Tommy Hilfiger Corporation

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Tommy Hilfiger Corporation

founded: 1992

Contact Information:

headquarters: 6/f precious industrial centre
18 cheung yue st., cheung sha wan
kowloon, hong kong phone: (852)2745-7798

OVERVIEW

The Tommy Hilfiger Corporation designs, distributes, and markets clothing and accessories under the Tommy Hilfiger trademark. The company's key products include woven shirts, knits, pants, outerwear, athletic wear, and denim, most prominently displaying the Tommy Hilfiger logo. Primary industry segments include men's sportswear and children's clothing. Through various licensing agreements, the Tommy Hilfiger collection has expanded to include a wider range of apparel, accessories, footwear, and fragrances for men, women, and children. Tommy Hilfiger apparel is sold in more than 2,000 department stores and specialty stores such as Lord & Taylor, Macy's, and Dayton Hudson. The Tommy Hilfiger Corp. also operates retail outlet stores throughout the United States.

Since Tommy Hilfiger and Silas Chou formed Tommy Hilfiger, Inc. in 1989, Chou has pushed for expansion. Developing businesses in wholesale, retail, and licensing across the globe, Hilfiger executives still see this goal as one of the company's central business strategies. Today, Tommy Hilfiger products are available in stores throughout the United States, Canada, Mexico, Japan, Central and South America, Europe, and the Far East (as of spring 1998). In his book, All American, Hilfiger explains the success of his product lines in foreign markets by saying, "When I started to travel the world, I saw the fruits of American labor everywhere I went, the products and logos that are the trademarks of our industry and our culture. In the most exotic places in the world, you will see people wearing Levi's and drinking Coca-Cola, obsessing over fifties cars, and sporting cowboy shirts and boots, or wearing the rugged clothes we made for the great outdoors. No matter how different the customs, the world is tuned in to the signature emblems of the American lifestyle."

COMPANY FINANCES

Since the Tommy Hilfiger Corp. went public in 1992, revenue and profits have grown steadily. First year revenues in 1993 were $138 million, with $57 million in gross profits. In 1994, these figures rose to $227 million in revenues, and $100 million in gross profits. Over the next several years, revenues kept climbing, to $321 million in 1995, $478.1 million in 1996, and reaching $661.7 million in 1997. Gross profits followed the same trend, climbing to $146.4 million in 1995, $219.7 million in 1996, and $316.8 million by 1997.

Net income for the Tommy Hilfiger Corp. has doubled over the past three years, rising from $40.7 million in 1995, to $61.5 million in 1996, and reaching $86.4 million in 1997. Net income for the third quarter alone of fiscal year 1998 (10/1/97-12/31/97) totaled $36.4 million, up 33 percent from the third quarter of 1997. For the nine months ending 12/31/97, revenues rose 31 percent to $644.4 million, while the company's net income rose 34 percent to $85.8 million. These results were reported to reflect a strong rise in sales for the childrenswear market segment, the opening of 10 new retail outlets, and the success of in-store shop expansions.

The company's earnings per share have kept pace with revenues and income, rising from $.55 in 1993 to $.77 in 1994, $1.12 in 1995, $1.65 in 1996, up to $2.28 in 1997. The Tommy Hilfiger Corp. opened in 1992 with a stock price of $15.00 per share. Over the 52-week period from March 20, 1997 to March 20, 1998, Tommy Hilfiger stock ranged from a low of $33.00 to a high of $61.50. The Tommy Hilfiger Corporation's price-earnings ratio is 21.45.

Some of Tommy Hilfiger's newest market segments were expected to generate significant revenue in 1998-99. The women's jeans collection was expected to earn $200 million in 1998 net sales. Together, the women's jeans and Canadian business markets were expected to earn combined net sales of $430 million in 1998 (vs. $229 million in 1997, an 88 percent increase). First-year wholesale projections for the company's new junior jean-swear collection (Tommy Jeans) were $100 million. An initial roll-out was planned for 1998 in 500-600 department stores.

