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It was a precarious setup from the beginning.
In 2016, Raf Simons — the Belgian designer as well known for his own cult menswear label as he is for memorable stints designing womenswear at both Jil Sander and Dior — joined Calvin Klein and was given complete creative control over the multi-tiered, multi-billion-dollar brand best known for its fragrance, underwear and provocative marketing.
In his three-year contract, Simons was given the keys to the kingdom: a multi-million dollar annual salary, as well as the lofty title of chief creative officer, overseeing all aspects of marketing and design, from denim sold at Macy’s to upscale furniture.
This kind of control was something Simons never had at Dior, something that was a source of frustration during his time there. But Simons had no experience with mass marketing, and mass marketing is the lifeblood of the Calvin Klein business.
Giving Simons full control came with significant risk, especially as the Calvin Klein business was relatively healthy upon his arrival. In 2016, the brand generated $3.1 billion in sales, up 7 percent from a year earlier, with earnings before interest and taxes of $483 million.
But the management at PVH, Calvin Klein's owners, saw competing businesses like Ralph Lauren stagnating because of lack of creative innovation, while European stalwarts like Gucci soared after radical overhauls. Gucci chief executive Marco Bizzarri had figured out how to commercialise Alessandro Michele’s vision by giving him a seat at the decision-making table. The idea was that Calvin Klein chief executive Steve Shiffman, supported by PVH chief executive Emanuel Chirico, would do the same for Simons.
The relationship between Simons and PVH started as a lovefest.
The first advertising campaign for the ready-to-wear collection, renamed 205W39NYC, received mixed feedback. Shot by longtime collaborator Willy Vanderperre, it was arty and bloodless; far from the sexualised minimalism for which the brand was so well known.
And yet, the clothes had punch: those satin cowboy shirts and Helmut Lang-inspired jeans, shown underneath stringy Sterling Ruby installations, were lauded by critics and the wider industry, earning Simons multiple awards from the Council of Fashion Designers of America. It was a defined, directional look that inspired others. Simons’ American horror story — a charged commentary on the United States of Donald Trump — instantly earned itself a place in American fashion history.
Simons was clearly committed to the cause of Calvin Klein. He wanted it to work at a mass level, visiting with Macy’s executives and hiring the Kardashian family to pose for underwear and denim advertisements when the company expressed the desire to repeat the success of its Justin Bieber #MyCalvins campaign, which combined traditional imagery with user-generated content.
Meanwhile, PVH was hard at work, amping up sales of the 205W39NYC ready-to-wear collection, in an effort to generate a quick return on their investment. In the first season alone, doors jumped from 30 to 300. Typically, a new, high-concept collection like this would be sold under very tight, exclusive distribution, but PVH believed Simons could turn Calvin Klein's high-end ready-to-wear business from a marketing expense into a money-maker.
But that’s where things started to go wrong. While Chirico was praising Simons’ efforts in earnings calls, sales of 205W39NYC failed to take off. Aside from over-distribution, the main issue, according to sources at Calvin Klein, was that PVH was not geared up to produce high-apparel and accessories.
The first collection hit stores late and the fit was off from the beginning, resulting in a high return rate, according to multiple retailers. One source indicated that production issues also plagued previous creative director Francisco Costa. PVH, after all, specialises in mass-produced goods, largely manufactured through licensing deals. (Tommy Hilfiger, its other big brand, does not produce clothing at high-end prices.)
Another challenge was the structure of the company. The business is run regionally, creating bottlenecks when implementing global strategies.
Of course, none of this really mattered when Costa was designing womenswear and Italo Zucchelli was designing menswear, because the marketing department was running the show. Former chief marketing officer Melisa Goldie, who resigned in November 2016, just three months after Simons’ arrival, had great success during her time at the brand. She and her team had long controlled the image of Calvin Klein but her legacy was uprooted by Simons.
Efforts to hire outside agencies to supplant Goldie were unsuccessful. While Simons, who does not use social media — “he doesn’t even lurk,” said one source who worked with him at Calvin Klein — had tapped the Kardashians, the campaign was not as successful as Bieber’s, which was executed before Simons' arrival.
And yet, as recent as March 2018, Chirico was singing the designer's praises. 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.
