Hilfiger Case Study Analysis

In 2005, Hilfiger was facing five consecutive years of sales dropping eleven percent on average per year in the United States. This drop resulted in sales going from 1.9 billion in 2000 to 1.1 billion in 2005. However at the same time, the sales of Hilfiger in Europe were increasing at a steady pace, 82 million in 2000 to 428 million in 2005. Internally, fears began to grow that the troubles in the United States would begin to spill over to the European market. The company’s troubles became apparent to the public when the company began to change its segment reporting by separately reporting the international and American wholesale reports.  In an attempt to compensate for the troubles in the core of Tommy Hilfiger’s brand, the company began to acquire and expand, starting with purchase of the rights to the Karl Lagerfeld brand. The American business of Tommy Hilfiger needed to be completely redefined in order to prevent it from taking the whole brand down with it.

Before the ownership of the Karl Lagerfeld brand, Hilfiger was facing a serious dilemma with the brand perception that they were receiving. They had moved from the upper-moderate categories of the department stores into the lower better category. This repositioning happened as the consumers down marketed the brand after noticing the worsening quality, style and fit of the American business. Due to the excess inventory that the company was facing, they were forced to re-work their distribution network. They began to focus on the outlet shop market, in hopes of clearing the excess inventory that they had amassed. In 2005 Hilfiger had 128 retail stores in the United States, of which 126 were outlet shops. The outlet stores “became an integral component of Tommy Hilfiger’s direct-to-consumer strategy over time, developing and selling its own separate collection that was specifically designed for the outlet channel instead of clearing excess inventory.” To hopes of repairing the brand perception, Hilfiger assumed ownership of Lagerfeld. The Lagerfeld brand was a cemented figure in the high fashion market, making it a beneficial start for Hilfiger. The association with Lagerfeld was anticipated to offer a new platform of growth for Hilfiger. They needed to move themselves back up the categories of department stores into the more upscale apparel market. As Hilfiger said himself, “It’s the opposite of Tommy Hilfiger’s preppy, all-American. Karl’s style is chic and French. It’s very different, so we’ll never compete. It’s a great compliment.” The move would also allow Hilfiger to benefit from a new distribution network within the United States through fashionable department and specialty store channels. The board of Hilfiger found that the move would be a clear step in the goal of improving the brand perception within the United States.

For others in the company, the strategic decision to acquire Lagerfeld seemed like a weak method to turn the company around. Their solution was to “focus on the core Tommy Hilfiger brand rather than pursuing new and potentially distracting opportunities.” The success that Hilfiger had in Europe was linked with the fact that in that market, they “did not cater to the strong commercial pull that came from the urban street-wear market by positioned it next to brands like Polo Ralph Lauren and Hugo Boss. In contrast with its U.S. experience, in Europe Tommy Hilfiger generally fared like Polo in terms of quality and style – and if anything, was perceived as a pricier brand.” Fred Gehring and Ludo Onnink who later became the CEO and CFO of Tommy Hilfiger Europe believed that Hilfiger needed to offer a “consistent global premium brand image and positioning across all the main markets.” After the two went to the board of the company with their idea, they failed to get the board encompassed with the alternative plan.  They then decided that the only method to get their plan into action would be by getting financial backing to make a credible bid to acquire the Tommy Hilfiger brand, leading them to Apax Partners. Apax presented “several advantages in Gehring and Onnink’s eyes. First, Apax’s presence in several European countries and the U.S. gave them the perspective to understand the differences in brand perceptions in Europe and the U.S. Second, Apax had a long track record of investing in the fashion and apparel industry, including the financing for Phillips-Van Heusen’s acquisition of Calvin Klein in 2003, which had started in a similar position of poor channel management, declining product quality to sell at lower prices, and over-distribution in low-priced channels, and was now experiencing sustained improvements in all dimensions under a new leadership team.” When the bid to acquire Tommy Hilfiger was finalized in 2006, Gehring and Onnink were appointed as the new CEO and CFO of the company.