WWD.com/fashion-news/fashion-features/pvh-8217-s-new-obsession-building-calvin-741858/
government-trade
government-trade

PVH’s New Obsession: Building Calvin

NEW YORK — He has revolutionized the jeans business, redefined the concept of fashion marketing and even changed the very nature of sex appeal.<br><br>With a constant pursuit of modernity, Calvin Klein has pushed the boundaries of fashion design...

View Slideshow

NEW YORK — He has revolutionized the jeans business, redefined the concept of fashion marketing and even changed the very nature of sex appeal.

With a constant pursuit of modernity, Calvin Klein has pushed the boundaries of fashion design well beyond expectations, often correctly anticipating a shift in public taste a moment before it happens, and occasionally taking a step too far, sparking controversy and outrage over his advertising campaigns. But Klein’s willingness to provoke has also been the catalyst behind much of the growth of his brand, and his latest step — as the first designer megabrand in recent times to be sold to a publicly traded American apparel company — shows that the designer hasn’t lost his willingness to experiment after 34 years in business.

Even last summer, Klein said in a WWD interview that his quest to define the word “modern” as it relates to fashion and design remained the central focus of his daily work. “I’m still looking at how to do it all better, and how we get to the next place,” he said.

Looking at the history of Calvin Klein Inc., now with a range of products estimated to generate sales of $3 billion worldwide at retail annually, it is apparent that the designer and his longtime business partner, Barry Schwartz, have applied a similarly disciplined approach to business practices, often following a path that diverged from the common approaches to licensing, acquisitions and personality management that were the norms of Seventh Avenue. For instance, within five years of launching the Calvin Klein brand in 1968, with a start-up investment from his high school friend Schwartz of $10,000, the designer said he was turning down takeover offers from big public companies with the idea that he preferred to remain independent.

That was the Seventies. Three years ago, Klein and Schwartz had changed their position and began shopping the company aggressively with an asking price of $1 billion. But when they couldn’t reach terms with either of the leading bidders, Tommy Hilfiger and Warnaco Group, Klein abruptly pulled the company off the market. The designer maintained then that he would rather remain a private company and he even looked at the potential of personally buying back his troubled jeans and underwear businesses when Warnaco went bankrupt in June 2001. But, a month ago, Klein and Schwartz again began entertaining offers for CKI.

From its origins as a contemporary outerwear brand for department stores to a designer sportswear company with jeans, underwear, fragrance, home and accessories brands, Klein has espoused a clean and minimal design philosophy that manages to still speak volumes about sex and power, without the heavy burden of embellishment or garish cuts. “My design philosophy has always been the same,” he said recently. “How I feel about design has always been about… things that are pure, clean and simple, while still having an edge.

“When we’re working on a collection of clothes or accessories or the home, I’m thinking about where we’ve been, how to evolve to the next place and how to get the person who is interested in what we do excited, knowing that there is a certain taste and style that they expect from us,” he said.

Once his jeans business began to take off in the Seventies, Klein began to experiment with a new look in fashion advertising and marketing that helped make him a household name, as well as one that appeared on the bands of countless pairs of white briefs. First, Brooke Shields declared in the 1980s campaigns that “nothing” comes between her and her Calvin Klein Jeans, and Klein himself then began to appear in advertisements. By 1984, male physicality became the focus with models lounging in Calvin Klein underwear, encouraging a new concept of sex appeal that was only heightened by the reaction to his advertisements for the Obsession fragrance that showed an all-nude Kate Moss. The name Calvin Klein had become so ubiquitous that in the 1985 film “Back to the Future,” a teenager who traveled back in time to 1955 was mistaken as a “Calvin” because of the name stenciled on his underwear.

Fragrance also has helped create global recognition for the designer’s name. Despite the failure of his first foray into beauty in the late Seventies, Klein struck gold in the Eighties with a licensing agreement with Minnetonka and the marketing leadership of Robin Burns.

Klein went from being criticized for having a weak fragrance business to being hailed as founding one of the great olfactive houses. The strategy for the 1985 introduction of Obsession changed the way that the entire industry launches fragrances. Burns blanketed the country with a carpet-bombing TV advertising campaign that produced instant sales. Instead of building new fragrance businesses slowly door-by-door over a long period ranging from six weeks to six months, all of sudden a launch had to show results in two weeks.

Klein’s cosmetics business also pioneered the importance of the master brand — separate men’s and women’s fragrances sharing the same overall name and advertising campaign. One unusual aspect of this practice was the fact that the men’s fragrance volumes tended to be larger than the women’s, despite the reality that the women’s market was the larger of the two.

After his signature Calvin Klein fragrances Eternity, Eternity for Men, Escape and Escape for Men, the designer proved that he had the touch in the youth market in 1994 with the launch of CK One, touted as the first shared fragrance for both men and women. It exploded with a first-season sales record estimated as high as $58 million.

Klein has on occasion overstepped the boundaries, however. His provocative imagery has sometimes created a storm of controversy. He was among the designers singled out for promoting a look known as “heroin chic” in the early Nineties, which was derided for what critics felt had glamorized the image of drug use. In the mid-Nineties, he was protested for a CK campaign that showed teens and children in their underwear in a setting that some equated to kiddie porn. Of course, those images are fairly tame in comparison to recent campaigns from Gucci and Versace, and Klein rode out the controversy without any significant losses.

