WWD.com/fashion-news/fashion-features/tommy-hilfiger-at-20-designer-on-anniversary-sale-brand-renewal-563535/
government-trade
government-trade

Tommy Hilfiger at 20: Designer on Anniversary, Sale and Brand Renewal

With a federal investigation behind him and prospects of new corporate ownership, Tommy Hilfiger is at a crossroads as his company turns 20.

View Slideshow

NEW YORK— Tommy Hilfiger is refocused and sticking around, no matter what happens.

With the U.S. Attorney’s Office investigation behind him and prospects of new corporate ownership on the horizon, Hilfiger finds himself in an unusual situation as he celebrates his company’s 20th anniversary. Yet he views the milestone as an opportunity to give his brand a fresh start.

Tonight’s blockbuster fashion show at the Bryant Park tents here — which will feature 100 male and female models and will be attended by 1,200 people — is indicative of his commitment to the future. Celebrities such as Bow Wow, Alicia Keys, Rebecca Romijn, Paris Hilton, Allan Houston and the members of Duran Duran are expected to attend both the show and the after party on West 28th Street, where the Black Eyed Peas will perform.

The event is all part of Hilfiger’s upbeat attitude after a year that would leave most others feeling beleaguered.

“Everyone feels very positive, and we’re happy that it’s over and relieved,” said Hilfiger, during an interview at the company’s showroom. “It was a terrible distraction.”

More recently, the news that Hilfiger has hired J.P. Morgan Chase to advise on a potential sale has observers wondering whether his best days are behind him. But the designer doesn’t see it that way.

“It’s very exciting to me. I need excitement in my life. I thrive on it. I like change. I like doing something new, and I like to have the opportunity to be creative. A lot of companies come and go,” the designer said.

Financial sources said the asking price on Hilfiger is at least $1.82 billion, but could go as high as $2.16 billion. Hilfiger himself could fetch him as much as $250 million in cash as a buyout of his contract. He was advised by his lawyers that he couldn’t directly address the prospect of a sale.

Whether a sale of the company would facilitate expansion and new products and presentations, Hilfiger was honest. “I haven’t been down that road yet,” he responded. Still, he believes the brand is “alive and breathing and growing and it needs certain nurturing; it needs certain momentum.” Should a new owner come in, his priorities would include new products, new stores, new presentations and having new creative talent come in.

This story first appeared in the September 9, 2005 issue of WWD.  Subscribe Today.

Asked what would happen if, for example, a Chinese company wanted to buy the company, but didn’t want to keep Hilfiger on board, the designer laughed: “They’d have to give me all the tea in China.”

As for next season, Hilfiger said he’s making “a very bold statement that khaki is the new denim.” He believes that women already have 10 to 20 pairs of jeans in their closets, and there’s a glut of denim in the market.

“I’d like to celebrate chinos and khakis as a new beginning,” said Hilfiger. He said he’s offering different lengths, khakis that are patched and pieced together and khaki outerwear. He also tried to reinvent red, white and blue by using the colors in different ways. He’s incorporating nautical looks, a backbone of past collections, into the spring line. The collection focuses on details, in the collars and the buttons, and uses classic fabrics such as seersucker and madras.

“We’ve taken all the elements we’ve relied on and made them new and fresh with new proportions, new lengths and dressy and casual elements, but mostly casual,” said Hilfiger. He also said the collection would include both vintage and new influences.

Hilfiger said he’s learned a lot from Karl Lagerfeld, whose business his company acquired earlier this year for a reported $30 million.

“Spending time with Karl Lagerfeld was so inspiring,” said Hilfiger. He explained that in the same way Lagerfeld went back into the Coco Chanel archives in order to design the modern-day Chanel, Hilfiger was taking everything great that he designed in the past and making it new for spring 2006.

“It’s going back to what I stand for, and not worrying about impressing the fashion press,” said Hilfiger.

