The new Women's Wear Daily Men's Wear Summit focuses on how to foster the creative thinking and develop the strategic plans required for continued success.
Retail OpportunitiesThe men’s wear shopper is back, but the recession has changed him. Instead of buying the same old, same old, he’s seeking newness in fit and label, but he’s still holding back a bit and not purchasing at the same levels he did before the financial crisis.
That was the message from a roundtable on Retail Opportunities, which was moderated by Robert Burke, president and chief executive officer of Robert Burke Associates.
“The men’s business is coming back, but the customer has changed,” said Russ Patrick, senior vice president and general merchandise manager of men’s for Neiman Marcus Group. “He’s more thoughtful about his buying habits. He’s asking a lot more questions and is more educated and thoughtful about buying.” He said the customer is “demanding newness. The worst thing for him to see is what was there before.”
At Saks Fifth Avenue, it’s the younger, more contemporary customer who has been the first to return, according to Tom Ott, svp and gmm of men’s. In fact, he said, while sales of traditional men’s product fell off most during the recession, “the contemporary and designer businesses were less worse.”
Bob Mitchell, co-president of the Mitchells Family of Stores, said although the customer is coming in less often, his business has “seen 15 to 16 months of nice growth.” And when he does come in, he’s returned to the high-end luxury product that he purchased before the downturn. “They would rather buy more of the best [merchandise], even if they buy less of it.”
Kevin Harter, vice president of fashion direction for men’s at Bloomingdale’s, agreed that the men’s customer has returned, but noted that there has been a marked change in his spending habits. “Now, 84 percent of men make their own decisions,” he said, meaning that retailers can “market to guys. It makes us better retailers and better at our game.”
Mitchell said one of the things drawing men into stores is the new silhouette. Acknowledging that men “don’t like change,” and often return time and again to the same brands, he said stores should tout the “new fit from their old friends to make them comfortable.” At the same time, he believes men are “open to new brands,” and will mix in a few new vendors if they’re presented properly.
Harter agreed, saying Bloomingdale’s tends to “nurture the brands we already carry,” but “balance” those with new labels.
Ott believes there is an opportunity for new brands to flourish and expects there will soon be a “changing of the guard” as some of the more-established brands lose ground to what Harter described as a “young pool of designers.”
He added that any brand trying to break into the men’s arena needs to “offer a distinct point of view and message.” He also encouraged brands to come to the stores and meet the shoppers so they’re well-versed in what today’s customer is seeking.
Mitchell urged vendors to work with the sales associates in the stores to get them behind the brand. “That’s the cheapest, most effective way to market your brand,” he said. “You can connect with the customer through the sales associates, who are your champions on the selling floor. That’s how you can get your first lift.”
The same can be said of private label offerings, a big initiative for many large stores today.
Calling it a “major underpinning of our strategy,” Ott said it is essential for retailers to offer shoppers a differentiated point of view. The Saks Fifth Avenue Men’s Collection, which launched in 2009, is the largest brand in the men’s store, and was launched to fill “white space” that the company saw for men’s wear with an international classic sense of styling. “We really went after it during the recession.”
At Neiman’s, Patrick said the store uses private label “when we fall in love with specific product,” but stressed the company’s mission remains “building big businesses with the best designers.”
Online selling was also a topic of discussion. Patrick said the Neiman’s shopper often researches products online before shopping in the stores and is a “huge driver” of the men’s volume. Harter said the Internet provides an “editorial voice” for the company’s offerings, but many still want to “feel, touch and taste” the product in the store. He said the goal is to create a “synergy” between the two channels.
The panel was in agreement that sales of men’s wear will continue to strengthen in the future.
“The future looks bright for men’s wear,” said Patrick, who said he expects steady growth as men dress up again and shop to complete a more “polished” and “finished look.”
For Bloomingdale’s, attracting a younger customer will be key to future success, Harter said. “The contemporary tailored clothing business is one of our fastest growing,” he said, adding that it is essential that retailers learn how to “engage” this younger guy. The secret? “Technology, technology, technology,” he said, noting stores should install Wi-Fi and “wire” their sales associates to attract these shoppers.
