BOSTON — A day for reflection?
This story first appeared in the November 6, 2014 issue of WWD. Subscribe Today.
It seemed so for Tommy Hilfiger on Monday. The designer spent his morning at Oscar de la Renta’s funeral and his afternoon at Harvard Business School, where he spoke to students about his own life and career. The Hilfiger brand is the subject of a new HBS case study, “Transforming Tommy Hilfiger,” published earlier this year. Hilfiger sat down with case study author and HBS assistant professor Raffaella Sadun and with Fred Gehring, chairman of Tommy Hilfiger, to discuss the brand’s past and lessons learned.
If the talk had a theme, it was that careers — especially big ones — suffer reversals.
Hilfiger recounted the high of opening his first store in Elmira, N.Y., and the low of going bankrupt by age 23.
“That [experience] was my masters [degree],” he said. “I learned how to focus on the business side of the business. I learned how to make money — a lot of designers have never learned how to do this, but I never wanted to go back and be bankrupt or be poor again.”
He wanted, in fact, to be big — and it meant compromises, whether small ones, like working with fabrics he wasn’t crazy about, or large ones, like giving up control of his name. Textile magnate and investor Silas Chou, who became Hilfiger’s majority owner with Lawrence Stroll in 1989, convinced the designer to give up his name and majority ownership in his company by asking if he wanted to be “a small part of an elephant or a large part of a pea?” The answer to Hilfiger was clear.
Yet, growth — and the pressure to meet Wall Street expectations — came at a cost. After tremendous growth in the late Nineties, by the early Aughts the brand was oversaturated, quality spotty and the U.S. team disillusioned and “numb,” Gehring recalled.
The only bright spot was Europe, where Gehring had grown European operations in a controlled way. He’d mistrusted the extreme “hype” in the U.S. and sought to position Hilfiger globally as an American heritage property, rather than “trend du jour.”
“We said ‘no’ nine times for every one ‘yes’” Gehring recalled. He created a European design team, headquartered in Amsterdam, and established an independent design direction eventually followed everywhere but the U.S. Meanwhile, the U.S. market became flooded with low quality, overlogoed “me too,” product.
When he heard rumors that Hilfiger might be licensed “exclusively out to a mass retailer, the name starts with W,” Gehring recalled, “we knew we had an emergency situation on our hands.”
Afraid that “the American death spiral would pull us down,” Gehring found a European private equity firm, Apax, to buy the business in 2006. U.S. private equity players saw the brand as passé and weren’t interested, Gehring said.
Hilfiger said this was one of his most personally difficult times. “I will forever be indebted to Fred — he saved my life because I felt the ship was really sinking.”
With the Apax deal secured, Gehring reeled the American business in — cutting jobs, curtailing costs, and closing wholesale accounts, according to Sadun’s case study. Once the U.S. business was pared back, Macy’s accounted for 70 percent of U.S. total wholesale revenues, according to the Harvard case study. A 2007 exclusivity deal was structured so that the two companies would share profits and invest jointly in advertising and capital expenditures (such as window displays), an atypical arrangement in an industry where department stores have typically been guaranteed margin and so don’t hesitate to mark goods down, according to “Transforming Tommy Hilfiger.” Yet it worked because both parties were incentivized to sell at full price.
“When we went exclusive only with Macy’s we were able to get elevated positions,” said Hilfiger.
Sadun asked Hilfiger if he had to do one thing differently, what would it be? He replied, “I’d go with [Gehring’s] philosophy — nine times ‘no’ for every ‘yes’” he said.
In 2010, Apax sold the brand to current owner, PVH Corp, for $3 billion.