Earlier this year, Hilfiger hired Mirian Lamberth as creative director. She has previously worked at J. Crew, Gap, Calvin Klein and OshKosh. “She has great sensibility and we were looking for someone who really loves the Tommy Hilfiger brand,” he said. In fact, Hilfiger said what he’s learned most about hiring is that it’s imperative for people to love the brand, and want to work for the brand.

“If people don’t like the brand and would rather be at Prada or Dolce & Gabbana, they won’t perform for you. In my new life, I’m only going to hire people who love the brand and want to contribute to the brand. Some people are ‘very Tommy,’ ‘very Calvin’ and ‘very Donna.’ Being in this business, you know who belongs where,” said Hilfiger.

With that in mind, the company Wednesday tapped Rebecca Shafer as executive vice president of marketing and brand development. She succeeds Peter Connolly, president of global marketing and communications, who has held the job for eight and half years, and whose last day is today.

Most recently, Shafer was at Tse Cashmere, where she has been the creative director since 1998. Earlier, she was a principal at Christina & Shafer, a public relations and brand imaging agency, which she co-founded, and has worked in public relations at Esprit and Ralph Lauren. She reports to Lynn Shanahan, group president of U.S. wholesale and licensing.

Hilfiger’s company has experienced tremendous growth spurts — as well as growing pains — since its launch. Hilfiger introduced his men’s signature collection through a licensing agreement with Mohan Murjani in 1985. Four years later, Silas Chou and Lawrence Stroll acquired majority ownership of Hilfiger, and the licensing agreement with Murjani was terminated. Hilfiger went public in 1992, and the IPO was followed by three successful secondary ones, making the principals, who retained majority control, extremely wealthy. Stroll and Chou sold their interests and left the firm in 2003. Today, Hilfiger is the largest individual shareholder of Tommy Hilfiger USA.

Over the past 18 months, Hilfiger has embarked on a strategy to fix the firm’s core U.S. wholesale business, expand overseas and launch new businesses. Ironically, the company has spent the last few years looking to make a major acquisition (besides Karl Lagerfeld, it never found the right company to buy, said Hilfiger) but instead now has become a takeover target.

Whether or not the company is sold, its strategy includes opening new Tommy Hilfiger and H freestanding stores, developing new divisions, freshening up the ad campaign (it rehired Toth Brand Agency, the company’s original ad agency, to develop the fall campaign) and fully launching e-commerce (which it did two weeks ago) on its Web site, which was founded in 1999 as a marketing tool.

In fact, since David Dyer came on board as president and chief executive officer in 2003, a key focus has been establishing an e-commerce Web site for its products. Prior to joining Hilfiger, Dyer ran Lands’ End, which had a very successful Web site in terms of volume and efficiency, said Hilfiger. E-commerce is now in full swing, and one of the features allows customers to custom order various chino and denim styles for an additional $20 per pair. They can pick out the trim, pockets and fit and can have personalized khakis within two weeks.

In developing the e-commerce site, the company realized it had a lot of “inconsistent fit issues,” that needed to be addressed. The firm hired fit experts to teach it how to remeasure every item it produces. “I think we perfected our fit,” said Hilfiger.

Next week, Hilfiger plans to launch a new TV ad campaign created by Toth, for its women’s and men’s sportswear, and each spot is tagged “tommy.com.” While he wasn’t able to make projections for the e-commerce business, Hilfiger said it represents “a substantial opportunity.”

Since coming aboard, Dyer has restructured the internal workings of the firm; sold one of its buildings at 485 Fifth Avenue for $48 million; closed the young men’s and H Hilfiger wholesale divisions; cut jobs, and reduced costs. The company consolidated its offices at new headquarters at 601 West 26th Street that enabled it “to put everything all under one roof and to all feed off each other,” said the designer.

“We had three buildings here and it was all choppy. Now the energy is incredible,” said Hilfiger. “We have 300,000 square feet over two and a half floors. And Karl [Lagerfeld] is on another floor.” There’s also a gymnasium. “For a long time, each division was on its own,” he said. Now there will be more sharing of creativity, he added.

