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Raf Simons’ First Year at Calvin Klein Delivers For PVH

PVH chairman and chief executive Manny Chirico tells BoF how Calvin Klein is capitalising on the star designer’s halo effect.
Spring 2018 Calvin Klein 205W39NYC Runway Show | Source: Courtesy
By
  • Chantal Fernandez

NEW YORK, United StatesThe Raf effect is making an impact at the cash register for Calvin Klein.

It's been one year since Raf Simons revealed his first collection for Calvin Klein as the American megabrand's first chief creative officer, overseeing everything from runway presentations to ad campaigns starring the Kardashian-Jenner family. The denim collection the sister wore in the campaign, a mass market translation of the runway, hit stores in early 2018 and had a big impact on sales and profits in the most recent quarter, executives with the brand's owner PVH said Thursday.

Calvin Klein revenue in the three months ending February 4, 2018 jumped 23 percent to $977 million, while earnings rose to $79 million from $69 million in the same period last year. Those figures, plus strong results from sister brand Tommy Hilfiger and PVH's other segments, brought total company revenue up 19 percent to $2.5 billion, topping analysts' forecasts. PVH shares rose 5.2% to $151.43 on Thursday in New York.

PVH executives credited Simons for giving the brand new relevance, rejuvenating divisions ranging from designer ready-to-wear collection 205W39NYC, contemporary line CK Calvin Klein, to the sportswear, jeans and underwear lines.

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“We are starting to connect, now, the singular thread that starts at the top of the pyramid with our [205W39NYC] collection and drives all the way down through our jeans and underwear business,” PVH chief executive and chairman Manny Chirico told BoF on Thursday. In fact, the jeans segment grew more than 20 percent in the fourth quarter from a year earlier. The segment will be formally relaunched in fall 2018.

The 205W39NYC ready-to-wear collection, which has grown to more than 300 doors from about 30 since Simons’ appointment, has created a halo effect that Calvin Klein chief executive officer Steve Shiffman says is being felt across the rest of the brand.

The credibility that comes with having the 205W39NYC product prominently visible to the consumer — we have underestimated the benefit that comes with that.

“The credibility that comes with having the 205W39NYC product prominently visible to the consumer — we have underestimated the benefit that comes with that,” said Chirico. The 2018 fall deliveries for the mass market department store segments will continue to reflect what consumers saw on the runway more than a year prior.

A March 2018 report from Cowen and Company surveying Gen Z and Millennial consumers showed that the marketing efforts are paying off: Calvin Klein brand preference was twice is high as it is for its competitors and “suggests opportunity to reignite North American growth,” wrote analyst John Kernan. That impact is already being felt. North American retail comparable stores sales increased 4 percent in the fourth quarter after declining the prior three straight quarters. And despite challenges facing the wholesale market in North America — especially Macy's, which is Calvin Klein’s largest partner in the region — wholesale drove the quarter’s 13 percent growth in North America.

Chirico attributes the growth in the North American wholesale segment to healthy inventory levels and reduced promotions. “As we move forward, I think the top line will be fine,” he said to investors. “I think most retailers are going to benefitting on a gross margin basis as we move forward to spring summer.”

E-commerce was another source of growth, increasing 20 percent in the fourth quarter, which included Calvin Klein’s holiday partnership with Amazon. The companies partnered on an exclusive underwear line for men and women and launched pop-up shops. The initiative drew a lot of attention because many fashion brands have been hesitant to sell on Amazon, which is gobbling up apparel market share from brick-and-mortar stores and launching its own private labels.

Chirico would not confirm if Calvin Klein will work with Amazon on a similar project again, adding that the company looks for e-commerce partners that "properly handle the brand" and cater to its different segments. On Amazon, Calvin Klein sold core basics, while Zalando in Europe is more focused on fashion-forward pieces, and Macys.com is a mix of both.

The challenge today is that the consumer has more and more choices, and the consumer has more and more visibility as a shopper.

“The challenge today is that the consumer has more and more choices, and the consumer has more and more visibility as a shopper,” says Chirico. “It puts a burden on the brands to police it, monitor it and stay on top of our accounts. [E-commerce] is a profitable channel, but it’s also a very demanding channel.”

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E-commerce also demands serious marketing, and the Kardashian Jenner campaign and Amazon partnership were both "game-changing" marketing initiatives, as Chirico described them on the earnings call, that helped attract those new Generation Z consumers. In fiscal 2017, the brand spent about $27 million on marketing in the fourth quarter, according to a note from Piper Jaffray & Co. And the Kardashian Jenner campaigns will continue throughout 2018.

For future growth, Chirico’s focus is squarely on the international business, which grew 33 percent to $512 million in the fourth quarter. He told investors on Thursday’s call that the brand has “unlimited runway in Asia” driven by growth in China. He’s made television appearances this week urging the Trump administration to hold off on tariffs targeting China, which could lead to retaliation against U.S. exports, including jeans. Chirico also plans to double Calvin Klein’s European business over the next five or six years, based on the fact that it is currently half the size of Tommy Hilfiger’s business in the region and under-penetrated in all women’s categories as well as the men’s sportswear line, which only launched there 18 months ago. By the end of 2018, he expects Calvin Klein’s European business to hit $1 billion in revenue.

“I believe [Simons’s] impact — which has been significant from a consumer-facing point of view, and from a press coverage and a fashion coverage [point of view] — that’s been all great,” said Chirico. “But we haven’t even scratched the surface.... I don’t think we’ve seen the full effect.”

Related Articles:

The Raf Effect: Measuring Simons' Impact at Calvin KleinOpens in new window ]

Raf Simons Starts at Calvin Klein, Marking Strategic ShiftOpens in new window ]

Can Raf Go Mass?Opens in new window ]

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