By  on September 10, 2010

Silas Chou: The Innovator

Ask Silas Chou what he most vividly recalls about the early days of his partnership with Tommy Hilfiger and he’ll say it’s that the young designer wanted to use 25 percent more material than anybody else.

“In those days, Tommy was the first to do the casual, relaxed style. Everybody else was very body-fitted. His sweaters took more material,” said Chou, who was a partner and co-chairman of Tommy Hilfiger Corp. from 1989 to 2002. Today, Chou is president and chief executive officer of Novel Enterprises Ltd., one of the largest vertical apparel and textile manufacturers in Asia, and an owner of Michael Kors.

Chou said when he first went to see Hilfiger’s shop on Rodeo Drive in the mid-Eighties, he was “very impressed” with his product. “Everybody was making sweaters in Shetland, cashmere and wools. Tommy wanted to make cotton sweaters. His were oversize and relaxed and I saw a new trend there,” he said.

Chou produced Hilfiger’s sweaters for a year or two, and then Hilfiger’s original backer, Mohan Murjani, ran into business troubles. “Tommy came to my office and asked me, ‘Why don’t you buy me up?’  ” Chou said he’d have to talk to Lawrence Stroll, his partner in Polo Europe, and they agreed. In 1989, Chou and Stroll formed Sportswear Holdings Ltd., and acquired 70 percent of Tommy Hilfiger Corp. Joel Horowitz and Hilfiger owned the remaining 30 percent. As a team, they took the company from about $25 million to nearly $2 billion in volume.

Often considered the brains and innovator behind Hilfiger’s remarkable growth, Chou described what appealed to him about the designer.

“First of all, I liked the fact that he styled a new product of relaxed American classics. Also, Tommy has a very open personality. He’s inclusive. Most designers tend to be exclusive. Tommy always tried to be inclusive, friendly and helpful. And we became brothers forever,” said Chou.

Under Murjani, Hilfiger was making both men’s and women’s lines. The first thing Chou did was to shed the women’s line and focus on men’s wear.

“With Lawrence’s experience, together with Joel, we put all our management skills and disciplines in the business, and we invested capital in the business. With Tommy’s product, it started to take off,” Chou recalled.

By 1992, they found they needed more capital. Rather than keep going to the bank for additional credit, they decided to go to the public market, and approached Morgan Stanley.

Chou said he always had faith in the brand. Asked if he ever expected it to become the success story it was, he plainly said, “To be honest, yes. I always wanted a big business, Lawrence wanted a bigger business, and Tommy had big ambitions, as did Joel. Each had big dreams and with Tommy, we made our dreams come true.”

Chou was charged with strategy, finance and production; Horowitz was day-to-day management and production; Stroll was also involved in the day-to-day management, marketing and product development, and Hilfiger was responsible for design. “Tommy was also a businessman. He has a clear business mind and an open mind,” said Chou.

The brand had explosive growth in the Nineties. “The business gained traction and grew very fast. There was a big opportunity, and the U.S. clothing market was becoming more casual. We were going into the Information Age, and companies like Microsoft wanted everyone to be casual. There was big market demand and we rode the wave well,” said Chou.

As the brand caught on with the hip-hop crowd, it took on another dimension. “Because of that, we became a big hit and it gave us the capital and brand awareness to go international,” said Chou.

Of course, the repercussions of that move were loud and clear, and the brand became overexposed, lost its core preppy base and then a hit a wall in the U.S.

“The fashion business is very much about the trend. It’s according to where the general population is going. Casualwear went into overdrive and hip-hop took control. It went extreme. The whole society went into overdrive, and it’s moved back. At that moment, you have to go with the market. Because of that, Tommy was able to establish a very solid foundation and could go global,” explained Chou. He said a company like Nautica, for example, didn’t take advantage of the market and never established a global business.

Yet Hilfiger found itself at a crossroads after the hip-hop crowd moved on.

“By that time, the brand was oversupplied and the demand went down. Any [product’s success] is based on supply and demand,” he said. In 2002, he and Stroll decided to leave the business, which had grown into a $1.87 billion company. “Lawrence and I built the business and we sold it and wanted to go onto the next. We felt there was a lot of growth left. The U.S. was getting saturated, and we saw a big interest in international. We planted seeds for Europe and Asia,” he said.

