In Manhattan’s cavernous Park Avenue Armory the thrum of the Rolling Stones’s ‘Sympathy for the Devil’ blared as Mick Jagger’s 22-year-old supermodel daughter Georgia sashayed down the catwalk. Vogue’s Anna Wintour was in the front row. So were the daughters of rock royalty like Keith Richards, Simon Le Bon and Annie Lennox, firing off shots on Instagram (#tommyspring15). Kendall Jenner of clan Kardashian closed out the show strutting in a sheer, braless dress, driving her 25 million social media followers wild. The message of Tommy Hilfiger’s New York Fashion Week show was as transparent as Jenner’s top: After a long and painful fall, he’s back.
Once the official outfitter of the ’90s’ hip-hop set, hitting $2 billion in sales in 2000, Hilfiger’s business imploded amid a sea of overexposure and baggy, logoed merchandise that fast fell out of fashion. “We made the mistake of following a trend that was going to be short-lived,” says Hilfiger, 63, “because any trend is short-lived”.
But now the brand is hot once again, thanks to a pair of savvy European businessmen: Daniel Grieder, 53, Tommy Hilfiger’s immaculately groomed Swiss CEO, and his Dutch predecessor, Fred Gehring, 60, both former stewards of the Hilfiger brand abroad. And while they’re longtime Tommy loyalists, they’re brutally honest about the mess they inherited. “It fell off a cliff,” Gehring says of the American part of the business. They bought the company with the help of London-based private equity firm Apax Partners in 2006 for $1.6 billion.
To save Tommy Hilfiger, they’re breaking all the rules of modern retail: Raising prices, tailoring clothes smaller, alienating customers and cutting off stores. It’s a counterintuitive strategy, but it’s working. Worldwide revenues hit a record $3.4 billion in 2013, up 7 percent from the year before (for perspective, sales were $1.8 billion in 2005, during the brand’s slump). Cash flow as defined by earnings before interest and taxes increased 10 percent to $479 million, with growth not just in the expected emerging markets of Asia and South America but also in Europe and North America, where competitors like Michael Kors and Hugo Boss have struggled.
“At first glance, you wouldn’t recognise how this brand has come from the depths,” says Brian Sozzi, retail analyst and CEO at Belus Capital Advisors. “They’ve peeled back on distribution. The quality has improved. And I think they’ve broadened out who that Tommy Hilfiger customer is.”
Hilfiger’s is a legendary fashion success story—or at least it was for a while. After starting out in the late ’60s selling bell-bottom jeans and hippie threads on college campuses near his hometown of Elmira in upstate New York, Tommy Hilfiger became the first fashion company to float on the New York Stock Exchange, raising $47 million in 1992 while clocking $107 million in sales ($80 million and $180 million in 2014 dollars, respectively). By the mid-1990s Tommy Hilfiger’s oversize jeans and puffer jackets became the teen uniform of the era. “All the preppies, all the cool kids, the surfers, the skateboarders—everyone was wearing it,” he says. A 16-year-old Beyoncé and her group Destiny’s Child wore his denim overalls over logo bikini tops to a 1998 photo call. The designer dressed the 17-year-old breakout star of the day, Britney Spears, for her ‘Baby One More Time’ tour in 1999.
But by 2000, when revenues reached the $2 billion mark, Hilfiger had gotten greedy. What started as a preppy menswear label making colourful button-downs was now selling $20 T-shirts, accessories, perfume, sunglasses, bags, homewares. His nautical flag logo was a mainstay of downmarket department stores. The company’s wholesale business—the sale of red, white and blue ephemera to Belk, Kohl’s, Dillard’s and anywhere that would take it—swelled to $1.5 billion in 2000.
Worse than market oversaturation was the brand’s descent into promotions, a dirty word in high-end retail that means “always on sale”. “It had become so bad that a shirt that was going to have a retail price of $69 was designed in such a way that even at markdown at $39, it would still make money,” says Gehring.
By 2005, wholesale sales had slowed to $500 million. Even in Middle America, where Hilfiger’s inventory once thrived, no one wanted cut-rate Tommy T-shirts. Hilfiger felt it was his duty to figure out the next move for his floundering company, he says. “In reality, the answer was sitting right in front of us. It was in Europe.”
(This story appears in the 23 January, 2015 issue of Forbes India. To visit our Archives, click here.)