A question from the floor about the future of premium denim evoked a range of responses. Mitchell said denim continues to grow steadily. “We sold a lot during the recession and it will continue to be an important part of the mix.”
Harter said Bloomingdale’s is selling the same number of units, but the prices are lower than they were a few years ago. Patrick said he has reduced the number of units he bought, but the quality has remained the same.
One big growth area for all the stores, however, is accessories. Noting that products such as pocket squares or tie bars “finish off the look,” Mitchell said today’s man is more educated about his appearance and ready to buy just the right piece to complete his wardrobe.
The Key to Attracting Top-Notch TalentIt’s not the economy. It’s not the competition moving in next door. What really concerns retailers is the difficulty of finding new talent, at least according to a survey of 135 chief executive officers and presidents conducted by the Herbert Mines Associates search firm, WWD and Equation Research.
The survey posed the question: “What keeps you up at night?” The biggest concern expressed was talent acquisition and development, said Hal Reiter, chairman and ceo of Herbert Mines. “Ninety percent do not believe that the retail industry is attracting the best and brightest from college campuses. It’s a problem.”
Overall, there is a lack of satisfaction with the talent pool in retailing. “About half [in the survey] thought the skills and expertise needed to fill the C-suite are not available,” and, consequently, 74 percent said they plan to recruit from outside the retail industry for leadership.
That means retailers must invest more in training and skill development. Some do, including Macy’s, Bloomingdale’s, Saks Fifth Avenue, Gap and Toys ‘R’ Us, which Reiter credited for running effective training programs. Nevertheless, “the retention rate of kids is almost zero after two years,” he added.
“Why haven’t we typically attracted best entry-level talent? The number-one reason is that sexy careers are elsewhere — in banking, consulting, in anything else besides retailing,” Reiter said. There is also a widespread perception that the first few years in retailing can be a drag. “You sit at a computer and look at a spreadsheet for the first five years,” Reiter said.
But he sees some hope. “I am here to tell you the landscape has changed. It’s a new day. The convergence of technology and social media and recent developments in the economy give us great reason to be optimistic. Now working in retail is sexy. This shift in the environment is attracting the younger generation. Now is a great time of opportunity.
“But, at the end of the day, it’s not about salary and stock options. It’s about career development,” Reiter said. “You must give them more opportunities to grow faster.”
Luring Men to the WebGilt Man’s goal is nothing short of total domination. “Beyond even what we’re offering now, our intent is nothing less than being the online lifestyle brand,” said John Auerbach, president of men’s at Gilt Groupe.
The e-tailer’s strategy involves “bringing excitement back to shopping,” Auerbach said. “The key to that is creating unique and personalized customer experiences.”
Gilt Groupe introduced men’s in April 2008. The Web site offers designer and luxury brands at up to 70 percent below regular retail prices. Gilt now has more than 5 million members, with 1 million monthly shoppers choosing from 1,500 brands. Men have a choice of 350-plus brands. During the noon to 1 p.m. hour, 120,000 people typically visit the site. Gilt Groupe’s revenues are expected to be close to $500 million this fiscal year.
Gilt Man was spun off in late 2009 in response to “a relatively sizable male population on Gilt,” Auerbach said. “I was working in customer service and marketing then, and we were constantly getting customer feedback. In late 2009, we spun off Gilt Man. We’ll continue to evolve our men’s offering with the launch in July of our first separately branded, full-price business.”
Auerbach said Gilt’s male shoppers respond to value, which has different meanings for different people. “It could be the discount off the retail price such as Gilt, or value in the form of a time-saving trusted resource for a full-price product.” Customers will shop both sites, he said, and the full-price site will appeal to men for whom the flash site holds little appeal. “Men were thrilled to have a new channel to buy designer clothing quickly and easily,” Auerbach said. “[Gilt] was the first flash sale site to offer men’s.”
