Phillips-Van Heusen Corporation

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Phillips-Van Heusen Corporation

1290 Avenue of the Americas
New York, New York 10104-0101
U.S.A.
(212) 541-5200
Fax: (212) 468-7064

Public Company
Incorporated: 1914 as Phillips-Jones Co., Inc.
Employees: 11,850
Sales: $1.35 billion (1997)
Stock Exchanges: New York
Ticker Symbol: PVH
SICs: 2321 Men & Boys’ Shirts; 3143 Men’s Footwear, Except Athletic; 5136 Men’s & Boys’ Clothing; 5137 Women’s, Children’s & Infants’ Clothing & Accessories; 5611 Men’s & Boys’ Clothing & Accessory Stores; 5699 Miscellaneous Apparel & Accessory Stores

Phillips-Van Heusen Corporation (PVH) is a leading marketer of dress shirts, sportswear, sweaters, underwear and outerwear, and other casual clothing and accessories under the Van Heusen, Gant, Izod, and Geoffrey Beene names and footwear and related products under the Bass name. The company also markets its own private-label dress shirts and those of a few outside brands. PVH manufactures some lines of dress shirts and footwear, wholesaling its products to major retailers, chain stores, and catalog merchants, and retailing them through its own stores, generally located in factory-outlet malls.

Origins as Phillips-Jones: 1907-57

PVH’s roots may be traced to the late 19th century. In 1881 Moses Phillips, a Polish-born pushcart peddler, began selling flannel shirts sewn by his wife, Ida, to coal miners in Pottsville, Pennsylvania. His business grew, and by 1887 it was known as M. Phillips & Son. Twenty years later Phillips merged his business with D. Jones & Sons, an operator of a chain of factories in Lebanon County, Pennsylvania.

The merged company was incorporated in New York in 1914 as Phillips-Jones Co., Inc. and was renamed Phillips-Jones Corp. in 1919. The following year the company revolutionized its industry by turning out the first collar-attached dress shirt. Phillips-Jones also began manufacturing men’s underwear. With Moses Phillips’s son Isaac as company president during this time, Phillips-Jones marketed its garments to retailers, including the Chain Shirt Shops, in which it held an interest. The company’s main plants at this time were in New York City, and Albany, New York, as well as in five Pennsylvania municipalities, including Pottsville, which would by the 1940s become its main facility. Corporate headquarters were located in New York City.

Phillips-Jones’s sales came to $7.2 million in 1919 and net income was reported at $ 1.1 million. Profits, on $ 11.1 million of sales in 1922, reached $1.4 million—a peak not surpassed until 1947. Although Chain Shirt Shops was dissolved in 1926, the company’s retail client base continued to increase, and by the end of the decade Phillips-Jones was producing 335,000 dozen shirts a year and quantities of pajamas, underwear, nightshirts, collars, silk cloth, and piece goods.

Sales took a dip of almost $2 million in 1930, the first full year of the Great Depression. Phillips-Jones lost money in this year, as well as in the next two years, and discontinued paying dividends, a practice not resumed until 1947. Operations then became profitable again, with the exception of the recession year of 1938, when the company’s sales dropped by about one-third and led to a loss of $1.7 million.

Isaac Phillips’s son Seymour became president of Phillips-Jones in 1939. He revamped the styling of shirts to improve their quality and durability, expanded the company’s research and development facilities, and halved its 2,000 retail accounts to a profitable 1,000 while increasing the advertising budget from less than $10,000 a year. By 1940 the company had closed its Albany plant and opened one in Geneva, Alabama.

During the 1940s Phillips-Jones added neckwear to its product line and opened two more Alabama plants. Sales and profits increased rapidly after World War II. In 1949 the company introduced its Century collar-attached shirt; with heavy promotion, some 12.5 million of these shirts were sold in the next five years.

By 1950 the company had combined annual production of 550,000 dozen dress shirts, 250,000 dozen sports shirts, 200,000 dozen neckties, 450,000 collars, and 40,000 dozen pajamas. Phillips-Jones was operating 12 plants in 1954 and serving some 6,000 department stores and haberdashers. It also had added swimwear to its 2,000 different styles of garments.