ANALYSTS' OPINIONS

Due to strong prospects for international expansion and additional licensing, financial analysts projected a healthy 20 percent-plus growth rate for the Tommy Hilfiger Corp. over the next five years, double that of the apparel industry as a whole. The Company has an excellent track record for meeting or beating analyst forecasts, and was on track to do so in 1998. However, analysts were somewhat divided on the Tommy Hilfiger Corporation's potential for future earnings growth and on how to appropriately evaluate stocks based on projected earnings. Initially assigned a more conservative "Market Perform" rating by J.P. Morgan in September of 1997, J.P. Morgan and DLJ upgraded Tommy Hilfiger stock to a "Buy" rating in February of 1998, where it has since remained, actually meriting a "Strong Buy" from several other analysts. This upgrade can be largely attributed to the design house's third quarter 1998 report of 33-percent growth in earnings per share and 31-percent growth in revenue, as well as the company's announcement of its acquisition of two licensees, Pepe Jeans and Tommy Hilfiger Canada. The day the announcement was made, Tommy Hilfiger stock rose 7 11/16 points. Competitor Polo Ralph Lauren realized a $1 7/8 gain the same day, some believe also a result of the Tommy Hilfiger Corporation's announcement.

FAST FACTS: About Tommy Hilfiger Corporation

Ownership: The Tommy Hilfiger Corp. is a publicly owned company traded on the New York Stock Exchange.

Ticker symbol: TOM

Officers: Silas K. F. Chou, Chmn., 51, 1997 base salary $750,000 plus $325,000 bonus; Joel J. Horowitz, Pres. & CEO, 48, 1997 base salary $473,000 plus $7,174,000 bonus; Thomas J. Hilfiger, Honorary Chmn. & Principal Designer, 47, 1997 base salary $8,498,223 plus $4.5 million bonus ($3.5 million deferred); Lawrence S. Stroll, Director & CEO Tommy Hilfiger (HK) Ltd., 38, 1997 base salary $625,000 plus $325,000 bonus

Employees: 1,570

Principal Subsidiary Companies: Majority-owned subsidiaries of the Tommy Hilfiger Corp. include: Tommy Hilfiger U.S.A., Inc.; Tommy Hilfiger Licensing, Inc.; Tommy Hilfiger Retail, Inc.; Tommy Hilfiger Flagship Stores, Inc.; Tommy Hilfiger (Eastern Hemisphere) Ltd.; Tommy Hilfiger (HK) Ltd.; and Tommy Hilfiger Japan Co., Ltd.

Chief Competitors: The Tommy Hilfiger Corp. designs and markets clothing, primarily casual clothing and sportswear. Its chief competitors include: Benneton; Calvin Klein; Donna Karan; Guess; Levi's; Liz Clai-borne; Nautica; Perry Ellis; Polo/Ralph Lauren; and The Gap.

HISTORY

Tommy Hilfiger was raised in Elmira, New York. At age 16 he became interested in clothing and actually started his first clothing business during his senior year in high school, selling bell bottoms and candles in a small shop he opened in Elmira. He eventually began designing his own merchandise, and expanded his business to include 10 shops across upstate New York. Unfortunately, his first business venture ended by filing for bankruptcy by the time he was 25. Afterwards, he and his wife, Susie, moved to New York City to look for design work. By 1985, he was considering offers to work for Perry Ellis and Calvin Klein, but declined both. It was then that Mohan Murjani offered him his own company. It was also at this time that Hilfiger, having been through stages where he designed fashionable 70's and 80's trendy clothing, returned to his preppy roots. As he states in All American, "Picturing a more New England, outdoorsy, and classic campus look that I knew would last, I launched Tommy Hilfiger."

In 1989, Hilfiger left Murjani International and began searching for money to expand his own private label. In the process he met Silas Chou, who had the financial resources, but needed a brand name to keep building up his business in Hong Kong. The two joined up with former Ralph Lauren executives, Lawrence Stroll and Joel Horowitz, and formed Tommy Hilfiger, Inc. The company not only owns the designs, but also does its own manufacturing. This arrangement was different than that followed by most designers, who license their name and design to a separate manufacturer. By having one company responsible for both design and manufacturing, Hilfiger and Chou eliminated the friction that sometimes arises between designers and manufacturers, each trying to earn the most from licensing deals.

