner with Bloomingdale’s and has enormous talent and a great feel for the market,” says Gould.
Part of Hilfiger’s strategy has been a national advertising and promotional campaign to build brand awareness. This current fiscal year, Hilfiger is spending $6 million on advertising, including print ads in magazines such as GQ, Rolling Stone, Vanity Fair and Sports Illustrated; bus shelters and bus sides; phone kiosks; postbills, and billboards. For fiscal 1995, that budget will be doubled to $12 million, including contributions from licensees, says Horowitz.
The promotional activities have included sponsorship of the Pete Townshend Tour last summer in 10 cities, as well as the Formula One Grand Prix races worldwide. The company spends $1 million a year on the race car sponsorship.
For spring/summer ’94, Hilfiger says he’s planning a massive corporate ad campaign to strengthen the firm’s image. The campaign will then break into specific categories for underwear, accessories and sportswear “before we hit them hard with fragrance.”
Hilfiger’s licensing deal with Estee Lauder is for a men’s fragrance slated for a spring 1995 launch, to be followed by a moisturizer and after shave lotion.
A women’s fragrance could come after a women’s sportswear line is underway, the designer says.
Hilfiger also says he’s talking to QVC Network for participation on the home shopping network.
Besides boosting his image through advertising, Hilfiger is reentering the retail arena. Under Murjani, Hilfiger had six freestanding stores that have subsequently closed. In April, Hilfiger will open a 4,000-square-foot-store in the Stamford Town Center in Stamford, Conn., directly across from the Polo/Ralph Lauren store. Hilfiger previously had a 1,200-square-foot store in the same mall.
“We’re not looking to be a Gap or a Limited,” says Horowitz. “Right now our thoughts are approximately 100 stores.” For fiscal 1995, Hilfiger will open from two to four stores, although no other sites have been selected, says Horowitz. A New York City store is further down the road.
“When we do it, it will be an East Side location, on Madison Avenue,” says Horowitz.
In Japan, Hilfiger has 25 in-store shops and plans to open another 25 before next fall. Tommy Hilfiger Japan is a joint venture with Itochu (formerly C.Itoh).
Living in a sprawling Tudor mansion in Greenwich with his wife and three children, Hilfiger seems to be enjoying the trappings of his success. Having grown up in Elmira, N.Y., with eight brothers and sisters, a father who was a jeweler, and a mother a nurse, Hilfiger recalls, “It was always my dream to live like this. I always thought it would be neat to live another life.”
He says, “I always had the means to make money and always wanted to be as successful as I could.” At 18, with an initial investment of $150 and 20 pairs of pants, Hilfiger opened a small store called People’s Place in Elmira, N.Y., with a friend.
“I never went to college. I was more interested in going into business for myself at this time,” says Hilfiger. “I sold incense and candles and bell-bottoms.”
“I wanted to wear that clothing myself, and it turned into a real business.” The store sold jeans for $12, including such brands as Levi’s, Landlubber, Faded Glory and Granny Takes a Trip. As the operation became more professional, Hilfiger expanded to 10 stores but then ran into major financial problems.
“We overexpanded and went into Chapter 11. I was 25, and I had to start all over again.”
Hilfiger then moved to New York with his wife, Susie, who had been one of the employees in his store. Susie Hilfiger began designing her own women’s line called O Tokyo, and Tommy Hilfiger began freelancing for various firms.
While Hilfiger’s plans are unquestionably aggressive, the designer says he doesn’t want to jump into anything prematurely. After women’s apparel, other categories he’s interested in include men’s footwear, girls’ wear and home furnishings.
“We have to do everything step by step,” says Hilfiger. “There’s time.”