Three of Tommy Hilfiger’s partners — Silas Chou, Joel Horowitz, and Lawrence Stroll — will have left the $1.87 billion company by 2004.
The first to go was Stroll, who resigned as Hilfiger’s co-chairman in July. Last week the company said that designer Tommy Hilfiger, honorary chairman of Hilfiger, will assume the role of chairman on Oct. 28, replacing Chou, who has removed himself from consideration for reelection at the company’s annual meeting of shareholders. Chou will devote time to other business interests, the company said. In addition, Horowitz will step down as chief executive officer when his contract expires in March 2004, but will remain as a director of the company.
As for Hilfiger, he plans to stay on for a very long time. "I have a lifetime contract. I am very energized about the company and the future and I look at this as a lifetime challenge. The company is continually evolving and always looking for new ways to better everything we’re doing. It is a very exciting time to look into the future and strategize [possible] new opportunities and maximize the existing business."
The company will begin searching for Horowitz’s future replacement immediately. The executive search, which began on Friday, will be conducted by Herbert Mines Associates.
Some of the names that were bandied around Friday as possible successors to Horowitz are Mickey Drexler, former chief executive officer of the Gap; Denise Seegal, president and chief executive officer of Sweetface Fashion Co., the holding company for the J.Lo by Jennifer Lopez clothing line and former president of Liz Claiborne Inc.; Jackwyn Nemerov, former president of Jones Apparel Group; Jay Friedman, group president of Hartmarx’s HMX sportswear division, David Fisher, senior vice president, general merchandise manager of men’s of Bloomingdale’s, and Mindy Grossman, president of Nike Apparel.
"As with any business, change and evolution are positive. The 18-month time-frame gives us ample time to find the right candidate to work with Tommy. It is a well, thought-out succession. I don’t have any plans for the future, but I will remain as a very active board member and be a strong adviser to Tommy and the new ceo," Horowitz said.Horowitz said he doesn’t have any business opportunities that are under review, nor is he looking to join Chou or Stroll — who remain good friends — in their new ventures. As reported, Stroll resigned from Hilfiger to concentrate on Asprey and Garrard, the London jewelers he and Chou acquired in July 2000 which generate $75 million in volume. Their goal is to turn the two companies into major luxury brands.
At that time, Stroll told WWD, "It’s been a wonderful 13-and-a-half years since acquiring Tommy. I feel I’ve done all I can do. I want to move into different pastures. I bought Asprey & Garrard two years ago and am enjoying it tremendously. I thought it was the right time."
Asked if he believed there’s growth left in Hilfiger, Stroll said in July, "There’s absolutely opportunity in Tommy. You won’t see the growth levels of five to six years ago, it’stoo large a company. You can only have a certain amount of distribution without lowering one’s standards."
Chou couldn’t be reached Friday for comment.
Horowitz did provide insight about the recent changes among the firm’s founding investors.
"The timing of what is happening has a lot to do with our need to change the board because of new regulations requiring that the majority of board members be independent. Looking at the long-term picture in 18 months, with my contract up, Silas leaving and Tommy stepping up, we are evaluating it all now so that the board we put in place has Tommy’s stamp on it," Horowitz said.
Horowitz, whose daughter overcame a major drug problem that was described in the Oct. 14 issue of Forbes magazine, co-founded Friends of CEDU Foundation. With contributions in part from the Tommy Hilfiger Foundation, the Friends of CEDU Foundation secures loans to assist families so their children can attend rehabilitation programs without fear of dropping out because of lack of funds to pay its high costs.
"The experience clearly has made family the main focus in my life. It is a way to give back to other families and children who might be experiencing a similar thing," Horowitz said. He spends his free time working at the foundation he co-founded, and expects to have more time helping others when he steps down from his ceo role in 2004.Hilfiger, who disclosed that the company refers to Horowitz as "the rock," admits that Horowitz’s shoes will be difficult to fill. "Joel is not only a well-versed, experienced chief executive who understands all facets of the business, he also has a human side — a relationship with all of the people he touches on a day-to-day basis. He’s been able to motivate an entire team [since the company’s] inception. He also has the ability to look at the creative side and the business side at the same time. A lot of chief executives are too business-oriented. He will not be replaced. However, we will find someone to take the position."
Hilfiger noted that Chou and Stroll over the years have sold a substantial portion of their holding of Hilfiger stock to fund other business investments. He denied any fallout among the foursome, stating, "Absolutely not. We still remain very close personal friends." While Chou, Stroll and Horowitz still own shares of the company, Hilfiger remains the individual shareholder with the largest stake. Stroll and Chou each own 1.1 percent of Hilfiger. Horowitz and Hilfiger also own small pieces of A&G Group, the parent company of Asprey and Garrard.