Capitalizing on Polo's success with the preppy look, Hilfiger designed casual men's and boys' sportswear in brighter colors with a looser fit. And because the company manufactures its own designs, he was also able to produce quality merchandise for less than Polo charged and appeal to a wider market.

Chou has always pushed the Tommy Hilfiger Corp. toward expansion. While Hilfiger admits he preferred to start slow, Stroll and Chou insisted they hit the ground running, and haven't stopped. Tommy Hilfiger, Inc. went public in 1992. In 1995, they licensed Pepe Jeans USA, and in 1996 began distributing women's clothing. In late 1997, the Tommy Hilfiger Corp. opened its first flagship store on Rodeo Drive in Beverly Hills, and a second store in London in early 1998. One more store in London was planned within the next year. The company also has sales operations in Atlanta, Chicago, Dallas, Los Angeles, New York, Philadelphia, and San Francisco.

In 1998, the Tommy Hilfiger Corp. announced that they were buying Pepe Jeans USA and Tommy Hilfiger Canada (its Canadian distributor) for $1.15 billion. This acquisition would return partial ownership of the Tommy Hilfiger Corp. to its founding partners—Hilfiger, Chou, president and CEO Joel Horowitz, and Tommy Hilfiger (HK) Limited CEO Lawrence Stroll. All four partners sold their company shares in 1996 to finance licensing and acquisition deals and further company expansion.

STRATEGY

Corporate Growth

In a February 1998 press release, chairman Silas Chou explained, "Over the last five years, our strategy was to develop our core men's U.S. wholesale and retail businesses and, through select licensing arrangements, to position Tommy Hilfiger as a global lifestyle brand. During the same period, Pepe Jeans and Tommy Hilfiger Canada have taken the women's jeans and Canadian businesses through what we believe was their risky and costly start-up phases and have positioned them for significant revenue and profit growth. These timely and complementary additions to our more established men's business are designed to deliver enhanced shareholder value by providing great growth momentum to carry us into the next millenium."

The Tommy Hilfiger Corporation's primary growth strategy more recently has been expansion of its in-store shop program. As part of this program, retailers set aside floor space specifically for the sale of the Tommy Hilfiger collection, and highlight it with distinctive fixtures and creative displays of merchandise. The company planned to continue this strategy by increasing the number of shops in the United States and internationally. In fiscal year 1997 alone, they added approximately 180 in-store shops, and planned to continue with expansion of new and existing shops.

CHRONOLOGY: Key Dates for Tommy Hilfiger Corporation

1989:: Tommy Hilfiger and Silas Chou form Tommy Hilfiger, Inc.
1992:: Tommy Hilfiger stock goes public
1996:: Begins distributing women's clothing
1997:: Opens first flagship store on Rodeo Drive in Beverly Hills
1998:: Opens London store

Marketing

According to a profile on Tommy Hilfiger in Chain Store Age Executive with Shopping Center Age, "What distinguishes Tommy Hilfiger from the pack is his extreme hands-on approach toward driving sales through retail stores." The designer hosts fashion shows and autograph sessions personally in department stores, and he holds live-via-satellite briefings for sales associates at Dillard's across the country, including interactive question and answer sessions. Additionally, the Tommy Hilfiger Corp. employs approximately 120 coordinators throughout the United States to educate retailers' sales staff about current Tommy Hilfiger products, coordinate in-store displays, and solicit direct consumer feedback for the company. They also conduct training programs for Tommy Hilfiger sales specialists, designed to educate them on the company's image and merchandising standards and to encourage the development and servicing of clientele. Training programs also cover customer assistance and advice, including helping customers select merchandise and putting together outfits.

