The Business of Fashion
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Before PVH acquired Calvin Klein and Tommy Hilfiger in the 2000s, sales of men’s dress shirts and neckties under labels like Van Heusen and Izod drove more than a billion dollars in revenue and dominated the shirt market.
But on Wednesday, PVH announced the sale of several of these “heritage brands,” now sold mainly through ailing American department stores, to acquisition-machine Authentic Brands Group for approximately $220 million. The brands include Izod, Van Heusen, Arrow and Geoffrey Beene.
The transaction marked the end of an era for the company as it aims to strengthen its main businesses — the multi-billion dollar brands Calvin Klein and Tommy Hilfiger, which now represent about 90 percent of the company’s revenue — coming off a challenging year that highlighted the need for digital transformation.
In an interview, chief executive officer Stefan Larsson said PVH wouldn’t exist in its current incarnation without “the great contributions of… every team member who has had a hand in building our heritage brand business over the years,” he said, describing the sale as “difficult and emotional” for the company. “And at the same time, our industry is being disrupted,” Larsson said.
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The sale comes amid similar moves to consolidate across a fashion industry upended by the coronavirus pandemic, which caused apparel sales to drop sharply and accelerated fashion e-commerce sales. Just in May, both Ralph Lauren and Gap Inc. announced the sales of Club Monaco and Intermix, respectively, both to private equity buyers, to focus on their namesake brands.
The pandemic was difficult for PVH, with revenue declining 28 percent to $7.1 billion in 2020. But the period was especially challenging for its men’s-focused sportswear brands as shoppers stayed away from department stores and chose sweatpants over suits.
Our industry is being disrupted.
Pre-pandemic, PVH’s heritage brands were some of the most popular labels at America’s department stores. The category (which PVH previously grouped with three intimates brands that the company will hold onto, as well as producing some men’s shirting through license agreements) relied on wholesale partners for 85 percent of its sales. That partner list included not only Amazon and Kohl’s, but also department stores Belk and J.C. Penney, which both filed for bankruptcy in the last year. In July 2020, PVH announced plans to close the 162 outlet stores that also sold these heritage brands.
Piper Sandler analyst Erinn Murphy said the sale “further simplifies PVH’s portfolio and lessens the company’s exposure to [department] stores,” according to a note published Wednesday. “The company is focused on digital (this transaction will shed off the lower-tier, lower margin heritage [e-commerce] business) and allows the team more focus on the digital opportunities within [Calvin Klein and Tommy Hilfiger].”
Larsson, who took up his position in February after a year and a half as president under former chief executive and now chairman Manny Chirico, has been pushing a “focus on the core” message since he arrived at the business. (In April 2020, PVH also sold its Speedo North America brand to the Pentland Group for $170 million.)
Larsson’s strategy, as articulated on analyst calls this year, is built on pushing the core tenets of any successful global fashion business in today’s digitally driven market: increasing direct-to-consumer sales, both online and in stores, and increasing e-commerce sales, both owned and operated by PVH and through partners like Zalando and Amazon. Digital sales currently represent 25 percent of total sales.
Larsson is also aiming to expand the international business, which generates 60 percent of sales, with a focus on Europe and China, and raising prices and relying less on discounts and promotions. To further all of these ambitions, Larsson said prioritising its most recognisable and sizable brands is key.
“It’s a shift in the market where the noise level is going up,” said Larsson. “And if you are one of the five to 10 power brands in the world — which we have two of them — you can then utilise your economies of scale and your global reach and your global consumer base [to]... connect to where the consumer is going, and connect to culture. "
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While department stores and other third-party retailers will continue to be important, “it’s going to increasingly be about winning in the marketplace across channels,” Larsson said, listing multi-brand e-commerce (pure-play or department stores) as the most important wholesale relationships for PVH’s brands.
“It’s having that balance of a very strong DTC and very strong wholesale partnerships and connecting the two, connecting the inventory and connecting the physical retail with digital and that has helped us [navigate] through Covid, especially in Europe,” he said.
There has long been speculation that PVH might acquire a third “power brand” to build out its portfolio. Larsson said the company is focused on growing Calvin Klein and Tommy Hilfiger for the “next few years” but then would be very open to strategic acquisitions.
“We see real growth potential, both in revenue and operating margin expansion, over time from growing Calvin and Tommy,” he said. “And then we see through the platform capabilities that we are building in technology, sourcing — we see that those platform capabilities will also over time be able to serve other brands.”
Editor’s Note: This article was revised on 24th June 2021. An earlier version of this article misspelled Stefan Larsson’s name.
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