According to Horowitz, there are seven board members, excluding Chou. With four insiders and three outside directors, the ceo said there will be change "coming down the pike" due to the independent majority requirement that is supposed to be implemented in 18 months.
Allan Ellinger, senior managing director of Marketing Management Group, said, "Silas has always been a wonderful asset to the company. I find it surprising that the three most senior guys are leaving and moving on within a two-year time-frame. With Joel’s decision to step down as ceo 18 months from now, you have to give the company credit for initiating a search this early and planning for a smooth transition to a new ceo."
Ellinger said that it will be somewhat difficult to find an experienced senior apparel executive. He doesn’t expect that the company will have to go outside the industry as Liz Claiborne did with Paul Charron or Gap recently did with Paul Pressler, but said that the search could take some time. He reasoned: "While many are trained to manage sourcing or merchandising responsibilities, most are not trained to manage a freestanding company that includes responsibility for a balance sheet, the assets of the company, dealing with the public markets, and having the vision and management skills to lead a company as diversified at Tommy."One industry source noted, "If Joel wants to step down, perhaps it’s a bigger job than anyone’s really up to. Maybe they’re putting the company in play."
Discussing Horowitz’s decision, another source said, "It’s probably just a quality of life decision. He’s done an unbelievable job. His performance speaks for itself."
Although sources considered Chou the genius and innovator behind Hilfiger’s remarkable growth, they credited Stroll with making some major contributions in product design and marketing. Horowitz is seen as a strong leader who kept the company running smoothly and established major relationships with the stores and employees.
The key to the future, said observers, is how big can a single brand be. Sources said Hilfiger needs to broaden its distribution internationally, use additional branding vehicles and a diversified channel approach.
Some industry observers likened the impending departures of Horowitz, Chou and Stroll to the retirements in 1989 of Liz Claiborne and Art Ortenberg from Liz Claiborne, Inc. While their stepping down shocked the industry, eventually new management came in and diversified the company, acquiring brands such as Sigrid Olsen, Laundry by Shelli Segal and, most recently, Ellen Tracy, and adding licensed lines such as DKNY, and Kenneth Cole. The $3.4 billion apparel giant now has 27 brands under its international and domestic umbrella, most of which have been acquired or created under Charron’s eight-year reign.
According to Horowitz, Hilfiger is looking for someone with "strong retail relationships in the U.S., public experience at some point in [his/her] career, international experience and leadership skills."
The individual will first assume the title of president, with initial responsibility overseeing the divisional heads of the different operations of the company as the firm completes the ceo transition. Those on the financial side will continue to report to Horowitz at first, with marketing and design professionals reporting directly to Hilfiger.
According to Horowitz, Hilfiger, the creative force behind the firm, will concentrate on his core strengths in marketing and design while the new individual will provide the company with balance on the operational side.
Joseph Teklits, analyst at Wachovia Securities, wrote in a research note Friday that the changes at Tommy raises some uncertainty, but that a "new direction could be positive…[We] continue to believe the brand offers potential success if handled properly." His firm is maintaining its "buy" rating on shares of Tommy.David Lamer, analyst at Ferris, Baker Watts, wrote in his note, "We believe these are good steps in the company’s efforts to ensure an independent board and reinforce its corporate governance. The company’s stock has traded at a discount during much of the past 12-to-18 months due, at least in part, to investors’ discomfort with governance."
The analyst, who has a "buy" rating on Tommy shares, also wrote that the firm’s operating income could improve between $12 million-to-$14 million after Horowitz’s contract expires, due to a contract provision that gives him a cash award equal to 5 percent of the company’s consolidated operating earnings. For fiscal 2004, Lamer estimated the cash award at $12.5 million based on $250.6 million in operating earnings. A fiscal 2003 operating earnings estimate of $218.6 million would net Horowitz $10.9 million.
Kirk Palmer, chief executive officer of Kirk Palmer Associates, another executive search firm, said, "I’m not shocked by Joel and Silas stepping down. They’ve all be there a significant period. They made a lot of money so they don’t have to work at all. It’s understandable they want to move on. Each of them have made terrific contributions to the business. Joel provided very strong leadership through some good times and not so good times. These are not easy shoes to fill."
For the three months ended June 30, income before the cumulative effect of a change in accounting principle and a one-time deferred tax charge was $2.6 million, or 3 cents a diluted share, compared with $9 million, or 10 cents, in the same year-ago quarter. Excluding the charge, the company lost $438.8 million, or $4.88 a share.
Sales in the quarter were up 3 percent to $366.3 million from $355.7 million last year. The company reports second quarter results on Oct. 30. Shares of Tommy closed on Friday at $8.85, up $1.01, in trading on the New York Stock Exchange.
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