Tommy Hilfiger — The Rise and Fall and Rise Again
Here is the video from this transcript: Tommy Hilfiger
Before diving in, I would like to say something. If you start a business and fail along the way, don’t give up just yet. Take it as a learning opportunity and build on it. This is exactly what Thomas Hilfiger, also known as Tommy Hilfiger did. His jeans stores, operating under the brand name The People’s Place, faced bankruptcy when he was only 25 years old. But that was only the beginning of his story.
In 1984, Mohan Murjani, an Indian textile entrepreneur, contacted Hilfiger to design a line of clothing. Murjani wanted to refresh the preppy look associated with Ralph Lauren and market it to a broader consumer base. And this is how Hilfiger launched his first collection that featured button-down shirts, chinos, and other classic preppy styles.
Armed with creative advertising ideas and solid pricing strategies, Hilfiger rose from the ranks of an unknown designer to a top selling one in a short amount of time. The ad that was displayed on a billboard in Times Square compared Tommy Hilfiger to Calvin Klein, Ralph Lauren, and Perry Ellis. It was a risky move but it definitely paid off.
In the late 1980’s, Murjani’s firm was facing financial troubles. However, Hilfiger’s brand was still growing enormously and had a great deal of unrealized potential. Thus, Hilfiger, Murjani and two other partners decided to form a new company, Tommy Hilfiger Co., by buying out Murjani’s firm.
Hilfiger was surpassing all expectations, reaching over 100 million dollars in sales by 1992. And this is the year when the company went public on the New York Stock Exchange. Hilfiger then licensed Pepe Jeans in 1995 and branched out to women’s clothing in 1996. At that point, sales ballooned to 500 million dollars.
Hilfiger managed to create such a strong brand that celebrities in the likes of Michael Jackson and Elton John and politicians in the likes of Bill Clinton wore Hilfiger designs. The next natural step was to diversify in other markets. The company moved into the bath and body products market, started a color cosmetics line and even a women’s handbags line.
However, it turned out that women’s clothing was not Hilfiger’s forte. Customers complained about the womenswear line to the point that Hilfiger had to bring in female expertise including Lynn Kohlman, a former Donna Karan executive, and Camilla Nickerson, a fashion editor from Vogue.
I don’t know if Hilfiger became too absorbed in the womenswear, but he might have missed that the fashion industry was becoming crowded. Many firms were beginning to feel the saturation of the market. That was the fate of complacent companies that were resting on their laurels.
Hilfiger had lost its way in the early 2000’s. In an interview in 2001, Thomas reflected on his mistakes. He said that they tried to be at the forefront of trends by introducing the coolest and most advanced clothes. They were essentially oversupplying the demand. The consumers really did not respond to the new initiative. To revive demand, Hilfiger started discounting the clothes. However, that did not move the needle.
The only way to reduce price further and still make a profit was to reduce the quality of the products. This means using cheaper materials and spending less time on design and quality control. Customers no longer had faith in the brand’s quality and revenue fell drastically from 2.1 billion dollars in 2000 to 1.8 billion dollars in 2006. Shareholders were displeased with performance, particularly with the U.S. division. Hilfiger knew that a turnaround would be hard to pull off while being scrutinized by public shareholders. That’s why it put itself up for auction and was bought by Apax Partners for 1.6 billion dollars.
Being a private company again meant that they could focus on long-term objectives rather than next quarter’s numbers. They made the hard call of laying off 40% of the workforce. The U.S. market was becoming overheated and thus they decided to focus on international expansion. They also put in place an exclusive strategic alliance with Macy’s which helped reignite sales in the U.S. The numbers reflected the massive overhaul Apax did and an IPO was even touted in 2007 but then came the financial crisis.
It is worth pointing out that revenues fared really well during the crisis, growing to 2.2 billion dollars by 2009. This is thanks to the renewed focus on producing affordable, accessible and preppy American clothes. Apax did such a great job that Phillips-Van Heusen decided to buy Hilfger for 3 billion dollars in 2010.
Phillips-Van Heusen, who have an incredible amount of experience in the fashion industry, took Hilfiger to the next level. They know all of the ins and out of the industry from operating brands such as Calvin Klein, Arrow, Izod, Speedo and Van Heusen. Hilfiger revenues grew to 4.7 billion dollars in 2019. Actually, Tommy Hilfiger became one of the biggest drivers of Phillips-Van Heusen revenues and pushing their stock price upwards.
Do you own any Hilfiger clothes? What do you think about them? Are they too preppy? Can they take on the new wave of competition? Let us know.