“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,” he told BoF, adding that the jeans segment grew more than 20 percent in the quarter from a year earlier. “The credibility that comes with having the 205W39NYC product prominently visible to the consumer — we have underestimated the benefit that comes with that.”
But over the past nine months, PVH became increasingly frustrated by the amount of money being sunk into the 205W39NYC collection, from the image-making to the runway shows. At the same time, Simons became increasingly frustrated by the resources being taken away from him, according to one source familiar with the business. (A representative for Simons did not respond to a request for comment.)
In September, a runway concept that required Simons to show off-site (recent catwalks have been held on the ground floor of the company's headquarters) was scrapped because of budget constraints. Then, according to multiple sources, PVH expressed concerns that Calvin Klein’s extensive partnership with the Andy Warhol Foundation — which included merchandise — was too arty and high-brow for a mass audience, even though Warhol is one of the most famous artists of all time.
Earlier this year, in the hopes of remedying the problems with the brand's marketing, PVH brought in L’Oréal veteran Marie Gulin-Merle to be Calvin Klein’s new chief marketing officer. Simons was hopeful, according to a source, that Gulin-Merle would be the operator that he needed.
But Gulin-Merle reports to Steve Shiffman, not Simons. And suddenly Gulin-Merle assumed more control over casting and communication. For instance, the company recently hired photographer Glen Luchford, known as of late for his work with Gucci, to shoot its Spring/Summer 2019 campaign, replacing Vanderperre.
One need look no further than Instagram to see that Simons’ vision is being erased from Calvin Klein, as user-generated content floods the account. Meanwhile, fast-fashion brands like Zara, which competes directly on price with the Calvin Klein product that is sold at Macy’s, are capitalising on Simons’ ideas, selling a Jaws sweatshirt inspired by his Spring/Summer 2019 runway collection for just $50.
According to reports, Gulin-Merle also made the bold move of shifting the brand’s entire advertising budget to digital for the spring quarter, indicating that high-touch, high-concept magazines are not important to her marketing strategy.
Essentially, Simons has been boxed out from the work he was brought on to do. His contract is up in August 2019, but a couple of months ago he was pushed to re-sign, according to a source familiar with the business. He held off, not only because of how early it was in the cycle, but also because he felt that arrangements stipulated in his original contract related to responsibilities and reporting lines, including control over marketing, were not honoured.
PVH did not respond directly to Simons’ discontent, according to the same source. Instead the company chose to call out Calvin Klein's troubles on its third-quarter earnings call last week, when it was announced that the brand had missed sales projections, up only 2 percent, with earnings before tax and interest down 15 percent.
“We’ve been disappointed that our investments in the 205 collection business have not delivered the results we expected,” Chirico said. “We will cut back on a number of these planned investments in the 205 collection business, and as we move forward, we will retaking a more… commercial approach to this important business,” including shifting the focus of marketing campaigns back to the more affordable items, as he said they had been too skewed toward the “high-fashion” consumer.
Chirico also called the jeans line, which relaunched in September 2018, a “fashion miss.” A spokesperson for PVH declined to offer further comment regarding the Calvin Klein business.
While the ready-to-wear line may be bleeding money, it seems that some of the brand's more mass-market products — which Simons is said to at least sign off — are performing, some clocking double-digit growth, according to a source within the company.
So why is PVH concerned about the ready-to-wear? Its expertise has never been in high-end clothes or accessories, so any attempt to develop that category would take time, not to mention extensive back-end investment that goes far beyond Simons’ own paycheque.
What happens now?
Simons' days at Calvin Klein are clearly numbered. But it seems as though the designer will show one more collection in February, whether or not the news of his eventual departure is announced before that. (Speculation amongst staffers that his departure would be announced this week were unfounded, according to one source familiar with the situation.)
It’s clear that at least some part of him is ready to move on. “I keep thinking of things I would like to do that are not fashion,” he told the New York Times in October. “Making movies, making art — the practice of making something. In fashion, the actual practice of being a designer has changed so much.”
What should PVH do post-Simons? Bringing in another high-profile designer doesn’t make much sense. Ready-to-wear lines and runway shows may offer the brand a halo effect, but this doesn't really compare to the power of Calvin Klein's former marketing might.
Creatively, it will be a big loss for the American fashion industry to see Simons go. Practically speaking, it’s the only realistic option.