A sign of Gilt Man’s success is the fact that 80 percent of men’s products are purchased by men for men. “We have a very engaged male population,” Auerbach said. “We really [personalize the shopping experience] in a very data-driven way. We built the platform from day one to look at the business intelligence and brand intelligence that we pick up to create unique and personalized experiences. The fact that the site is members-only gives us a lot of ability to glean additional data. We analyze user navigation, click-through, wait lists, size preferences and price sensitivity. Our customer insights enable us to better target communications [to consumers].”
Prior to Gilt Man, men’s online retail was treated as a commodity or an afterthought, Auerbach said. Gilt Man brings consumers “an offering that interests them housed in a store that’s exclusively for them.” Gilt has taken personalization one step further than simply gender-appropriate product. “It’s us curating the daily assortment based on our understanding of your preferences,” Auerbach said. “The personalization carries over from the site to e-mails you get. We have two sets of branding, one for Gilt Noir, our loyalty program for big spenders, and Gilt Man.”
Gilt picks six of 30 sales every day to highlight for each member and sends out 10,000 different e-mails daily. If a shopper bought size 32 trousers in the past, Gilt will send the customer a message about a sale of size 32 trousers. “That’s led to tremendous gains in conversion and traffic and a dramatic lift in sales,” Auerbach said. “It helped us take the next step to true personalization,” he added. “We’re now moving toward intervention shopping, where we can further personalize the experience based on any number of characteristics, such as style, size and fit. We’re using the data we collect to replicate as much of the [retail] sales associate-customer interaction as possible. That’s what data will help us do and that’s what we think is the promise of e-commerce.”
Building Men’s SalesIf Coach Inc. had its way, all men would carry purses.
“Manbags, murses, man purses — they are characterized in many different ways, but it is a very substantial opportunity for us,” Victor Luis, president of Coach International, told the audience, whose skepticism turned to intrigue — and laughter — after they viewed a series of clips from popular films and television sitcoms that poked fun at guys who carry bags.
With the image of an exasperated Jerry Seinfeld and his “European carryall” still fresh in the minds of the audience, Luis launched into a presentation of how Coach, which reported $3.61 billion in sales in 2010, is aiming to expand its men’s business from 3 percent of sales to 10 percent in five years.
Key to this expansion is Asia, and more specifically, China, where men account for 50 percent of the handbag and accessories market.
Currently, the global market for accessories and handbags equals $26 billion, and just 15 percent, or $4 billion, of that is devoted to men, Luis said. Of the $26 billion market, North America accounts for 30 percent, while Japan and Europe both equal 15 percent. In the next four years, that $26 billion market is projected to expand to $36 billion, Luis said, and China, which represents just 11 percent today, is expected to mushroom to 20 percent by 2015. Growth in North America and Japan, however, is supposed to moderate during that period.
With that said, the idea that Coach, a brand known for its women’s handbags and accessories, can conquer the men’s accessories market may elicit a few eye rolls. But the New York-based firm actually started as a men’s brand 70 years ago, and it wasn’t until 1962, 20 years after its inception, that the company produced its first women’s handbags and accessories.
“In many ways, this is getting back to our roots and capturing our fair share,” said Luis, who added that women’s bags started to really take off in the Seventies and Eighties. Coach cemented its place as a fashion destination in the late Nineties under the direction of then executive director and president of design Reed Krakoff. (Krakoff is now president and executive creative director of the firm.)
Now the brand is coming full circle, Luis said, “relaunching men’s as a true global opportunity,” with several new categories like small leather goods, handbags, outerwear, accessories, giftables and footwear.
Although Coach is making a global push to expand its men’s business, its focus is on Asia, which is anticipated to account for nearly three-quarters of the global market by 2015. And part of that push is understanding the Asian male consumer, Luis explained as he unfurled a shiny black men’s hobo bag, which he referred to as a “mobo.” Seconds later, he held up a current bestseller in Japan, the sling bag, an oblong fanny pack meant to be worn across the body like a messenger bag.
Unlike the North American consumer, Asian men own more than one bag and tend to be more fashion-conscious than their North American counterparts.
