Tommy Hilfiger (A) The Rise and Fall
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Case Code: BSTR491 Case Length: 13 Pages Period: 2005-2010 Pub Date: 2016 Teaching Note: Available |
Price: Rs.500 Organization: Tommy Hilfiger Industry: Apparel Countries: USA Themes: Business Strategy, Brand Management |
Abstract Case Intro 1 Case Intro 2 Excerpts
Introduction
In 2000, after a decade of stellar growth and stock performance, Tommy Hilfiger Corporation (Tommy), a multinational American apparel designer and manufacturer, witnessed stagnation and decline in its top-line as well as profitability. Shareholder pressure was high; the Tommy share, which had once been the favorite of Wall Street, plummeted by 32% to US$ 9 after Tommy announced in April 2000 that profit for the year ending March 2001 would fall by 30- 40% to around US$ 206 million. This made Tommy an easy prey for hostile acquisitions. "It's finished as a stock. It’s going to take a long time for investors to return," said John Hayes, an analyst at Independence Investment Associates which had owned Tommy’s shares. In 2001, the revenue decreased by 5%. In 2002, the top leadership exited, even as the revenue remained stagnant.
Tommy was incorporated in 1985 by its namesake Thomas Jacob Hilfiger (Hilfiger) when he launched his boutique designer apparel range. Over the years, Tommy grew exponentially by ensuring that its brand resonated with the hip-hop fraternity and eventually extending its product line from bed-sheets to baby clothes. Growing at a 38% CAGR (cumulative average growth rate), it outperformed the norm in the apparel industry and was the first apparel manufacturer to go public.
The decline was attributed to Tommy's overexposure as a brand. Tommy had lost control over its inventory and the discounting had started affecting its quality. Moreover, Tommy had evolved into a brand which had deviated from its roots, leaving it with a confusing brand image. In 2003, the revenue remained unchanged compared to the previous year and with a new CEO onboard, Tommy was poised to trigger a turnaround.
In the following year there were early attempts for a turnaround, mainly focusing on operational efficiency and downsizing of Tommy. As the revenues continued to fall the CEO had to take a call on the future course of action - organic way of restructuring to regain the lost ground in the US market or growing inorganically.
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