Decisions on what merchandise to place in the stores are made based on defined merchandising strategies. Product lines fall into one of three categories: core, core-plus, and fashion. The core collection consists of Tommy Hilfiger basic products (i.e., pleated chino pants and shorts, knit polo shirts, oxfords, T-shirts, and jackets) in classic solid colors, that are seasonless. They are made available throughout the year. The core-plus collection includes a wide range of of seasonal "basics," available in a greater array of colors, fabrics, and patterns. There are four different seasonal lines. Fashion pieces are the most frequently updated pieces of product line. They focus on a seasonal theme selected by Hilfiger, who offers products under three themes per season, creating a continual flow of new merchandise into the marketplace.

The Tommy Hilfiger Corp. also believes that licensing agreements, in general, provide more effective manufacturing, distribution, and marketing of products than they could do in-house. They are always pursuing new opportunities in areas the company sees as complementary to existing product lines.

Advertising

Not one to shy away from publicity, Tommy Hilfiger based an entire advertising campaign for his jean-swear on celebrity children such as Kate Hudson (Goldie Hawn's daughter), Mark Ronson (Mick Jagger's son), and Kentaro Seagal (Stephen Seagal's son). In his early days as a designer with little name recognition, Tommy Hilfiger used this strategy to garner publicity for his new company by placing celebrity children in fashion shows and taking them on promotional tours. Not only was it great publicity to have celebrity children on the runway, but hopefully their parents turned up in the audience. Other companies have since followed Hilfiger's lead, signing up models such as Ivanka Trump and Kimberly Stewart, daughter of Rod Stewart and Alana Hamiltion. According to Andy Hilfiger, who designed the campaign, "It's the perfect blending of fashion and Hollywood." And the company takes no financial risk.

The Tommy Hilfiger corporation uses this type of strategy to "cultivate image," which chairman Silas Chou calls a crucial component to maintaining demand for a worldwide lifestyle designer brand. Advertising compaigns for the year-old women's sportswear collection were aimed at what he terms the "VHI generation." But the new junior jeanswear collection (Tommy Jeans) for teens, is targeted more toward the "MTV" generation, customers 14-15 years old. Hilfiger calls the overall style "freestyle," more young and trendy than his classic preppy look. An intensive print and TV campaign was planned, aimed at the Seventeen and Teen People audience.

INFLUENCES

The Tommy Hilfiger Corporation's constant desire for expansion has propelled them toward the introduction of several entire new product lines. When the company first opened, the men's collection was responsible for all of the company's revenues. Due to the success of the company's expansion, it now accounts for only 60 percent of the Tommy Hilfiger Corporation's revenues.

Tommy Hilfiger's first women's fragrance "tommy girl," was created following the strong success of his men's fragrance, "Tommy." Tommy became the number one selling men's fragrance in the United States one year after it was introduced. Buoyed by the success of these fragrances, a new line of toiletries and makeup was expected, as well as a third fragrance. It has also spurred the company to introduce in-store boutiques in some department stores. The shops, which will be tested out by Aramis, licensee of the Hilfiger fragrance line, will sell "Tommy, Tommy Girl, and the upcoming Hilfiger Athletics, and will exclusively house the new toiletries line."

The company's women's casualwear, licensed to the Pepe Jeans London Corp., has also earned success, but only after some modification. When the company launched the Tommy by Tommy Hilfiger collection in fall of 1996, they opted not to use his patent "casual" look and offered tailored tweed jackets and wools. However, his target market continued to buy his trademark casual basics-demin, chinos, and logo pieces. Hilfiger changed his design strategy, developed women's clothing more in line with his casual look, and came away with $125 million in wholesale volume his first year. He has since added a few more dressy items, and launched a better, higher-priced sportswear collection aimed at the 25-plus women's market.

CURRENT TRENDS

The Tommy Hilfiger Corp. continues to seek new opportunities to grow its men's wholesale business. For example, they expanded athletic sportswear into its own "performance athleticwear" business. They also expanded the children's business to include infant sizes for boys and girls and toddler sizes for boys in fall 1997.