Still, even though Asian men are more into their accessories, Coach isn’t ceding any ground in North America. At the end of 2011, it plans to roll out three full-price men’s stores in the U.S. and 10 factory stores, as well as men’s concept shops that will be in 37 existing Coach locations in North America.
In China, the company is planning on expanding the dual-gender format to not only the majority of its 53 stores, but to any stores it opens in the future.
“We have pretty audacious objectives in trying to reach 10 percent penetration, which I guess some would argue is still conservative, given the fact that it’s 15 percent of the market. We at least should try to aim for that,” Luis said.
Breaking the RulesThe idea for Bonobos came serendipitously to Andy Dunn when he was an M.B.A. candidate at Stanford University. Watching his roommate and Bonobos co-founder Brian Spaly altering his pants using a girlfriend’s sewing machine, Dunn identified a hole in the men’s wear market: affordable pants that fit well. He zeroed in on a problem area for many men — the saggy backside or, as he called it, “khaki diaper butt.”
Working from his downtown apartment in 2007, Dunn was a one-man order and fulfillment center, with 400 pairs of pants tacked to his bedroom wall. He answered customer service e-mails in the morning, then picked, packed and shipped the merchandise. “On a good day, you’d lay out four invoices on the bed, pull the pants from the wall and put them into packages,” Dunn said. “Six months later, we had five employees and were growing by 25 percent month to month.”
Along the way, Dunn broke plenty of rules.
“In many ways, it was a crazy idea,” he said. “Folks in this [apparel] industry were the most skeptical. We said, ‘We’re going to design a best-selling men’s brand, sell it over the Internet and name it after a promiscuous chimpanzee.’” Meanwhile, Silicon Valley’s tech companies were no more visionary. “People didn’t just say no; they said, ‘Hell no,’ ” Dunn said.
The first person to recognize Bonobos’ potential was Joel Peterson, chairman of JetBlue Airways Corp., who was one of Dunn’s professors at Stanford. Peterson encouraged Dunn to go against the fashion industry’s grain. “We were going into an established industry with a very customer-centric model,” Dunn said. “We decided we were going to spend all of our time thinking about our customers. And we were going to take advantage of a different way to reach customers — the Web. Great customer service would be central to the concept.”
Without the overhead of stores, Dunn was able to hold the price of Bonobos’ San Francisco-made pants at $50. “Without print costs, the Internet is a better catalogue,” Dunn said. “We were excited about the gross margin of being a brand combined with the growth of being an e-commerce player. As an e-commerce player, you’re aggregating demand and you can grow much more quickly.”
Bonobos pants have a point of difference — an anatomical waistband. Like a belt, which has a slight curvature, the waist is contoured. “We actually built that contour into our waistbands,” Dunn said. “The next step was the rise. European-cut men’s pants are notorious for a very tight rise, while American pants have this horrible long rise.”
Dunn believes flash-sale Web sites such as Rue La La and Gilt Groupe are bringing about “a fundamental repricing in the industry. The customer that used to be lazy and not shop on sale now has that opportunity every day. This is a game changer for men’s shopping. It’s fundamentally changing the price structure in our industry. By taking control of vertical distribution, Bonobos will have a fundamentally better price structure over time.”
Almost as important as the product is giving consumers a great shopping experience. “We’re trying to provide our customer with a service, which is not just great clothing but a great experience of buying that clothing,” Dunn said. “It starts with fantastic product, free shipping both ways and lifetime returns. They’ve gotta love the pants. We’ve just moved on to having a great button down shirt, which alleviates BMT, or billowing muffin top,” where the shirt gathers and bunches at waist. “We’re working on a denim concept,” Dunn added. “The denim brand will launch on the Web.”
Collaborations Can Boost the Bottom LineWith collaborations between designers and retailers spiraling, Brooks Brothers is taking it cautiously.
The retailer’s high-profile arrangement with Thom Browne, who designs the Black Fleece men’s and women’s collections for Brooks Bros., has become the focus, though initially, in 2006, Brooks Bros. said there would be a “laboratory”of guest designers creating capsule collections.
