Tommy Hilfiger’s brand doesn’t have the luxury image of a Louis Vuitton or a Gucci. Instead, the designer focuses on producing clothing that is “affordable, accessible, aspirational, cool American classic,” a strategy that has served the company well amidst the global recession.
“Would I like to be a luxury brand? Absolutely,” Hilfiger said in a keynote address at the recent Wharton Retail Conference. “But I’ve been forced to deal with reality throughout my life …. I have focused on being an affordable premium design brand — which in this economic slide has served us very well.”
Surviving When the Bubble Bursts
Known for its all-American styling and simple red, white and blue logo, the Tommy Hilfiger brand is for sale in more than 65 countries and has about 1,000 retail locations, including a new flagship store on Fifth Avenue in Manhattan. Hilfiger sold the company to private investors in 2005 for $1.6 billion but remains its principal designer. Shortly after his keynote address at Wharton, Phillips-Van Heusen announced plans to purchase the label from private equity firm Apax Partners for about $3 billion in cash and stock. The deal puts Hilfiger under the same ownership as another iconic American label, Calvin Klein.
The brand has survived ups and downs by selling clothes that “make sense — that [customers] can have in their closet today and next year,” Hilfiger noted. “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.” In the years before the recession, he added, the retail industry was “living in a bubble. In the fashion business, people were spending as much as possible and not getting the value they deserve.”
The weak economic climate will continue to be a “reset” for consumers’ mindsets, Hilfiger predicted, causing shoppers to think about getting the most value for their money. Due to the abrupt pullback in spending, retailers and major brands had to adjust to a new reality. The Hilfiger brand’s premium, yet affordable, niche put the line a step ahead of higher-end labels that had to reengineer their products to provide more bang for a customer’s buck, the designer noted. “We have not veered from that position and we have learned a lot of lessons along the way.”
Dark Colors vs. Light
Since launching in 1984, the Hilfiger brand has evolved and changed along with fashion trends. Looking back, the designer said the company fared best when it moved slowly. “It’s evolution — not revolution,” he stated. “Every time we tried to be revolutionary, we failed.”
Hilfiger was working for Jordache when in 1984 he was hired by Mohan Murjani, who started the designer jeans era with his Gloria Vanderbilt label, to design a preppy line that would be similar to Ralph Lauren, but with more mass-market appeal. The brand was launched under Hilfiger’s name, with a marketing campaign that quickly made waves and turned him into a well-known fashion designer.
By the late 1980s, however, the label’s parent company was focused on its jeans business and an attempt to create branded Coca-Cola clothing. Hilfiger found a new backer, Hong Kong knitmaker Silas Chou, and the brand entered a period of sustained growth. The company went public in 1992, and continued to prosper as Hilfiger responded to its new popularity among hip-hop musicians and athletes. By the close of the decade, however, the line began to fall out of vogue.
“We made another mistake in the 1990s. We were growing so fast and the business was so phenomenal that we allowed too many people to buy the merchandise [in] too many stores,” Hilfiger said. “We were over supplying the demand. So our business started leveling off and [then] coming down. We were doing $1 billion in 1998. We went from $1 billion to $500 million” in the United States. Meanwhile, the European business was selling all-American classic, preppy sportswear and manufacturing “with better products [and] higher price points in our own boutiques.”
After its purchase by Apax, the label narrowed its marketing and sales strategy. Tommy Hilfiger exited numerous American department stores and outlets and formed an alliance with Macy’s that gave the chain exclusive rights to sell the line. The company expanded licenses throughout China, India and Europe, where the brand had retained its status and customer following. Garments were tailored to fashion trends in different regions. For example, customers in Germany favor darker colors, while Spanish consumers want lighter and brighter shades. The Irish like bulky sweaters, Hilfiger noted, while the Italians want “pretty, pretty pretty …. We mold and shape to the region so we have a brand that goes all over the world.”
Sales of Hilfiger clothing have rebounded, according to the designer, and the company is positioning itself to respond to changes in the industry. For example, it is using Facebook and Twitter to reach customers and recently offered live, streaming video of its spring runway show on the Internet. Given the advent of the web and the ease of international travel, “there are no secrets anymore,” the designer noted.
“With today’s media, there is pretty much a radar on what’s going on in the world,” Hilfiger stated. “Fame is all about pop culture, and pop culture guides us in branding and products [and tells us] what moves society.”
Learning from the Past
An entrepreneur since his teens, Hilfiger noted that being creative is not enough to succeed in the fashion industry. Equally important is understanding the financial side of the business.
The designer set himself apart at his Elmira, N.Y., high school by being the first to grow his hair long and dress in bell-bottomed pants. Soon, his friends wanted to know where they could buy similar styles. Hilfiger used money he earned working at a Hess gas station to buy jeans on the street in New York City. He paid $5 for each pair and then resold them to people in his home town for $11. The effort soon turned into a store called People’s Place, housed in the basement of a downtown building.
Hilfiger and his friends painted the store walls black, cranked up the music on the stereo and sold hippie-style clothing to young people from across the region. They eventually expanded into other upstate New York cities. The designer moved to Manhattan to focus on creating his own styles. One day he got a call from the People’s Place accountant, who said the enterprise was out of money and owed back rent and taxes. The partners had to file for bankruptcy, an experience that taught Hilfiger the importance of keeping a close watch on the business side of his company.
“I was 23 and that was my master’s degree,” he noted. “It was the college education I promised my parents I would get.”
In the future, the designer wants to focus on building Tommy Hilfiger into a global lifestyle brand and expand into new categories, including furniture. But he doesn’t envision a future effort to make the label more high-end. The company has a small luxury collection that accounts for only 3% of sales, but helps fuel growth through high-profile runway shows or by dressing celebrities.
“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,” Hilfiger said. “But if it doesn’t conform to the core brand, it is a mistake.”