Tommy Hilfiger (B) Turnaround
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Case Code: BSTR492 Case Length: 13 Pages Period: 2005-2010 Pub Date: 2016 Teaching Note: Available |
Price: Rs.500 Organization: Tommy Hilfiger, Apax Partners, PVH Industry: Apparel Countries: USA, Europe Themes: Business Strategy, Brand Management |
Abstract Case Intro 1 Case Intro 2 Excerpts
Excerpts
Early Efforts at Rocovery
Even as the sales were declining in the US market, Tommy was growing at 50% in the European markets into which it had forayed in the late 90s. But the global leadership and the board which were based in New York focused on regaining what they had lost in the American market. As David laid out aggressive plans for acquisitions and restructuring, Tommy was still spiraling down in the domestic markets. In 2005, Tommy's sales forecast estimate was bleak, the prime reasons being competition and the slow recovery of the brand from overexposure and diluted brand equity. In a preliminary report released in the second quarter of fiscal 2005-2006, it was stated that the overall decline in consolidated revenue could be mitigated by two factors. The first was growing in the European market where the brand was still premium and second, by reducing headcount in the American business...
Breaking with the Past
Fred felt Tommy was fighting the wrong battle. He thought focusing resources on profitable divisions rather than trying to regain lost ground in the American wholesale market made entrepreneurial common sense. Horowitz supported Fred but the board was neutral and David opposed Fred's strategy. David said, "Our number-one strategic priority remains the improvement of the US wholesale business, beginning, of course, with the improvement in our product assortment." But by 2005, Tommy was showing no signs of revival of profitability despite the initiatives. In the fiscal year ending March 31, 2005, Tommy's net income fell by 34.5 percent to $85.7 million from $130.8 million on a sales decline of 5.3 percent to $1.78 billion from $1.88 billion.....
Turnaround Begins
The very first action Apax took was to cut Hilfiger's compensation. Hilfiger was given a fixed salary of $14.5 million a year. Under the previous agreement, his salary had been fixed as a percentage of the company’s worldwide revenue and licensing fee. The savings from the amended employment agreement were used to increase the per share offer, making the deal more lucrative for shareholders to give their consent for buyout. In June 2006, the very first move the newly private firm wanted to make was to move upscale. After the deal was announced, Hilfiger said, "We're going to upgrade the product and keep it in line with Europe, which has different positioning. We want to reenergize the wholesale business in a more upscale way and open more of our own stores and really build a global brand." He also added that in Europe Tommy’s competitors were luxury designer brands....
European Expansion
In 2006, Europe accounted for 37% of Tommy's top-line. Tommy's European forays started in 1997 when it entered into a licensing agreement with Pepe Jeans London Corporation. The European market had perceived Tommy as a luxury American brand. Tommy localized its design principles taking into account the local style preferences of people throughout Europe. Tommy had its own design team based in Amsterdam working on designs for Europe. For instance, in 2007, men's shirts sold in Germany were made from high quality cotton and were designed to suit the German men's preference for woven shirts. The shirts retailed at $160 which was almost three times the retail price of an equivalent Tommy shirt in the US stores. Retail consultants opined that Tommy's margin in Europe could be as high as 50 to 100%.....
Post Turnaround
In late 2007, the Apax partners were in talks to take the company public in Europe. Eighteen months into the turnaround, Tommy displayed excellent growth in European and other overseas markets. Besides, an exclusive strategic alliance with Macy’s in the American market had given Tommy control over its pricing and profitability. Having won the investors' confidence, Tommy was planning to float on NYSE and Euronext in Amsterdam. But in 2008, due to the global economic crisis, Tommy had to shelve its plan to go public again. Meanwhile, back in the domestic market, Tommy re-launched its children’s line exclusively in 200 Macy's stores in 2009. It also opened a four-story iconic flagship store in 5 th Avenue New York where its neighbors were luxury apparel stores like Prada...
Exhibits
Exhibit I: Tommy Hilfiger Statement of Income 2001 – 2003
Exhibit II: Tommy Hilfiger – Statement of Income 2004 and 2005
Exhibit III: Tommy Hilfiger – Comparison Quarter Wise
Exhibit IV: Tommy Hilfiger – Revenues 1999 to 2006
Exhibit VI: PVH's Acquisition of Tommy Hilfiger – Strategic Rationale
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