“As far as designer collaborations, this is the one we are going to stick with for awhile. We don’t have any plans to do any more guest collaborations,” noted Lou Amendola, chief merchandising officer for Brooks Bros., during a panel on designer collaborations and the benefits of what’s become a burgeoning, industry-wide strategy.
However, Brooks Bros. is seeking additional collaborations on “certain classifications of product,” Amendola said. The chain has a co-branded luggage line from Hartmann; footwear from Peal & Co.; jeans from Levi Strauss, and children’s wear under the Fleece label designed by Nikki Kule.
While at Brooks Bros. such collaborations round out the overall offering, at Gant there seems to be an even higher purpose. The company’s collaboration with designer Michael Bastian has been “part of the rebuilding of a brand,” said Gant USA president and chief executive officer Ari Hoffman. “The way to speed up [the rebuilding process] was to do a collaboration. It really elevated and cranked up the creativity in the company. It created this feeling of competition, the whole creative process has changed so much.…Gant comes from a manufacturing background. It’s never been in the forefront of fashion. This taught us how to communicate better with the press, about fashion and about working with designers.”
The situation with Bastian “was not forced. When you let things grow naturally you get the best results…the criteria is that it has to be true to our own brand. I always ask, ‘Is it authentic for us. Is it right for us?’ That’s the start.”
Designer Steven Alan, founder of the company bearing his name, recalled when Virgin Airlines approached him to create “the perfect travel bag,” which was intricately designed as a carry-on with a laptop sleeve and several other features. More significantly, “it led us to kind of staff ourselves to making bags” and develop a network of tanneries, sample makers, factories and other suppliers to launch a handbag collection.
Alan has had a string of collaborations, including with Nike, Uniqlo, Urban Outfitters and Dockers. But it’s not about soliciting collaborations, he said. “It’s really people coming to us.” Before pursuing a joint project, Alan looks for chemistry with the other party. “You really have to be able to get in there and have our team work with their team.”
At Brooks Bros., collaborations have emerged in different ways. With Levi’s, Brooks Bros. made the overture. “We decided that Levi’s fit our DNA,” since Levi’s makes the jeans in America and Brooks Bros. is an American brand, Amendola explained. “The people involved and the two companies or individuals really have to share some common ground and believe in the same principles to be successful,” Amendola said. “Thom grew up in Brooks Bros. clothes. He knew everything about Brooks Bros. and our DNA. So we knew right then and there this would be a successful collaboration.…In the beginning this was a p.r. venture. Now it’s a business. We are wholesaling [Black Fleece] selectively to retailers and we have a freestanding store.” In addition, Black Fleece taught Brooks Bros. it could sell slimmer suits at a time when they were lacking in the assortment.
The outcome with Levi’s was also unexpected. With Levi’s added to the assortment, said Amendola, “we actually said we will drop our current jean, that we don’t need two jeans. But when we introduced the Levi’s, sales of our jeans soared. All of a sudden we decided we didn’t need to drop our own jeans. It actually helped a classification we were not pleased with.”possible. That’s what data will help us do and that’s what we think is the promise of e-commerce.”
The Brand Builders“It’s been a good year to be a Hilfiger,” said Trey Laird, chief executive and creative officer of Laird + Partners, the New York ad agency.
Laird was referring to “The Hilfigers” ad campaign his agency created for Tommy Hilfiger. Sharing the podium with Alex Gonzalez, co-founder and executive creative director of AR New York, and James Gardner, ceo and co-founder of Createthe Group, the three executives offered insight into brand building, both online and in traditional media.
For Laird, creating an eccentric family of characters enabled the company to re-focus after several twists and turns. When Laird took over the account, he saw that Hilfiger’s image wasn’t as clear as it once was, and there was some confusion with customer perception: “What does Tommy really stand for? Is he no longer about American classics? Is he a rock ’n’ roll designer, or is he hip-hop?” Laird tapped into the company’s roots as classic sportswear with an irreverent twist. “And now that’s the sweet spot,” he said. “What’s happened over the last couple of years is an incredible brand renaissance. The brand has emerged stronger, more focused and more powerful than ever globally,” said Laird.