THE NEWS IN BRIEF
BUSINESS AND THE ECONOMY
Chanel is banning exotic skins. The French fashion house said that it would stop manufacturing products made from snakes, crocodiles, lizards and more, citing difficulty obtaining ethically sourced skins. The company is less exposed to exotics than competitors and has been shut out of access to high quality skins as LVMH, Kering and Hermès have raced to vertically integrate with suppliers.
Luxury retail hit by Paris protests. Anti-government protests over the past weekends engulfed Paris’ shopping districts, forcing many retailers to shut. Top department stores like Printemps to Galeries Lafayette, have reportedly had to close, and storefronts belonging to brands such as Burberry were damaged. According to French finance minister Bruno Le Maire, some brands have seen sales plummet by around 20 to 40 percent since the demonstrations began.
Ted Baker hit by harassment claims. Complaints against chief executive Ray Kelvin and his culture of "forced hugging" have made company shares plummet as much as 25 percent. The British fashion mogul owns 15.5 million (about 35 percent) shares, meaning that the drop has cost him more than £70 million ($90 million) in just two days. Analysts say the negative publicity could be damaging in the run-up to Christmas and the future of Kelvin’s shareholding might also be questioned.
Neiman Marcus creditor steps up attack on MyTheresa transfer plan. Marble Ridge Capital accused Neiman Marcus of "corrosive conduct" over a plan to transfer the luxury online retailer to the department store’s private equity owners. Marble Ridge claimed handing MyTheresa over to private equity firm Ares Management and the Canada Pension Plan Investment Board would prevent creditors from using the asset as collateral and called it a "self-serving enrichment scheme."
The Victoria's Secret fashion show had its lowest ratings ever. With only 3.3 million viewers for the show this year (compared to 5 million last year), the show's viewership has consistently dropped by millions each year since 2013. The show switching from CBS to ABC and airing on a Sunday rather than a Tuesday night may have affected these numbers. Meanwhile, the company's chief marketing officer Ed Razek has been under fire for inflammatory comments in recent weeks, which has led to several boycotts.
Saks drives revenue gains at Hudson's Bay. Turnaround efforts are starting to pay off for the fashion retailer, which reported an increase of 7.3 percent in same-store sales driven by luxury chain Saks Fifth Avenue. Chief executive Helena Foulkes said in an interview that the company is still fixing the fundamentals, though she’s pleased with progress. Efforts to sharpen the fashion assortment and build more bridges between online and offline shopping at Saks are also paying off.
Dirk Standen to exit Condé Nast. The former Style.com editor-in-chief stayed with Condé Nast after it abruptly shuttered the publication in April 2015, moving over to lead editorial at branded content studio, 23 Stories, now renamed CNX. During Standen's 15-year tenure, 23 Stories expanded its remit from branded content to custom advertising. He has yet to announce his next move.
Glossier president and chief financial officer to depart. Henry Davis is exiting after almost five years to pursue his own entrepreneurial opportunities. The news comes weeks after his position changed from chief operating officer to chief financial officer, and follows the announcement of several new hires including Marie Suter, who joined Glossier after a 13-year tenure at Condé Nast. After founder and chief executive Emily Weiss, Davis was the most public face of the business.
Delpozo names creative director. The brand has named Lutz Huelle its creative director. Huelle, who founded his own namesake brand in 2000, will oversee the company’s Autumn/Winter 2019 collection, taking over fully in time for Spring 2020. He most recently worked as a luxury fashion consultant and replaces Josep Font, who exited the company in September.
MEDIA AND TECHNOLOGY
Alibaba signs agreement with Belgium for e-commerce trade hub. The company has signed an agreement with the Belgian government to launch an e-commerce trade hub, which will include investments in logistics infrastructure. Following similar agreements with Malaysia and Rwanda, Belgium will be the first European country to join Alibaba's Electronic World Trade Platform (eWTP) project, which is designed to help countries reduce e-commerce trade barriers.
Chinese e-commerce platform Mogu takes gamble with IPO. The Chinese e-commerce platform's shares were priced at $14, raising $67 million for the company and implying a valuation of at least $1.3 billion — a far cry from the $4 billion valuation reported earlier this year. This reflects investors’ cooling appetite for money-losing startups, even in China’s booming fashion market. Mogu’s stagnant revenue and steep losses raise questions about the company’s ability to execute.
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