PARIS — Swatch Group and PVH Corp. have decided to end their watch licensing agreement for the Calvin Klein brand after more than two decades, reflecting sector upheaval as mid-priced timepieces struggle to compete with smartwatches.
“After more than 22 years of exclusive licensing collaboration, Swatch Group has decided to let the licensing agreement with Calvin Klein end at its date of expiration,” Swatch Group said on Tuesday. It said the contract was due to end “in the near future,” without providing an exact date.
“The decision has been taken due to the recent turbulence and uncertainties at the management level of Calvin Klein Inc., New York,” Swatch Group added, without elaborating.
In a separate statement, Calvin Klein parent company PVH Corp. said the brand had been evaluating its watch and jewelry license over the past few years as the category had failed to deliver the desired growth under Swatch Group’s direction.
“Calvin Klein and Swatch Group have agreed to end the relationship after 22 years, as both partners believe that they have been unable to achieve the maximum potential in key markets. Calvin Klein is currently evaluating the best possible partner for the future and will announce its partner in due course,” the U.S. company said.
The announcements confirmed a report in July in Swiss trade paper Business Montres, which said the license would be picked up by Movado Group, whose brands include Tommy Hilfiger, Hugo Boss, Coach and Lacoste. Officials at Movado were not immediately available to comment on the report.
“We are very optimistic about the potential growth the watch and jewelry category holds for us,” said John Van Glahn, president licensing at Calvin Klein. “We are confident that with the right partner in place we will be able to strengthen this category, as well as our overall lifestyle business.”
Over the past year, Calvin Klein has shuttered its Manhattan flagship at 654 Madison Avenue, closed its Milan office and exited the Collections business. The company embarked on a new digital-first strategy, but earlier this month, the executive charged with driving that strategy left the brand. Marie Gulin-Merle, chief marketing officer of Calvin Klein Inc. and chief digital officer of PVH Corp., had been with the company since May 2018.
After Raf Simons abruptly exited Calvin Klein as chief creative officer in December 2018, Gulin-Merle was charged with creating a high-wattage “halo effect” to drive sales of jeans and underwear, without having the advantage of a high-profile designer or a designer collection.
Swatch Group, the world’s biggest watchmaker, has seen its sales come under pressure from political turmoil in Hong Kong, the number-one market for Swiss timepieces, and a crackdown on gray market dealers that it estimated cost it “in the triple-digit-millions” in lost revenues in the first half.
The group, which produces timepieces ranging from diamond-encrusted Harry Winston creations to plastic Swatch watches, said revenues fell 4.4 percent in the first six months of the year, and net profit was down 11.3 percent year-on-year, prompting it to cut its workforce by 300 people.
On the upside, the company noted a “marked increase in e-commerce, especially in the middle and basic segment.” But Rogerio Fujimori, analyst at RBC Capital Markets, said increasing competition from smartwatches would require higher marketing spending to support its low- to mid-priced brands.
Swiss watch exports rose 10.2 percent in September, but volumes continued to fall significantly, with a sharp decline in watches priced below 200 francs, according to the Federation of the Swiss Watch Industry. The total number of Swiss watches exported has fallen from 28.1 million in 2013 to 23.7 million in 2018, it said.
Morgan Stanley analysts Edouard Aubin and Elena Mariani said they believed Swatch Group’s license with Calvin Klein was set to expire in 2021.
“Contribution to profits was likely nil at the brand level,” they added, estimating that sales for the Calvin Klein brand fell below 200 million Swiss francs in 2018 from a peak of more than 450 million Swiss francs about 10 or 15 years ago. Swatch Group has never published specific figures regarding the Calvin Klein license.
“While the contribution of the CK brand had become negligible to the group, the decision not to renew the contract will likely lead to further operating deleverage,” the Morgan Stanley research note predicted.
“As the dominant player in the entry price segment and, being very vertically integrated, we believe that the Swatch Group is particularly exposed to declining volumes. We would expect this to be only partially offset by proactive measures taken in recent months to address costs,” it added.