By using storytelling, Laird brought the Hilfiger characters to life across many consumer touch points, in both traditional and new media. “We gave them all Facebook pages, and fans doubled in the last year. They’ve tweeted from events, large and small, and they’ve been interviewed by bloggers; they’ve made pop-up appearances all over the world, from a box at the U.S. Open, where [John] McEnroe gave them a shout-out, to store openings in Paris and Tokyo, to Jimmy Fallon,” said Laird. With all the buzz about digital initiatives, Laird said it was television, the “tried and true” medium, that put “The Hilfigers” on the map.
In the fourth quarter, Hilfiger made the most aggressive TV buy in its history (spending $7.5 million for TV holiday commercials), and the Hilfigers hit the air in the U.S. and 14 other countries. “Sales have been phenomenal,” he said.
Gonzalez addressed the creative work his ad agency has done for Brioni, the high-end family-owned Italian men’s wear brand. “It’s a jewel of a small brand,” said Gonzalez, whose agency has also done campaigns for Valentino, Banana Republic, Versace, Dolce & Gabbana and Jimmy Choo. He explained that Umberto Angeloni, former ceo of Brioni, asked them to come up with a platform that did not speak about fashion at all. “We had to enter the brand’s DNA and its reason for being,” said Gonzalez. After conducting a case study, they found the brand was built around 1 percent of the world’s movers and shakers. “These are men who like one-of-a-kind pieces, and they can appreciate the unique nature of this brand,” said Gonzalez. For one long-running print campaign, they photographed a Learjet. For its new campaign, Brioni wanted to see more products in the ads.
Gardner’s firm helps companies develop a strong online presence by creating communications platforms and campaigns in digital, mobile, social media and emerging technologies. His clients, such as Burberry, Marc Jacobs, La Perla, Tom Ford and David Yurman, use digital platforms to tell stories. “Digital has changed the way we shop for luxury,” he said. He described the “Digital Gentleman” as the luxury consumer “who’s always connected at work and at play. He’s on his laptop, he’s on his smartphone, he’s increasingly on his tablet device. How the brand engages this digital gentleman is the key question,” said Gardner.
“Digital has radically changed media,” he said. Previously, brands engaged in a one-way monologue with a captive and passive audience. While that still exists, “Digital is multidimensional. Consumers are having a conversation. It’s now an active audience that is voluntary. Success is based on not just buying his presence, but earning his presence,” said Gardner.
He explained that now it’s imperative to deliver “unique and engaging content, whether it’s created, commissioned or curated, to tell the brand’s story.” For example, he cited Burberry’s “Art of the Trench,” which featured user-generated photographs. Another client, Nowness, uses storytelling from the art, travel and music worlds, and for Dunhill, they developed a platform called Day 8, which has an iPad app with rich content that engages with the consumer.
The Power and Pitfalls of the Acquisition GameDo your homework.
That’s the advice from Phillips-Van Heusen Corp.’s Emanuel Chirico for anyone contemplating a merger or acquisition.
He should know. Since joining PVH in 1993 as controller, Chirico, now the firm’s chairman and chief executive officer, has been involved in at least eight acquisitions.
Chirico was the keynote speaker in the afternoon session at the Fairchild Men’s Wear Industry CEO Summit at the Mandarin Oriental hotel in New York on March 29. He spoke the day after PVH posted fourth-quarter results that beat analysts’ estimates by 11 cents and said it expects 2011 revenues to come in at least at $5.58 billion.
Prior to the presentation, Chirico told WWD that his thoughts regarding acquisitions don’t center on the size of deals but instead on the growth opportunities they present.
On whether new deals need to be huge ones to move the needle, he said, “If acquisitions are part of your strategy, then you need a strategy to it. I don’t want a hodgepodge of stuff.”
Chirico told attendees during the presentation that if a transaction doesn’t make PVH a better company, then PVH should probably be “buying its own stock back.”