Another big opportunity for the company is its overseas business. With the decline of the U.S. wholesale business and the European growth, the U.S. and European business are now “neck and neck.” The Asian business has seen some healthy increases over the past year. Next week, Hilfiger plans to take his 20th anniversary show on the road and will stage fashion shows in Shanghai on Sept. 16, Tokyo on Sept. 21 and Seoul on Sept. 23. Hilfiger also plans to visit Hong Kong on Sept. 18, but isn’t planning a show there. Each show will feature local models and will be followed by an after party marking the 20th anniversary. Currently, Hilfiger has freestanding stores in Asian cities such as Tokyo, Nagoya, Osaka, Yokohama, Fukuoka, Shanghai, Beijing, Hong Kong, Taipei, Seoul, Singapore and Kuala Lumpur.

Hilfiger believes there are still major growth opportunities in Europe, particularly in Italy where the company recently opened a sprawling complex comprising offices, an event space, a showroom and a flagship. Spain and Germany are the two best performing countries for the brand, said Hilfiger.

Hilfiger’s anniversary appears to be a fitting time for the designer to take stock and to reflect on some of the highlights and low points. It’s also an appropriate time for Hilfiger executives to figure out where the company is headed, how to strengthen the brand with its core customers, how to recoup lost U.S. business and take advantage of significant opportunities in Europe and Asia. Equally important for the company — and the designer himself — is how to recapture the lost buzz.

Hilfiger said he felt inspired by looking back at the first 20 years.

“That part I’m very proud of. This inspired me to look back at everything we’ve done. We created a lot of trends, and advertising and marketing ideas. Therefore, I’m inspired to do it again in the next 20 years to come.”

Taking visitors through a tour of the rigged showroom at 25 West 39th Street highlighting milestones of the past two decades, Hilfiger pointed out some of his key accomplishments, namely creating the first oversized shirts for men (“I took preppy and made it cool,” said Hilfiger) by using interesting details in the neck and collar and the green button hole; doing innovative advertising such as his initial tongue-in-cheek ads comparing himself (then a fledgling brand) to America’s three great men’s wear designers, Ralph Lauren, Perry Ellis and Calvin Klein, and being the first designer to become so intricately involved with the music business. He also created big logoes on sweatshirts and T-shirts and big waistbands with logoes, and was the “designer of choice” when it came to the then-burgeoning hip-hop sector. He also created a Fresh Air Camp for underprivileged kids, recently starred in a reality TV series on CBS called “The Cut” (which hasn’t been renewed), sponsored the Tommy Hilfiger at Jones Beach Theater summer concert series and was among the first to use celebrities such as Britney Spears, Jewel, Lenny Kravitz and Kate Hudson in his ad campaigns.

“I think using musicians helped the brand. If you ask a young person to describe the Tommy Hilfiger brand, they’ll say it’s all American; red, white and blue, and connected to music. I like that music is such as great inspiration,” said Hilfiger.

The Nineties were admittedly the brand’s heyday, when it became a favorite of such hip-hop stars as Snoop Dogg, Jay-Z and Sean John, and the label was at the forefront of hip-hop style. However, the last few years have posed big challenges for Hilfiger, which has seen its core U.S. wholesale business erode as its classic customer moved on to other brands such as Abercrombie & Fitch, American Eagle, Banana Republic and Gap.

“When Snoop Dogg wore the [Hilfiger] hockey jersey on ‘Saturday Night Live’ in 1994, it blew out of the stores,” said Hilfiger. “I started making oversized jeans and jerseys and starting making the logoes bigger. Puffy, Jay-Z and Snoop Dogg wore it. All the hip-hop world was wearing it.”

But by aggressively courting that customer, Hilfiger neglected his core franchise.

“We took our eye off the ball,” he admitted. “And a company called Abercrombie & Fitch came from nowhere and started doing washed oxfords, jeans and Ts, while we were doing hip-hop. My core business became an afterthought. I should have kept it on equal planes.”