Looking back, Chou cited several key milestones during his tenure: “Making our first million was our first milestone. The second was going public, and we got huge capital for expansion. The third was when we went back to women’s wear and jeans, and the fourth was going international.”

Even after Chou and Stroll left the company, the four partners remained close. Chou is godfather to Hilfiger’s daughter Elizabeth.

After Hilfiger, he and Stroll became partners in Michael Kors. “It’s a different strategy,” said Chou. “When we did Tommy Hilfiger we took a designer to an affordable price point.” With Kors, “We took a designer to accessories. The emphasis is accessories, and the clothes become the accessory to the accessories.”

Lawrence Stroll: The Big Picture

“Thinks big” is a term often used to describe Lawrence Stroll, the former co-chairman of Tommy Hilfiger, who today is co-chairman and an owner of Michael Kors LLC.

After a striking period of expansion that saw the brand grow into a $1.9 billion company from about $25 million, Stroll left Hilfiger in 2002 to focus on another acquisition, Asprey and Garrard. “It’s been a wonderful 13-and-a-half years since acquiring Tommy,” he told WWD at the time. “I feel I’ve done all I can do.”

He added he felt there was still opportunity in Hilfiger, but “you won’t see the growth levels of five to six years ago; it’s too large a company. You can only have a certain amount of distribution without lowering your standards.”

Stroll and his partners — Silas Chou, Joel Horowitz and the designer — took the company public in 1992, followed by three secondary offerings. Those offerings paid off handsomely: At one point, the three partners had netted a combined $325 million on an original investment of $206,000.

With his product design and marketing expertise, Stroll spearheaded many of Hilfiger’s ventures, including international distribution, in which he was well versed, having had a previous partnership with Polo Ralph Lauren in Canada and Europe. Known for being aggressive, shrewd and opinionated, Stroll concentrated on the big picture. While building Hilfiger, he and Chou masterminded some key moves, such as the $1.15 billion acquisition in 1988 of two of its sister companies, Pepe USA and Tommy Hilfiger Canada Inc., which was owned by Stroll’s family. They also completed the acquisition of its former European licensee, T.H. International NV, for $100 million in cash; its principal operating subsidiary was Tommy Hilfiger Europe BV (and its subsidiary Tommy Europe). Tommy Europe was controlled by Apparel International Holdings Ltd., whose owners were Chou, Stroll, Hilfiger and Horowitz.

“I really think that my biggest contribution to the company has been to think big. I have always been an advocate of pushing the envelope. We had such an amazing brand in our hands, and from Day One I was positive that it would be a worldwide success,” Stroll related recently. “The first few years, Tommy, Joel, Silas and I worked very closely on all aspects of the business — from design and retail to marketing and merchandising. We became such a tight and well-oiled machine, which was another factor of our success.”

Another big contribution, he said, was helping Hilfiger’s brand launch in Europe. Stroll believes it was successful because it was distinct from other collections already on the market.

“Tommy Hilfiger found a niche for preppy, classic American clothing, with a relaxed twist that people loved. Our offering had a more casual, young and relaxed feel, whereas our competitors and peers offered more traditional, serious designs,” Stroll said. “It really was a case of designing and marketing the right product at the right time.”

He acknowledged the brand grew too quickly and became overdistributed, which led to problems.

“There was an incredible demand for the brand, which we met. Back then, the business heavily relied on our wholesale accounts and their demand for specific product. At a certain point, we allowed the brand to become too big, both in volume and in visibility,” he reflected. “In hindsight, we learned from this experience in the U.S. market that it can be dangerous to cater to a trend, and that we needed to stay close to our roots and maintain control over the distribution.”

Stroll said that he and Chou committed to the partnership with Hilfiger and Horowitz, knowing that after 10 or 12 years, they would leave.

“We were very dedicated to building and growing the Tommy Hilfiger business, and invested funds and much of our time,” Stroll said. “After we had successfully grown the business, we felt it was the right time to part from the company and sold our shares.”

Stroll attributes the company’s success to the strong relationship they forged.

“My highlight with Tommy Hilfiger was that we formed this incredible partnership. At the time it was unprecedented that a fashion brand turned so successful in such a short period of time. To me, it really is one of the greatest American success stories from the past decades.”

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