He discussed four acquisitions. Izod and Superba were “bolt-on” deals that expanded the distribution or product categories of a brand. Calvin Klein and Tommy Hilfiger were “transformational” transactions that changed the business of the parent.
Izod
Crystal Brands Inc. was in bankruptcy when PVH bought its Izod and Gant businesses in 1995. The main opposition was management, which wanted to do its own deal. No surprise that due diligence and access to management were limited. Izod had $200 million in global retail sales, while Gant’s were $300 million.
Because Crystal was teetering on bankruptcy for some years, there were major operational problems, from quality control to cancellations of goods, that PVH didn’t learn about due to lack of access to information. Chirico said for the first two years after the acquisition, those issues led to PVH missing earnings projections by 50 percent on the acquisition, and post acquisition for two years PVH missed financial results on a consolidated basis that it had guided to Wall Street.
“It was not a pretty picture, and then overnight we got really smart,” he said candidly.
PVH sold Gant for $100 million, and the Izod business started turning around. Today, Izod does $1 billion in global retail sales.
“The lesson here is the need to do due diligence. Though we understood the business and its operations, postacquisition there are always positive and negative surprises,” Chirico said.
Superba
An exclusive sale, and PVH’s long relationship with the neckwear firm gave it unfettered access to the company’s financial and operational information. It also built in a potentially lucrative earn-out for Superba’s senior management, which agreed to stay for a three-year period.
Acquired for $105 million in early 2007, Superba had sales of $110 million four years ago and is now a $200 million business. It gave PVH significant revenue and expense cost synergies with its current tie businesses.
Chirico cautioned attendees to be careful with earn-outs because, although they incentivize management, they can occasionally confuse decision-making authority. It wasn’t an issue for PVH since both management teams agreed on the future strategy for Superba.
“The moral of the story here is to move quickly and buy what you know,” Chirico said.
Calvin Klein
“This was a major transaction for us. We broke a lot of our own M&A rules here,” Chirico said.
The sale was a full competitive auction, with limited information, a high purchase price and high leverage. The $700 million deal, closed in 2003, consisted of $425 million in cash and $275 million in an earn-out. PVH’s market capitalization at the time was $300 million. To complete the deal, it reached out to private equity firm Apax Partners, giving it a 38 percent ownership stake in PVH.
Calvin had $2.5 billion in global retail sales and a $100 million licensing business. Seven years later, its management team is still running the show.
“We did not Van Heusen-ize Calvin Klein,” Chirico boasted.
Calvin “significantly exceeded all of our financial expectations,” Chirico said. The operation has helped PVH report record revenue and earnings for five years. PVH paid down the debt and took out the private equity investment in two-and-a-half years. Calvin is now a business with more than $6.6 billion in global retail sales.
“Great brands are expensive. It’s OK to pay huge premiums for a great brand, but make sure you’re actually buying a great brand,” Chirico emphasized.
Tommy Hilfiger
PVH and Apax, Hilfiger’s parent, were in talks about Tommy and other opportunities. PVH had total access to the business, and it invited Tommy’s team to spend time with PVH in the U.S. in what Chirico described as a “reverse due diligence” process.
“A major selling point with Tommy was how we handled the Calvin Klein transaction and the fact that we didn’t Van Heusen-ize it,” Chirico explained.
PVH’s attraction to Tommy was its international operational platform, which the apparel giant felt would enhance the core competencies of both companies.
“It was a big deal,” Chirico said of the 2010 transaction. “Over $3 billion. We took on $2 billion of new debt. We were highly leveraged again.…We were doing an acquisition that was almost the same size as we were. [Tommy] has $2.5 billion in revenue, generating $380 million in EBITDA [earnings before interest, taxes, depreciation and amortization].”
Apax was brought in as an investor again, this time holding just a 12 percent stake in PVH.
The firm is quickly deleveraging: It paid down $450 million and will pay down another $300 million this year.
Noting Tommy’s excellent growth prospects, Chirico ended his remarks somewhat colloquially: “The moral of the story is: so far, so good — or this better work because my ass is on the line.”