After the big rush, he said, “the urban customer said ‘Goodbye Tommy, I’m going to Ecko, Enyce and Sean John.'” He said he then realized he needed to go back to wooing his core customer, who had moved on to other specialty brands.

Between 1997 and 2000, the business mushroomed to $2 billion from $660 million in sales, with international expansion, more licensees, children’s wear and women’s wear starting to grow. It also launched Tommy Girl, and Tommy Jeans became the number-one jeans resource in department stores. But men’s wear started to feel the squeeze, and department stores found themselves with too much product that wasn’t selling. Hilfiger then had to deal with excess inventory, markdowns and overdistribution of his products in the U.S. Stores began cutting back, and the firm’s profitability got hurt.

Last year, Hilfiger’s wholesale business accounted for approximately $700 million in revenues out of the company’s total of $1.88 billion. Wholesale sales were half of what they were in 1999. The company issued preliminary results for the first quarter ended June 30 that showed revenues were $319 million versus $329 million a year ago. It didn’t break out earnings, but said it narrowed its loss.

Ironically, over the years, Hilfiger said he’s given advice to many of the companies that succeeded him as the kingpins of the hip-hop world. He said he introduced Russell Simmons to denim suppliers, and Sean Combs (Diddy) actually approached Hilfiger to do the Sean John collection. “I helped him set up five years later and they became major competitors,” said Hilfiger. He said he helped Diddy find an apparel lawyer and his original backers.

While the market is now flooded with these celebrity lines, Hilfiger believes that Sean John, Baby Phat and J.Lo have the most potential. “There is integrity behind their products. They’re very serious about fashion, as is Gwen Stefani.”

Hilfiger happens to be a private investor in J.Lo’s business, Sweetface Fashion Co., which is run by his brother, Andy.

“When Andy was working in p.r. here, he’d bring us a celebrity a day who wanted to do their own line,” recalled Hilfiger, who said his brother (who helped Tommy connect to the music world) was dying to back a J.Lo business. “Now J.Lo is a $300 million business,” said Hilfiger. “Personally not having my best friend and brother here is a big loss.”

Over the years, Hilfiger has designed costumes for Elton John, David Bowie, Keith Richards, Alicia Keys and Diana Ross, among others. He said he still designs lines for some celebrities, but it’s “not really a business.”

“I make certain items for people. There’s no profit in it,” said Hilfiger.

Reflecting on past mistakes, Hilfiger admitted that one of the errors the company made was opening up its own stores in malls where anchor stores had sizable Tommy Hilfiger shops. While some designers believe that enhances their business when there are department stores nearby with the same products, Hilfiger feels there are two schools of thought on that. He said because department stores take markdowns after 30 days, it kills the business in his own specialty stores if they have to mark it down 30 days later, and the stores become unprofitable.

“When we pulled H out of department stores, which was our choice, not Federated’s, we readjusted the line to what it was supposed to be in the beginning,” said Hilfiger. He explained that Federated wanted to redesign the entire line and wanted it less expensive with big color rollouts. “We didn’t want to be another INC [Federated’s private label line], and the expectation from their viewpoint was not in line with ours,” he said.

Going forward, Hilfiger has upgraded H, and will house it in its own stores, which will begin rolling out next spring.

At 54, Hilfiger has no desire to slow down and hopes to remain with the company, even it it’s sold. Comparing himself to his friend and idol, Mick Jagger, he said, “In this business, you have the opportunity to reinvent yourself at each stage. Mick Jagger is currently doing a 55-city tour and he’s 62 years old.

“I like what I do. There are a couple of designers out there whom I admire tremendously — they’re both short with white hair. They never stop working. I wouldn’t mind being one of those guys,” added Hilfiger, referring to Ralph Lauren and Giorgio Armani. “I wouldn’t choose to not do clothes any longer.”

View Slideshow