Emanuel Chirico

PVH Corp. is taking full control of the Tommy Hilfiger business in China.

This story first appeared in the February 3, 2016 issue of WWD. Subscribe Today.

The company already owns 45 percent of TH Asia Ltd., a joint venture to sell Tommy Hilfiger goods in the gigantic consumer market.

The purchase price weighs in at approximately $172 million, net of about $100 million in cash, and the closing is slated for the second quarter. The deal is expected to be slightly accretive to PVH’s 2016 adjusted earnings.

Exiting their investment in Hilfiger’s Chinese business are Apax Partners, the limited partners which include members of Hilfiger’s management team at the time its 2010 acquisition by PVH. The group includes Tommy Hilfiger; Fred Gehring, vice chairman of PVH; Daniel Grieder, ceo of Tommy Hilfiger, and a company controlled by Silas Chou.

Since 2012, the first full year of operations after the joint venture acquired Hilfiger’s China business from the former licensee (Dickson Concepts International Ltd.), the Hilfiger business in China has doubled from about $70 million in revenues to a projected $140 million in revenue in 2015. The business has over 350 stores, including 65 directly operated stores, and the balance franchised doors.

“This transaction enables the Tommy Hilfiger business to directly operate its fastest growing market, while leveraging our well-established infrastructure in Asia, our regional leadership expertise and strong brand momentum across both our Tommy Hilfiger and Calvin Klein businesses in the region,” said Emanuel Chirico, chairman and ceo of PVH.

“[China] is probably our most profitable market as well,” he added, noting that Hilfiger’s Chinese business has been growing at a double-digit pace the last five years. Increases have come from double-digit comparable-store growth. The stores average 1,500 square feet and come in different formats, some with men’s and women’s, and some larger with men’s, women’s and children’s.

Chirico said Hilfiger’s men’s sportswear represents 75 percent of the Chinese business, and that there’s significant opportunity to increase the women’s denim, accessories and footwear businesses. He said the men’s sportswear business could also double in size.

The ceo noted that PVH’s Calvin Klein brand in China is two-and-a-half to three times the size of Hilfiger’s Asian business, and they have a very similar dynamic. Over time, they expect to be able to take advantage of the synergies in managing both businesses. Calvin Klein and Tommy Hilfiger are both wholly owned subsidiaries of PVH.

As a result of this transaction, Chirico expects “almost no head count reduction.”

Hilfiger’s brand awareness has more than doubled over the last four years in China, and the plan calls for an increased marketing spend in digital, outdoor and some print, Chirico said.

Steve Shen will continue in his current management role with the existing Tommy Hilfiger China leadership team. The Tommy Hilfiger China business will become a part of PVH Asia operations reporting to Frank Cancelloni, president of PVH Asia. Cancelloni will continue to report to Grieder and Steve Shiffman, ceo of Calvin Klein for the Calvin Klein business.

Grieder added, “We are looking forward to executing a more fully integrated strategy for China that takes advantage of our current momentum in the region. This will allow us to further realize the growth opportunities that exist for the brand by offering consumers a greater breadth of Tommy Hilfiger product lines and a more elevated brand presentation.”

The company plans to accelerate the growth of Hilfiger’s business by increasing brand marketing in China and capitalizing of the strong market positioning, price and value proposition. “We plan to invest further in driving the expansion of the brand through new store openings [both company-operated and franchised stores] and improved productivity in existing stores, while rapidly expanding our traditional and digital marketing initiatives to further reinforce the brand in this exciting market,” Grieder said.

The sale to PVH completes Apax’s exit from Hilfiger, which it bought in 2006.

Hilfiger launched e-commerce in China in 2012, and was one of the first international brands to directly launch and operate e-commerce successfully in the country. That business grow to about 5 percent of the business in 2015.

The company opened an anchor store in Beijing last May at the In88 shopping center. Last May, it also staged a global 30th anniversary celebration and recreated its fall 2015 fashion show in China, complete with a full football field and international celebrities and supermodels.