By 1997, after America’s other megabrands — Ralph Lauren, Tommy Hilfiger and Donna Karan — had all become publicly traded companies, Wall Street’s sudden fascination with fashion stocks began to put pressure on Klein to follow suit. However, the designer’s experience in the stock and bond markets in the Eighties, which required him to report earnings, had turned him off from the IPO market, even though the company’s bottom line at the time showed that a long and painful transformation from a manufacturing company to a licensing giant had paid off with handsome revenues and an impressive bottom line.

At that time, the company was earning about $120 million in royalty and design income, a figure that had tripled in a period of three years. At least a third of that came from the lucrative Calvin Klein Cosmetics license produced by Unilever, which had sales of roughly $700 million. CK Calvin Klein jeans, which were then made by Designer Holdings, produced another quarter of the royalties, based on sales of about $466 million in 1996, while Warnaco’s underwear and intimate apparel products bearing the Calvin Klein labels were growing quickly, topping $500 million in 1998. Including additional revenues from eyewear, home collections and retail licenses, more than 90 percent of Calvin Klein’s $2.5 billion in wholesale volume in 1996 was produced through licenses. The period was one of the healthiest ones for the designer’s company, when Klein was opening designer flagships and breaking into new product categories.

Klein had also become debt free for the first time in his career in 1994, using a one-time payment of $38.1 million for selling the license of its men’s underwear and women’s intimate apparel to Warnaco to pay off a $58 million loan from Citibank. Klein had used the Citibank loan to repay entertainment tycoon David Geffen, who had bailed Klein out of financial troubles in 1992. Geffen bought junk bonds issued by the Klein company with a face value of $55 million at a discount, paying about $35 million.

Since that period of fast growth in the Nineties, however, Klein has faced significant challenges to maintain that momentum, with Warnaco’s bankruptcy eating into the sales of the designer’s jeans and underwear, while fragrance sales are also off (Unilever indicated this year that it is looking to sell the Calvin Klein Cosmetics division). Sales of the designer merchandise manufactured by Calvin Klein Inc. have also receded to what sources estimate is between $30 million and $50 million, following a period when the designer has restructured the manufacturing of both the men’s and women’s collections from licenses to in-house production. The company also eliminated the bulk of its in-house production when Klein announced last year that he was exiting the domestic CK business, which focused on bridge sportswear. (By comparison, Klein’s in-house collections declined to $141 million in 1996 from $177 million in 1997.)

Warnaco’s Calvin Klein jeans and underwear businesses had combined sales of $539 million last year, representing a significant decline from $800 million in 2000, while Calvin Klein Cosmetics has estimated sales of $600 million to $700 million annually, again a drop from its peak and flat in comparison to 1997.

The past several years have also been marked by memorable conflicts with other designers, as well as with Linda Wachner who, until Warnaco filed for bankruptcy, was the chief executive officer of that company.

In May 2000, Klein filed suit against Warnaco and Wachner for federal trademark violations and breach of fiduciary duty and contracts, ultimately looking to win back control of his collections. The designer alleged that Warnaco had threatened to erode the Calvin Klein jeanswear and underwear lines through a flood of discounting and other unauthorized sales and practices “that are the equivalent of counterfeiting.” And with an unusual level of acrimony, the suit went on to say Warnaco and Wachner herself “have become a cancer on the value and integrity of the [trade]marks.” Not surprisingly, Warnaco countersued shortly thereafter, but instead of a blown-out legal fight, the adversaries reached an 11th-hour settlement in January 2001, moments before jury selection was to begin. While details of the settlement were not disclosed, Warnaco was able to keep the Calvin Klein jeanswear license until 2044 and could continue to sell to discounters and warehouse clubs, and Calvin Klein got the right to approve all design changes, from fit to fabric, wash to trim. Warnaco owns the Calvin Klein Underwear business outright.

Klein also went head-to-head with Ralph Lauren over the design of Lauren’s bottle for the fragrance Romance in 1998, alleging its design was a knockoff of his Eternity bottle. By May 1999, the battle of the perfume bottle between the Bronx Bombers ended with a victorious Lauren beating back Klein’s challenge. The federal district court judge who oversaw the matter ruled that Klein “failed to establish a likelihood of confusion” by consumers over the two bottles, and denied Calvin’s bid to stop Ralph from using the square-shaped bottle.

The long-standing rivalry between Lauren and Klein escalated last year, when word got around that Klein and Jones Apparel Group were discussing a partnership for a new better-priced collection, which, sources said, would have been called “Calvin Klein New York.” Lauren himself reportedly put a halt to negotiations with his competitor, using the leverage of Polo Ralph Lauren’s licensed Lauren and Polo Jeans brands, which are big volume businesses for Jones.

Although Klein and Schwartz came close to striking a deal for CKI during the previous round of negotiations, when European designer conglomerates including Gucci Group, LVMH Moët Hennessy Louis Vuitton and Holding di Partecipazioni Industriali, as well as the American sportswear giants Liz Claiborne Inc. and Jones Apparel Group, were among those that at least reviewed the possibility, their ultimate decision not to sell the company left CKI in limbo for the past couple of years.

While recent initiatives were envisioned as long-term strategies rather than an immediate gain, Klein has still managed to maintain his position of power among America’s megabrands.

Even when there was little money left for marketing initiatives apart from grassroots promotions, Klein has managed to continue to provoke with collections that garnered some of the strongest reviews of his career and a fresh look in his ad campaigns that helped establish the careers of Jessica Miller, formerly Klein’s fit model, and the underwear model Travis Fimmel, who, if nothing else, still proves Klein has an eye for talent.

View Slideshow