NEW YORK — Dillard’s status as the number-one retailer of Tommy Hilfiger product is likely to change.

This story first appeared in the November 17, 2003 issue of WWD. Subscribe Today.

On Friday, the Little Rock, Ark.-based Dillard’s Inc. and the New York-based Tommy Hilfiger Corp. said they are reevaluating their strategy for distribution, which almost certainly means reducing it. Hilfiger merchandise currently sells in 325 Dillard’s stores and in fiscal 2003 accounted for $240 million in sales. Business with Dillard’s represents approximately 13 percent of Hilfiger’s consolidated net revenue.

It remains to be seen whether Hilfiger and other retailers will similarly reevaluate their relationships. In most cases, the brand’s distribution through department stores is already quite mature.

The number two and three distributors of Hilfiger are Federated Department Stores and May Co., respectively, each representing about 10 percent of Hilfiger’s overall sales, according to the vendor’s annual report.

At Federated, at least, no major swings in its Hilfiger distribution are foreseen, according to store officials. May Co. officials could not be reached late Friday.

“Macy’s, in keeping with its strategic direction of buying limited-distributed product and product that is only distributed at Federated Department Stores, is very optimistic about our future with Tommy Hilfiger,” said Hal Kahn, chairman and chief executive officer of the Macy’s East division of Federated. “We feel better about Tommy’s business going forward than we have in years.”

Part of the reason for that upbeat feeling is that Federated has a one-year exclusive on selling the upcoming H Hilfiger better-priced line from Hilfiger. Kahn said it will be launched in the stores in August.

A Macy’s West spokeswoman said there are no major changes in Hilfiger’s distribution. “Business is the same,” she said. Macy’s West and Bloomingdale’s also will sell H. About two years ago, Bloomingdale’s sharply curtailed Tommy Hilfiger, dropping the men’s wear from many of its doors while keeping the designer’s women’s and children’s lines in all Bloomingdale’s locations.

Hilfiger indicated that the Dillard’s plan is in line with its previously announced strategy to reduce its distribution to U.S. department stores. The strategy reflects Hilfiger’s saturation at retail, some uneven performances with the product over the last few years and recent better performances in Europe, where the company sees greater growth in the future. Hilfiger said it is working with Dillard’s to “mutually agree on the level of distribution to enable each company to better achieve its business and financial goals.” Hilfiger said with discussions with Dillard’s ongoing, it couldn’t predict the outcome or impact on future financial results, though any decisions could materially reduce revenue and net earnings below the estimates for the second half of its fiscal year, ending March 31, 2004.

“Over the longer term, the company believes it can mitigate the impact through increased sales to other retailers, improved regular-price selling, improved gross margins and expense reductions,” Hilfiger said.

The vendor distributes men’s and women’s sportswear, jeanswear and children’s wear under the Tommy Hilfiger trademarks and related apparel, accessories, footwear, fragrance and home furnishings through licensing arrangements. The products are sold in department and specialty stores in the U.S., Canada, Europe, Mexico, Central and South America, Japan, Hong Kong, Australia and other countries in the Far East, as well as the company’s own outlets and specialty stores in the U.S., Canada and Europe.

In addition, Dillard’s, like the rest of the department store sector, is doing what it can to differentiate itself from the competition. The chain, for instance, is exclusively launching Intuitions, one of Liz Claiborne Inc.’s new better lines for spring. At Dillard’s, private brands made up 18.2 percent of total sales last year, up from 15.4 percent the previous year.

Hilfiger’s new chief executive, David Dyer, who hails from Lands’ End, recently outlined a future of more selective distribution for Hilfiger, while reporting stronger second-quarter earnings.

“The brand is powerful and offers potential for further growth,” he said on a conference call at the time. “This isn’t to say that there aren’t challenges and many strategic decisions ahead.”

Dyer added: “What we need to do is bring the supply and demand — market by market, door by door — back to a realistic level where we all can make money, at least those that choose to carry our brand in the broad-based way that it needs to be carried.”

With the help of an upswing in its European business, Hilfiger’s profits for the three months ended Sept. 30 rose 6.1 percent to $64.7 million, or 71 cents a share, while revenues inched up 0.3 percent to $547.9 million.

However, Hilfiger is looking for its U.S. wholesale volume to drop by about 20 percent in the second half of this fiscal year.

Prior to Friday’s after-market announcement, shares of Hilfiger dropped 2.4 percent, or 37 cents, to close at $14.86. Dillard’s stock was off 9 cents, or 0.6 percent, to close at $15.13. Both issues trade on the New York Stock Exchange.

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