Acquisitions and Divestitures: 1957-87

Phillips-Jones changed its name to Phillips-Van Heusen in 1957 in honor of one of its well-known shirt brands. The company also reentered the retail business by purchasing Kennedy’s, Inc., a chain of 15 New England menswear stores, in 1958. The company introduced Lady Van Heusen shirts and blouses in 1962, when shirts accounted for 80 percent of its sales (excluding Kennedy’s). In 1964 the company acquired 11 Florida outlets, which continued operations under the Kennedy name.

By 1964 PVH had 7,000 accounts. It was offering liberal credit to these customers and also assisting them with advice on fixturing, stock, promotion, display, and turnover. The company was spending more than $2.5 million a year on advertising. About two-thirds of all men’s dress shirts were wash-and-wear by 1965, when PVH introduced its Vanopress permanent-press model, available in Dacron and cotton and offered for the company’s sports shirts and pajamas as well. Developing the industry’s first all-cotton permanent-press shirt, PVH bet on the popularity of the new permanent-press models and announced that it would discontinue all its wash-and-wear shirts, including Century Vanaplus, the nation’s largest-selling $5 wash-and-wear brand.

By this time the Lady Van Heusen line was offering a full line of sportswear, with slacks and coordinates as well as shirts and blouses. Kennedy’s was selling women’s and children’s wear as well as men’s clothing and furnishings. The company now had 16 plants, situated in Arkansas and Puerto Rico as well as in Alabama and Pennsylvania. PVH’s acquisition program continued. In 1966, for example, it entered the tailored-clothing field by purchasing Joseph & Feiss Co. of Cleveland, and then outerwear with the purchase of Wind Breaker Inc. of Danville, Illinois. The company also established a men’s toiletries division in 1965. Sales took a big leap in 1966, to $143.3 million, and the firm’s net income reached $4.3 million, more than triple the level in the late 1950s. Seymour Phillips moved up to board chairman in 1967 and was succeeded as president by his son Lawrence in 1967.

With the February 1968 acquisition of Hamburger’s & Sons, PVH was operating 39 stores, in Baltimore as well as in Florida and New England. Its retail division grew to 69 stores later in the year with the addition of four chains, including 12-store Redwood & Ross, which was part of the acquisition of Kalamazoo Pants Co., a manufacturer of slacks for teenagers. Also in 1968, PVH purchased Somerset Knitting Mills, Inc., a manufacturer of men’s sweaters, and Brookfield Industries, a manufacturer of men’s suits, Moyer tailored slacks, and walking shorts.

PVH liquidated Kennedy’s Florida stores and the Lady Van Heusen line in 1969 but added three more retail businesses with six stores. That year the men’s and boys’ furnishings and outerwear division accounted for 41 percent of sales, the men’s tailored-clothing division for 26 percent, and the retail division for 33 percent. With the purchase of Harris & Frank’s 32 West Coast stores in 1971 from Botany Industries, the number of retail stores reached 109, accounting for 41 percent of the company’s revenues. That year PVH had record net income of $7.1 million on record net sales of $253.8 million.

The economically troubled decade of the 1970s saw a number of divestitures rather than acquisitions. During this period the Van Heusen division began to lose sales to retailers’ own private-label shirt offerings. The company responded by initiating its own private-label operations, closing its Pennsylvania factories, and relocating in cheaper-labor venues in the South and the Caribbean. PVH liquidated the unprofitable Wind Breaker division, with its four manufacturing plants, in 1977, and the 21-store Redwood & Ross retail chain was sold in 1979 to its former owner. Efficiency of operation enabled the company to achieve record net income of $8.9 million in the fiscal year ended February 3, 1979, on net sales and revenue of nearly $327 million.

PVH’s Joseph & Feiss operation, which included the Cricketeer and Tempo labels, became more designer-oriented with the addition (under license) of a Geoffrey Beene division in 1976 and a Cricketeer Tailored Women collection in 1981. Van Heusen introduced a Halston collection in 1981. The parent company’s chain of factory outlet stores, first introduced in 1976, reached 36 in 1984, while its retail division fell to 53 stores in 1984 with the sale of eight Rices Nachmans units to Hess’s Department Stores. In 1987 PVH sold Joseph & Feiss and its 45 remaining specialty clothing stores to managers of these divisions for a total of $41.4 million.

