Long term success in the fashion game isn't an easy science, but many would agree that it involves some combination of slow-growth, a price point that matches product, and (perhaps the most obvious point) well designed clothing season-after-season. When this blend of influences is done correctly, brands will see steady, and more importantly, stable growth over several years. Done incorrectly, and—the brand simply won't last. If you still don't believe us, take a look at the diverging histories of Stussy and Mossimo.
Like the aforementioned streetwear labels, Tommy Hilfiger was a symbol of '90s cool. But, like mny brands of that era, Tommy's own success undermined the brand; a public offering made the brand go bigger while falling demand and over saturation sent Tommy Hilfiger tumbling downward. But while Tommy peaked out in the U.S. around the turn of the century, the tightly-controlled European wing of Tommy Hilfiger was able to ride out the early millenium woes to secure growth. As Fred Gehring, Executive Chairman of Tommy Hilfiger, explained to the Harvard Business Review, shrinking the business allows the brand to stay strong, focused, and in-demand.
The main issue Tommy Hilfiger faced at the beginning of the 2000's was one of over saturation. This lead to a falling demand for product, which in turn lead to heavy discounting. Once this happens, Gehring notes, a fashion brand goes into a tailspin.
"For years Tommy Hilfiger’s designers had been creating shirts that would sell for $79 but would offer the look and quality of shirts that might sell for $89. But when the market started to turn against the brand, retailers had to mark down those shirts to $49 in order to sell them. To be profitable at $49, you need to make very large compromises on materials, styling, and quality. They began designing into the discount environment, and the brand eroded further."
But the European division, which sprung out of smart moves back when Tommy was in its prime in '96, didn't have this problem. But how did one continent escape brand erosion while the brand faced dwindling support at home? By keeping it simple, of course.
"In the United States, Tommy Hilfiger had expanded into streetwear—baggy jeans and clothing with very large logos, which overshadowed the traditional products on which the brand had been built. When a brand becomes too big and too visible, giant logos and apparent ubiquity can start working against it. By 2000 the brand had peaked in the U.S., and the company began to face market resistance."
"In the European division, which I was running, we chose not to sell the lower-quality product. To succeed in Europe, we needed a $99 shirt that looked as if it cost $150. By 2001 we’d taken steps to reduce our reliance on the brand’s U.S. operations. We created our own design center and supply chain. From 2000 to 2006, while Hilfiger’s U.S. sales fell every year, European sales grew by roughly 50% every year."
Sadly, while Gehring was flourishing a continent away, the company heads—located in NYC—were too focused on keeping the floundering U.S. business afloat. The problem was only made worse due to the brand's public ownership, with shareholders looking for growth instead of reinforcing where the business was actually pulling in profits. The brand was going to destroy itself without a new strategy—the best option was to return to privatization. Simply put, it's f@#king expensive to run a publicly traded company. Returning to private ownership would reduce operating costs—while giving those in charge an easier time in correcting the course of Tommy Hilfiger at home and abroad.
After some conflict with the board, the ultimatum was that Gehring would need to set up plans to buy the company (with help from private equity firms) if the brand was going to return to private ownership. True to his strategy, Tommy Hilfiger was purchased by European-based Apax Partners in 2006. This is when things start to turn around. By going private, the board could focus on fixing Tommy Hilfiger's wider brand issues—instead of trying to please shareholders with the latest quarterly sales report. An exclusive deal with Macy's (who already played a major role in Tommy's U.S. business) helped root the brand back in the United States. From there, it was about rebuilding Tommy's image into one that matched it's casual luxury beginnings.
"The strategy to scale back the U.S. business in the short term laid the groundwork for the brand’s turnaround in the market in less than four years. Through smart investments in our collection design and fashion shows and continuing high-profile collaborations with icons from the worlds of art, sports, and entertainment, the brand perception was elevated to realign with the premium image we maintained in other markets around the world. At the same time, we were able to balance our internal resources to continue the uninterrupted momentum of our global growth and business expansion."
Compare this strategy to that of Mossimo, who effectively crippled their brand by going too big, too fast. It was a move that ultimately devalued the brand; Mossimo's own desire to grow is what caused it to shrink—in a negative way.
As Gehring describes, the major success of going private, ironically, made the brand interested in going public again—an idea that was squashed after the financial crisis of 2008. Inevitably, the Tommy Hilfiger's "shrink" strategy is what allowed it to weather the financial storms until its purchase by PVH in 2010. PVH owns Tommy Hilfiger to this day.
For Gehring, the chronicle of Tommy Hilfiger is reminder that bigger isn't always better. Like Stussy before them, focusing on a smaller market may yield bigger rewards. In the case of Stussy, it was keeping the product limited and isolated to a few select retailers. For Tommy Hilfiger, it was recognizing that the smaller European market was where the brand could enjoy consistent, stable growth.
"The number of big American fashion brands that do a really substantial business in Europe is fairly small—and once you get beyond New York, Chicago, and Los Angeles, the number of European companies that do a substantial business in the United States is fairly small too. Sometimes you need to accept that a strategy that works in one part of the world may not succeed in another if you’re not willing to adapt."
Read the full story over at the Harvard Business Review.