"During the 1990s Tommy Hilfiger became one of fashion’s hottest brands. I got involved in 1996, when I became a partner in a start-up company that signed the license to sell Hilfiger products in Europe. During that period the U.S. business really took off: From 1997 to 2000 the company’s overall sales more than doubled, and it was a stock market success as well. But that came at a price. The brand was too hot, too hyped, and grew too fast. In the United States its products drifted away from its core values, and when demand fell and they began to sell at a discount, the company’s designers started creating stuff that felt like discount clothing—a vicious cycle. By the early 2000s Hilfiger’s U.S. sales were falling every year.
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One challenge of executing a turnaround in this situation is that when you’re a public company, the expectation is that you’ll grow every quarter. Sometimes the best way to create a profitable and sustainable business is to shrink, [Moi ici: Uma grande verdade que muitos evitam, muitas vezes pela vergonha de encolher a empresa] but it can be difficult to do that in the glare of the public markets.
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When a brand becomes too big and too visible, giant logos and apparent ubiquity can start working against it. By 2000 the brand had peaked in the U.S., and the company began to face market resistance.
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In the fashion industry, weak demand leads to discounting. If the discounting goes on too long, it can become structural, which means it gets factored into the design process. Let me give you an example. For years Tommy Hilfiger’s designers had been creating shirts that would sell for $79 but would offer the look and quality of shirts that might sell for $89. But when the market started to turn against the brand, retailers had to mark down those shirts to $49 in order to sell them. To be profitable at $49, you need to make very large compromises on materials, styling, and quality. They began designing into the discount environment, and the brand eroded further.
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In the European division, which I was running, we chose not to sell the lower-quality product. To succeed in Europe, we needed a $99 shirt that looked as if it cost $150. By 2001 we’d taken steps to reduce our reliance on the brand’s U.S. operations. We created our own design center and supply chain. From 2000 to 2006, while Hilfiger’s U.S. sales fell every year, European sales grew by roughly 50% every year.
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The strategy to scale back the U.S. business in the short term laid the groundwork for the brand’s turnaround in the market in less than four years."
Trechos retirados de "Tommy Hilfiger’s Chairman on Going Private to Spark a Turnaround"
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