These divestitures were prompted by Phillips’s struggle to avoid a takeover by Dallas-based investment concern Rosewood Financial, Inc., which acquired almost one-fifth of the common stock and made a $22-per-share offer for the rest of the company. PVH’s president later told a Fortune reporter, “A couple of arrogant Texans came in here and said they were going to take over and run this company. They didn’t know their ass from their elbow about running this or any other corporation.” Armed with $73 million from Prudential Insurance Co. of America for convertible preferred stock and $210 million in bank loans to finance a $146 million stock buyback (at $28 a share) and the purchase of a footwear company, PVH also borrowed $77 million from Prudential by issuing high-yield notes. Rosewood admitted defeat, selling almost all of its stake for about $61 million.

PVH’s management had preserved its independence at the cost of raising its long-term debt from $7 million to $121 million and seeing its common stock plunge. Essential to a corporate turnaround was the rehabilitation of footwear manufacturer and retailer G.H. Bass & Co., which PVH purchased in 1987 from Chesebrough-Pond’s Inc. for $79 million, in spite of its loss of $47 million the previous year. Phillips offered his top 11 officers a $1 million bonus each if PVH’s earnings per share rose at a compound annual rate of 35 percent during the four fiscal years ending in January 1992. PVH turned around Bass’s losses, liquidating obsolete inventory, upgrading the product line, narrowing the range of sizes, raising prices, and increasing advertising for the Weejun and Bass trade names, the nation’s predominant brands of casual shoes.

Resurgence in the 1990s

Essential to the corporate strategy was creating new markets for Van Heusen shirts, Bass shoes, and private-label shirts (made by Van Heusen) and sweaters (made by Somerset). Accordingly, at the end of 1989 the parent company purchased Windsor Shirt Co., a 39-store men’s-furnishings group. By the fall of 1991 the company was fielding more than 600 tastefully designed stores in the outlet malls rapidly being erected around the country, under the names of Van Heusen, Bass, Cape Isle Knitters (sweaters), Geoffrey Beene (designer’s shirts), and Windsor Shirts (private-label men’s furnishings). These outlet stores proved to be the key to PVH’s turnaround in the early 1990s.

By late 1990 PVH had passed Arrow Shirt Co. to become the nation’s largest shirt manufacturer, having gained market share with stylish features such as spread collars, bright stripes, cham-brays, and denims. One division was selling the Van Heusen brand for about $25, another was making private-label shirts for retailers like Bloomingdale’s and Lands’ End, and the third was selling Geoffrey Beene designer-label shirts for about $32. Also available were the Hennessy, Cezani, and Etienne Aigner labels, at prices up to $45. One key to sales success was PVH’s heavy advertising in women’s magazines, as studies indicated that women were purchasing at least 60 percent of all men’s shirts. PVH announced in 1992 that Van Heusen had become the top-selling shirt brand in the United States, having grown 20 percent in the previous year. In 1994 Van Heusen introduced a line of wrinkle-free shirts, which it publicized as “The shirt that irons itself.”

By mid-1993 PVH’s outlet stores, which reached a peak of about 1,000, were accounting for half the company’s revenues and even more of its earnings, according to analysts. At the same time, since the company could ill-afford to alienate the department stores it was also supplying, it situated the outlet stores in such locations as vacation resorts and small towns lacking department stores. During this time, in the midst of a national economic recession, PVH’s stock price soared to nearly $40 a share, prompting a two-for-one stock split.

PVH made news in May 1993 when Bruce J. Klatsky, the company’s president since 1987, was appointed company chairperson, the first chief executive not a member of the founder’s family. Lawrence Phillips, who yielded the chairman’s post to Klatsky in 1994 and sold the family’s remaining 11 percent stake in the company in 1995, had, in 1972, given his employees the power, based on pension fund shares, to scrutinize and vote on decisions about the stock PVH held in other corporations. Klatsky, likewise, had a reputation as a champion of human rights for overseas workers and served on a White House committee to eliminate sweatshops. Consequently PVH was more than a little embarrassed by allegations in 1992 that the company had made a concerted effort to block the unionization of its workers in Guatemala. In rebuttal, Klatsky pointed out that PVH’s 650 Guatemalan employees received free on-site health care and subsidized lunches.

