27 March 2010

Tommy Hilfiger Sold on the Block

Epoch Times

Tommy Hilfiger Corp., makers of the iconic American brand, once again was put on the block. This time the seller was Apax Partners, a private equity company that had bought the company for $1.6 billion in 2006.

Phillips-Van Heusen Corp. (PVH), headquartered in New York, purchased Tommy Hilfiger for $3 billion last week, of which $2.6 billion was straight cash, $276 million was PVH common stock, and the remainder would be an assumption of existing debt.

For Tommy, its history has been a wild ride. In 1999, revenue reached $1.8 billion. It reached a high of $2.1 billion in the early 2000s, and then slowly deteriorated to a low of $1.7 billion in 2007. In 2009, it reached a new all-time high of $2.2 billion in sales.

Apax announced in a March 15 statement that it had achieved its investment goals with Tommy. An investor group generally disposes of an acquisition once it achieves a certain return, and the firm has reached greater profitable heights.

“Reviving the Tommy Hilfiger brand and restoring the company to profitable growth in partnership with CEO Fred Gehring and his team has been hugely satisfying for the Apax team,” said John Megrue, CEO of Apax Partners U.S., in a statement.

In one fell swoop, PVH has two of the most well-known American fashion houses—the company also owns Calvin Klein Inc. With Tommy in the fold, PVH has the strength to compete against Polo Ralph Lauren Corp. and The Gap Inc.

The combined Tommy Hilfiger and Calvin Klein firm will breathe new life into the U.S. fashion industry, with Calvin Klein’s modern and contemporary clothing style, combined with the classical American cool, for which Hilfiger’s collection is known.

On the other hand, designer Tommy Hilfiger, who will remain the label’s most senior designer, does not envision change. “If you keep the heritage of the brand intact when you do another product, and it appears to be coming from the same mother, then you’re doing the right thing ... But if it doesn’t conform to the core brand, it is a mistake,” he said, according to a Knowledge@Wharton (KW) report.

Mass Market Focus
“Would I like to be a luxury brand? Absolutely,” Tommy Hilfiger said at a recent Wharton Retail Conference, as reported by KW.

He suggests that only 3 percent of all Tommy items sold in the market could be labeled “high-end.” High-end clothing was not the goal of the brand, nor will it be in the future.

The vision of the Hilfiger team is that its product is “affordable, accessible, aspirational, cool American classic,” according to Hilfiger in the KW article.

The fast growth of the company during the 1990s, when the company had grown in sales from $500 million to $1 billion by 1998, led the company to spread itself rather thin. The company had found its niche, but had no real growth potential, moving slowly from one side of the pendulum to the other.

Apax reversed the company’s marketing strategy by giving exclusive sales contracts to chains such as Macy’s Inc., instead of having to deal with the small mom-and-pop shops.

The company started listening to customers, which was the step that put the company’s fortune back on track. “While it is important to come up with new products and ideas, it is most important to listen to the consumer and what they are telling you,” Hilfiger said in the KW article.

Caught in Trade War
Hilfiger was among 26 companies that settled lawsuits alleging sweatshop-like conditions in their Saipan operations. The total compensation package amounted to $6.4 million and involved 30,000 former and current workers. This amounts to a small compensation of $213 per worker.

Even before leaving the mantle of its Hong Kong-based owner, textile firm Hilfiger is already becoming embroiled in another of China’s trade war tactics used against the United States.

According to press releases, Hilfiger was also listed among foreign clothing brands that China’s Zhejiang Province allegedly named for not being up to quality standards. According to a translator, Hilfiger was among the brands named in the Chinese language announcement.

“It was revealed that most clothing that were found substandard during this check were made in the following 11 countries and regions: Italy, Morocco, South Korea, France, Turkey, Romania, Egypt, Mauritius, Vietnam, India, and Bangladesh. It involved about 30 famous international brands …,” stated Zhejiang Province’s English language Web site.

U.S.-China Textile warfare is nothing new. It has been going on for ages. What is new is that China plays a tit-for-tat game, and is using, among others, textiles as a pawn.

The overall trade war with China has escalated, with accusations flying back and forth, and China immediately reacting with often unfounded accusations.

The Chinese clothing incident is the latest in a series of trade disagreements with the United States, and some experts believe that it was an overreaction to President Obama meeting with the Dalai Lama in the White House in February and the Taiwan arms sale.

There are many such incidences in which China, accused of trade distorting tactics, or when it feels that its interests are at stake, comes up with accusations that may be totally different from the situation under issue.

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