Retail remains another targeted growth area. The company added 11 new outlet stores in fiscal year 1997 bringing the total number up to 47. The company uses outlet stores to take advantage of those consumers seeking added value. And the retail outlets also provide them with an additional distribution channel. By the end of the third quarter of fiscal year 1998, they opened 10 more. The Tommy Hilfiger Corp. also opened its flagship store on Rodeo Drive in Beverly Hills in time for the holiday 1997 season, opened one store in London in fiscal year 1998, and expected to open another during fiscal year 1999. These specialty retail stores were designed for those customers who prefer the specialty store environment, and showcase Tommy Hilfiger sportswear and certain licensed product lines.

PRODUCTS

The Tommy Hilfiger Corp. planned to continue expanding product offerings, both in-house, through licensing, and by expanding distribution channels. In 1997, the company signed agreements with Lantis Eyewear Corp. for Tommy Hilfiger sunglasses, Liberty Optical for prescription eyewear, Tommy Hilfiger footwear with Stride Rite, and launched its new women's fragrance "tommy girl" through existing licensing agreements with Aramis. In 1998 they announced plans to enter the home furnishings market, including linens, bedding, and bath products, with Revman Industries. And in March of 1998, the Tommy Hilfiger Corp. announced a new licensing arrangement with the Cypress Apparel Group to produce and manufacture a collection of women's robes and sleepwear in time for the 1998 holiday season.

CORPORATE CITIZENSHIP

The Tommy Hilfiger Corp. makes efforts to use its standing as a way to generate funding for charitable causes. The Tommy Hilfiger Corporate Foundation helps various charities meet financial and education goals. In 1997, for the third time, the Company's boyswear national advertising campaign asked for support for Fresh Air Fund, a non-profit agency that sponsors summer vacations for more than 10,000 disadvantaged New York children annually. They also used the celebration of the flagship Rodeo Drive store opening in November 1997 to showcase a "fashion music show," which was also a benefit for the Race to Erase Multiple Sclerosis.

GLOBAL PRESENCE

One of the Tommy Hilfiger Corporation's primary goals is to build a "global designer brand." Toward that end, they look for leaders in respective markets who share the Tommy Hilfiger vision for worldwide growth when arranging licensing agreements. To date, Tommy Hilfiger products can be found in leading department and specialty stores throughout the United States, Canada, Mexico, Japan, Central America, South American, Europe, and the Far East. Licensees were building up the Tommy Hilfiger brand by adding in-store shops or free-standing stores, and working with U.S. marketing to host events and sponsor national advertising.

As part of the company's global expansion plan, the Tommy Hilfiger Corp. entered into an exclusive retail agreement with KSDP International Ltd. in the Asia-Pacific region to own and operate Tommy Hilfiger stores beginning in spring of 1998. They planned to launch the men's sportswear collection in Hong Kong and Taiwan, and expected great things due to the established success of Hilfiger's fragrance line in Asia.

DRESS FOR SUCCESS?

What do a leading fashion designer and members of the rap community have in common? More than you might imagine. Tommy Hilfiger, an undisputed fashion success story, has benefited immensely from the perhaps unofficial endorsements given to him by rappers such as The Fugees, Snoop Doggy Dogg, and Brooklyn's Biggie Smalls.

In exchange for receiving free wardrobes, rappers began mentioning Hilfiger's name in the rhymes and verses of their songs, spreading the word around about Hilfiger and expanding his fashion empire out into the urban youth market. Then, like a infectious disease, Hilfiger's trademark mix of blue, red, and white designs reached out into suburbia from the inner city, bringing a whole new hip-hop culture along with it. Suburban youth, anxious to embrace this new style, began supporting Hilfiger by purchasing hip-hop style clothing, such as baggy pants and loose rugby shirts sporting the Hilfiger logo. Not only were there great numbers of suburban youth, they tended to be affluent, and therefore, more capable of purchasing designer clothing. By appealing to suburban adolescents' rebellious side, Hilfiger unlocked the door to greater financial opportunities than the previous market.

The company plans to continue using licensing agreements to expand global distribution. They signed with Pepe Jeans London to distribute Tommy Hilfiger men's sportswear at leading European and U.K. department and specialty stores in fall 1997. They opened their first international retail store on Sloane St. in London, and another is scheduled to open in London in time for the 1998 holiday season.