PVH Corp. Wednesday further reduced the retail exposure of its Heritage Brands with the decision to close the 120 Izod stores in the U.S. and Canada.

This story first appeared in the January 8, 2015 issue of WWD. Subscribe Today.

Twenty of them will be converted to Calvin Klein or Tommy Hilfiger brand stores, with the remaining 100 units to be closed. The stores had sales of about $100 million a year.

The move “has no bearing on our Izod wholesale business strategy,” said Manny Chirico, chairman and chief executive officer of PVH, “which has shown great growth with our most recent launch at Kohl’s for the fall 2014 season.”

PVH expects to incur pretax charges of about $40 million, about half of them noncash, and complete the closures by the end of the 2015 fiscal year.

Chirico said increased competition from premium brands in the outlet channel had made it evident that Izod’s retail business model “can no longer achieve acceptable return metrics.

“Conversion of several of the best Izod locations into Calvin Klein and Tommy Hilfiger stores under some of our newer concepts should result in significantly higher sales per square foot and higher operating margins in these stores,” Chirico said.

The closure of Izod stores would leave PVH with just one brand — Van Heusen — in the retail portion of the Heritage business. The company in November 2013 sold its Bass business, which accounted for about 45 percent of Heritage’s retail revenues, or about $250 million annually, to G-III Apparel Group Ltd., later taking a license for wholesale to better men’s sportswear under the brand. Following the sale of Bass, Heritage Brands, including wholesale operations, generated about $1.8 billion of PVH’s $8.1 billion in annual sales, about one-fifth of them in retail. However, its operating margin, at 8.1 percent of revenues, lagged well behind Calvin Klein’s, at 14.4 percent, and Tommy Hilfiger’s, at 13.7 percent.

Chirico has made no secret of the challenges facing midtier outlet retailing, saying during the company’s third-quarter conference call last month, “The business model just doesn’t work any longer for moderate-priced brands in the outlet channel in North America…And I don’t believe moderate brands can continue to compete in that environment as we go forward.”

That task, he added, would fall to designer names like Calvin Klein, Tommy Hilfiger and others.

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