Although PVH fell about one-third short of its goal of a 35 percent annual compound gain in earnings per share during 1988-92, the company continued to profit through fiscal 1993 (the year ended January 31, 1994), recording its sixth consecutive year of double-digit earnings and sales growth, with net income of $43.3 million on sales of $1.15 billion. In early 1995 PVH purchased Crystal Brands Inc.’s apparel group for $114.7 million, adding the Gant, Izod, and Salty Dog brands to its apparel but also raising its long-term debt to $230 million.

In 1994, PVH’s fiscal results showed a dip in profits to $30 million despite sales growth to $1.26 billion. The company closed three U.S. shirt factories in 1995 and, on revenues of $1.46 billion, reported annual net income of only $294,000 after taking a charge of $17.3 million for closing the plants. In fiscal 1996 PVH earned $18.5 million on net sales of $1.36 billion. By the fall of 1997 about 75 percent of PVH’s products were being made in less-expensive overseas factories. PVH announced in August 1997 that it would close 150 of its more than 750 remaining outlet stores over a two-year period and stop manufacturing sweaters, a segment of its business that had been losing money.

At the end of fiscal 1997 (the year ended February 1, 1998) PVH disclosed that it would move Bass’s shoemaking operations from Wilton, Maine, to Puerto Rico, the Dominican Republic, and other places where labor and manufacturing costs were cheaper. Footwear sales had declined following an attempt to raise Bass’s moderately priced shoes to a higher price bracket. PVH announced a net loss of $66.6 million for the fiscal year after taking $85.5 million in charges for closing the Maine plant and 150 outlet stores.

PVH in the Late 1990s

About 23 percent of PVH’s net sales in fiscal 1997 came from dress shirts. In the United States, Van Heusen was the best-selling men’s dress shirt brand and Geoffrey Beene the best-selling men’s designer dress shirt brand. Sales of other apparel, primarily branded sportswear, accounted for about 44 percent of company sales. Van Heusen was the best-selling woven sport shirt brand in the United States. Izod products included the best-selling men’s sweater brand, the top-ranked golf apparel brand in pro shops and resorts, and one of the best-selling basic knit shirts. Gant represented the largest collection brand in several European countries. Footwear and related products accounted for about 33 percent of PVH’s sales. Bass was the leading brand of moderately priced casual shoes in the United States.

PVH was manufacturing dress shirts in Alabama, Arkansas, Costa Rica, Guatemala, and Honduras, but most of its dress shirts and substantially all of its sportswear were being made by independent manufacturers in the Far East, Middle East, and Caribbean. About 80 percent of its footwear was also being manufactured independently, chiefly in Brazil and the Far East. Most of PVH’s products were being wholesaled to major department stores and men’s specialty stores nationwide, but the Gant brand was available in some 35 countries. The more than 50 Gant stores (all but one, ironically, on foreign soil) included a flagship unit that opened on Fifth Avenue in New York City in 1997. These stores were being run by Pyramid Sportswear, in which PVH held a quarter-interest. Gant planned to open an additional 10 stores in the United States by the year 2000. PVH also had about 695 company-owned stores at the end of the fiscal year, primarily in factory-outlet retail malls.

Principal Subsidiaries

Bass Net, Inc.; Camisas Modernas, S.A. (Guatemala); Caribe M&I Ltd. (Cayman Islands); Confeciones Imperio, S.A. (Costa Rica); GHB (Far East) Limited (Hong Kong); G.H. Bass Caribbean Inc.; G.H. Bass Comercio Exportacacao Ltda. (Brazil); G.H. Bass Franchises Inc.; Phillips-Van Heusen (Far East) Ltd. (Hong Kong); Phillips-Van Heusen Puerto Rico LLC; PVH Retail Corp.; The IZOD Gant Corporation.