NEW YORK — What type of company would best fit Tommy’s new tune — a hot surf brand, a men’s urban label, a BabyBoomer women’s line, a sports-oriented firm, a contemporary resource or an indie jeans line?

With about $420 million in cash, the troubled Tommy Hilfiger Corp. is eager to snatch up another company, and last month hired J.P. Morgan Chase to assist it in “exploring acquisitions of additional brands.”

WWD informally surveyed industry executives to see what type of acquisition the $1.89 billion Hilfiger should make, and whether it should buy one major brand or a group of smaller ones. Executives also were asked whether Hilfiger’s lack of a strong management team would be a hindrance in making an acquisition and whether it can successfully compete with such big guns as Liz Claiborne Inc., Kellwood Co. and Jones Apparel Group in the current rush for deals. Hilfiger’s chairman and chief executive officer, Joel Horowitz, plans to give up the ceo post when his contract expires in March 2004, and the company is searching for a new ceo.

Of course, a few industry experts insist that Hilfiger needs to fix its own brand first before it goes after other companies. The company, they believe, needs an effective leader to communicate with the stores its strategy on how it expects to improve its women’s, men’s and children’s businesses.

As reported, Hilfiger may be looking to acquire Andy Hilfiger’s company, Sweetface Fashion Co., which has the license to make the JLo range of products.Sweetface is expected to generate $175 million in retail volume this year with all its merchandise. In addition, Denise Seegal, president and ceo of Sweetface, could potentially be a candidate to run Hilfiger if Sweetface enters the fold.

Seegal told WWD, “We don’t comment on industry rumors.”

Prior to joining Sweetface, Seegal spent four years as president of Liz Claiborne Inc. During her tenure, Claiborne added $1 billion in top-line sales, licensing DKNY Jeans for women and men, launching DKNY Juniors and City DKNY; licensing Kenneth Cole and Kenneth Cole Reaction women’s wear; acquiring Sigrid Olsen, Lucky Brand, Laundry and Monet, as well as launching Crazy Horse for J.C. Penney and Niki Taylor for Target.As for other potential targets, some executives believe Hilfiger should buy an urban lifestyle brand, while others think sports-surf companies would make the most synergistic sense. Most eliminated the idea of buying a retail chain, particularly because Hilfiger hasn’t had much success in the specialty store sector. For the most part, executives believe Hilfiger’s purchase should be a company with volume in excess of$100 million.

Edward Jones 3rd, chairman of Strategic Initiatives Group, a Dallas-based consulting firm, said, “I don’t think a luxury brand would be good. There are a couple of strong urban brands, like Sean John and Phat Farm. Those are perfect. Both do over $200 million in sales,” he said. “They personify the whole urban movement that’s not really urban anymore. It’s the new lifestyle brand. It’s in Tommy’s focus.”

“What you don’t want to do is swallow something too big,” said Elaine Hughes, president of E.A. Hughes & Co., a headhunting firm here. “There’s no leadership, and the division heads are very autonomous.”

She believes a surf brand, such as Quiksilver, would be a good fit. “It’s a hot category, and it would give Tommy a more contemporary point of view, rather than something that’s dated,” said Hughes.

Allan Ellinger, managing director of Marketing Management Group, doesn’t believe Hilfiger should buy a start-up coming or a young designer firm. “They’re too risky at this point. As a corporation, they should be looking at acquisitions that will allow them to use their existing corporate structure as a platform. They need to leverage what they have.” He said an acquisition should be able to share “the back of the house” with Hilfiger.

“Diesel would make a wonderful acquisition, and French Connection is underdeveloped as a U.S. business. You want to buy a business that doesn’t cannibalize the existing business. Tommy could acquire the Donna Karan business from LVMH [Moët Hennessy Louis Vuitton]. It’s a different customer base. My assumption is anything in this business is for sale,” said Ellinger.

Another possibility could be Cynthia Rowley. “She’d make a great acquisition, but may be a little small. They could do a series of moderate-sized acquisitions,” Ellinger added. However, he wouldn’t recommend that Hilfiger acquire a “hot new jeans line.”He agreed with Hughes that a surf brand would be of interest, and a brand like Quiksilver has “staying power.”

