Tommy’s Latest Take: Moving Upscale While Expanding Abroad

At a massive party headlined by Lenny Kravitz performing for a busload of celebrities, Tommy Hilfiger this week feted his new flagship here in fine, flashbulb-popping style.

PARIS — At a massive party headlined by Lenny Kravitz performing for a busload of celebrities, Tommy Hilfiger this week feted his new flagship here in fine, flashbulb-popping style.

The $1.7 billion company soldiers on with a global upgrade and expansion, but aims to do so in modest, measured fashion, now that it’s out of Wall Street’s glare following its acquisition last May by an Apax Partners fund.

“The one thing we want to avoid at all costs is overexposure,” said Fred Gehring, chief executive officer of Tommy Hilfiger Corp. “We’re not going to be volume-driven.”

That’s quite a change for the former stock market darling. After rapid growth in the Nineties, the company ended up humbled by a sportswear-saturated U.S. retail scene that had maxed out on the brand.

Gehring and Hilfiger have now mapped out their plan to reclaim the American brand’s energetic ethos, and to carefully extend a premium positioning in markets like Asia and Eastern Europe.

“I really believe I built this business as a result of breaking rules, pioneering new ground, thinking outside the box,” said an upbeat Hilfiger, dressed in a velvet jacket, striped shirt and jeans. “After five years of being a public company, I felt compelled to do everything to please Wall Street every four months.…But sometimes, those decisions aren’t the best for the long term.”

In an interview, Hilfiger said he now spies an opportunity “to rejuvenate, reinvent and put strength and power back into the brand — and it doesn’t have to be on a grand scale.…We just have to be great at what we do. It’s a new life, a new chapter. It’s exciting.”

Gehring, an energetic and articulate executive, spoke in similar terms, expressing fist-thumping enthusiasm, but tempered with a disciplined approach to business.

For example, although Italy and France are now focus countries in Hilfiger’s European onslaught, Gehring acknowledged they are difficult markets for international brands to penetrate.

In the past year, the company has opened flagships in Milan and Florence, and Gehring said a location in Rome, or possibly a second in Milan, is among immediate expansion priorities in the country. “In Italy, we’re already strongly on our way, with high double-digit growth in wholesale,” he said. “France, particularly, is a tough nut to crack.…Eventually, we will succeed here, too.”

Gehring, who is celebrating a decade with Hilfiger’s European company, stressed the brand is well positioned for further retail openings abroad. The company had initially focused on the wholesale channel until it had the “breadth of product” not only to fill freestanding boutiques but to feed them continuously with fresh styles. “Many brands make that mistake, opening [stores] too early,” he noted.

Hilfiger already boasts some 600 company-owned or franchised freestanding stores, particularly in markets without sufficient wholesale channels, including in Asia, South America, India and the Middle East. The business is already substantial in the Far East; Japan generates some $130 million in retail sales, and China, $80 million.

Gehring said there is no suggestion of saturation in those markets, an error he readily acknowledged was committed in the U.S.

“None of us thinks we’re going to regain the ground we lost over the past five years [in the U.S.],” he said. “It was too big.” Instead, he said, the goal is to do the brand “justice, with a quality mind-set” as it rebuilds in America.

Hilfiger’s volume and profits have eroded in the U.S. as department stores cut back on their orders. The firm shuttered the H Hilfiger retailing division, suspended the junior Tommy Jeans line and stopped wholesaling the children’s wear collection. It is now concentrated on the core men’s and women’s sportswear businesses, plus accessories and licensed products.

Expansion in Europe, which accounts for about 35 percent of the worldwide business, is rolling ahead. A Regent Street flagship in London is slated to open next month with another high-profile event. “Here [in Europe], we can still grow a lot, in wholesale and retail,” Gehring noted.

To be sure, Hilfiger’s Paris presence brims with confidence. The company’s showroom in the 16th arrondissement, with marble fireplaces, arched doorways and moldings galore, exudes the permanence and richness of a foreign embassy.

“I’d love to move in,” Hilfiger said as he guided a visitor through one grand salon after another, the walls lined with racks of his colorful designs.

And the blowout opening party, when the Beaux Arts venue was decked out with dozens of chandeliers and electric guitars, was of a scale rarely seen in the French capital.

Gehring said men’s sportswear, Hilfiger’s core business, remains its most vibrant division in Europe, recording the biggest increase in wholesale orders for spring 2007. “Women’s wear has been introduced later and is catching up,” Gehring said. “We can see in the next five years it will equal men’s wear.”

Hilfiger Denim — a premium, grown-up sportswear and denim line for women and men — is also a significant business, accounting for about 33 percent of revenues in Europe. Men’s sportswear represents about 30 percent; women’s sportswear, 20 percent; children’s wear, 15 percent, and activewear, 2 percent.

Gehring attributed Hilfiger’s strength in Europe to the “fundamental” decision many years ago to tweak and upgrade the American product to suit what is a very fragmented market.

But Gehring dismissed the suggestion that the brand is in what’s considered a no-man’s land between the extremes of European luxury and mass. “We are at the higher end of that middle area, and that’s where the world is going,” he said. “I don’t want to say that we are luxury, but we definitely have a luxury component. We’re premium.”

So far, best-selling items at the Paris flagship on Rue du Faubourg Saint- Honoré include a cashmere T-shirt with sequin details, at 170 euros, or $212.67 at current exchange, and a slim-fit Argyle sweater, at 100 euros, or $125.20

Gehring stressed the brand would be moved upscale in the U.S. gradually. Echoing Hilfiger’s sentiment, he said the company would shirk formulas as its new owners chart anew the global expansion program.

Take runway shows, for example: “I can see us doing them from time to time. When you have a high-end fashion brand, I see the logic of it. We’re not. We’re a brand of recognition and — to a degree — safety,” he said.

“Men’s is showing good signs of potential for the future. The real area of work for us is women’s wear in the U.S.,” Gehring added. “Our expectations are realistic.”

With Andy Hilfiger’s recent return to the fold as the company’s senior vice president of music and entertainment, the brand is keen to fortify its historic ties to those worlds, albeit with less predictable and more locally based events, such as the showcase given to American photography at the Milan store. “I really want to avoid looking back too much,” Gehring stressed.

However, one thing the ceo is keen to reclaim is what he described as a positive, infectious and entrepreneurial spirit that thrived in the New York headquarters at its peak. As part of the company’s takeover and reorganization last May, 230 jobs were cut in the U.S. and corporate headquarters were moved to Amsterdam, leaving New York as a satellite unit.

Meanwhile, Hilfiger was relishing his time in Paris, meeting with local editors and crossing paths with designer friends like Marc Jacobs.

Hilfiger said he’s spent more time in Europe over the last nine months than in the previous three years. “As the face of the brand, it is my duty to go out to the markets and meet people. The way I’ve promoted the brand in the U.S., it’s now a global effort.

“What this team has done in Europe is unprecedented,” Hilfiger added, praising the retail network, licensing approach and a better mix of wholesale versus retail sales. “They kept the heritage of the brand and made it better.”

Asked to characterize his growth potential abroad, Hilfiger noted the casual-dressing trend that quickly drove his business in the U.S. is only now taking hold in many parts of the world.

“Now people are dressing more casually internationally,” he said. “You can wear a pair of jeans with a blazer. It seems very normal to us, but to a lot of people, it’s brand new. Having the right mix of denim, sportswear and dress-up casual has been part of the secret.”