Marshal Cohen, co-president of NPD, the Port Washington, N.Y.-based market research firm, said, “What they need to do is diversify their portfolio without them being dependent on the younger female [fast-turning trendy] market and the lack of fashion in the middle male market. They are such an entrenched brand in the consumer’s mind, they’ll have a hard time reengineering the brand’s positioning. They need to put in new layers through acquisitions. If I were them, I would look to acquire brands that immediately identify with the midmarket woman, such as Eileen Fisher.

“I would also look at vertical retailers such as PacSun, Ann Taylor and Talbot’s. Look at the power of Abercrombie & Fitch and what they were able to do. There is no limit to Tommy’s ability and the wherewithal he has. He just needs the horsepower. There are people they can acquire. It’ll take a dramatic investment to do it.”

R. Fulton McDonald, president of International Business Development Corp., a consulting firm here, said,“If he has money in the bank, and his core brand is declining, he should buy something like Sean John or Phat Farm.” He said those brands not only appeal to the urban customer, but to the wealthy suburbanites, as well. “They’re going to get bigger and bigger,” he said.

“Style and design are much more sought after in the ethnic markets. We’ve seen that in cosmetics. The percentage of money [spent] is much higher in those markets. And there’s more money going into the community,” he added.

Two things are happening, said McDonald. “There’s the increasing emergence of the middle-class ethnic markets and the continued acceptance of urban looks in suburbia,” he explained. “They only need one acquisition, which doesn’t mean they couldn’t buy two. Tommy should buy himself back into the urban market. That’s where his success was.”

Andrew Jassin, managing director of the Jassin O’Rourke Group, a management consulting firm, said it makes the most sense for Hilfiger to acquire a company in the apparel, home, jewelry or footwear categories.“If I were Tommy I would acquire a company in the modern-contemporary zone, which is doing well and is growing. It has to have critical mass. It can’t be doing less than $75 million. It wouldn’t make an impact on the bottom line. Doing over $150 million would be a better opportunity,” he said. He would recommend companies such as BCBG, Steve Madden Footwear, ABS, Garfield & Marks, Max Studio or Betsey Johnson.

One of the benefits of Steve Madden Footwear “is it would give him a parallel business that doesn’t compete for space,” said Jassin.

Asked whether Hilfiger can compete with companies such as Kellwood, Claiborne and Jones for acquisitions, given the strength of their management, Jassin said, “It’s all about the deal and a premium price. It’s about money.” In addition, he said Hilfiger also would offer stock in his company.

Jassin doesn’t feel that Hilfiger will go much further without management in play. “It doesn’t fare well not to have a leader,” he said.

“I believe a new ceo has to be in place [before Hilfiger makes any acquisitions],” said Gilbert Harrison, chairman of Financo Inc., an investment banking firm. “His vision, together with Tommy’s, will shape the future of the company. Is it a small acquisition or a larger, substantial acquisition, or will the ceo come from a company that’s been acquired?”

Todd Slater, an apparel analyst at Lazard Frères & Co. LLC, said,“Scouring the market for possible acquisition targets should be at the bottom ofTommy’s to-do list. The company should keep its head down, bring in proven management that is compensated on results, and fix the underlying business.”

An investment banker, who also requested anonymity, said, “If I were Tommy, I’d go and buy Nautica. I’d make Tommy a bit more exclusive. I’d do special deals with Nautica for Target.”

Paul Altman, vice president of The Sage Group, a Los Angeles-based investment banking firm, said, “Hilfiger has the buying power to make an acquisition in the $500 million to $600 million range, but it wouldn’t want to do something nearly that size. It’s their first acquisition, and it puts pressure on the business. If it did a smaller deal, it could impress Wall Street. An accessories business would make them more attractive to another buyer,” he added.One executive, who requested anonymity, told WWD that Hilfiger should be looking at companies that have “complementary skills and needs” to his company. He believes Sweetface would make a good acquisition and believes he could easily do that if he wants to.

“He could buy PacSun or Hot Topic. Maybe he can learn something. He’s tried retailing up and down and sideways and hasn’t succeeded. Phat Farm and Sean John fit into his fashion sensibility,” said the executive.

“It’s one thing to have a lot of cash in his hands, it’s another thing to deploy it in a way that makes sense. He doesn’t have to buy a problem,” he added. “It’s not the time to build a broken business. His business is maturing. He needs a business that has growth and horsepower. If he buys something, it would be nicer if it has management.”

To continue reading this article...

To Read the Full Article
SUBSCRIBE NOW

Tap into our Global Network

Of Industry Leaders and Designers

load comments
blog comments powered by Disqus