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
Excerpts
The Rise
After Chou became a majority stakeholder in Tommy, Tommy had Novel Enterprises as an adjacency and thus became a backward integrated company. Tommy could undercut its competition by manufacturing quality clothes at low prices in Novel's Asian factories. In 1989, Tommy was making US$28 million in revenue; it had to expand to keep up the momentum. In the early 90s, the partners wanted to make Hilfiger a global lifestyle brand. Chou had also convinced Hilfiger to give up his name and ownership in his company by asking if he wanted to be "a small part of an elephant or a large part of a pea?"..
Sourcing and Retail
Tommy’s products were manufactured through a series of licensing deals. Tommy outsourced its manufacturing operations to the Far-East under tight quality control. Outsourcing allowed it to maximize production flexibility and avoid significant capital expenditure. Taiwan, Indonesia, and Thailand were the key countries which had Tommy's manufacturing operations. To control the buying operations, it had buying offices in India, Macau, Hong Kong, and Singapore as well as the United States. Product development, sourcing, production scheduling, and quality control were the key roles of these buying offices. Tommy also contracted sub-agents who would carry out its sourcing operations in other diverse geographies like South America....
And the Fall
Tommy had evolved as a growth story throughout the early to later mid-nineties. The growth story had attracted an IPO, making it the first apparel company to go public. But association with Wall Street came with its own set of challenges. The fashion industry was highly vulnerable to seasonality and there was a limit to brand exposure before market forces resisted it unlike other industries. When organic growth seemed to be limiting, Tommy went into an acquisition mode in the late 90s. In 1998, following the approval by the shareholders of the company on May 5, 1998, Tommy acquired Pepe Jeans USA, Inc., the company's United States womenswear and Jeanswear licensee.....
What Next?
Meanwhile, to resist the competition in the cut-throat market, the apparel industry was going through consolidation. During the onset of the 2000s, brands like Calvin Klein and Dona Karan were bought by big conglomerates, which put Tommy at a competitive disadvantage. Moreover, Tommy's low stock price and cash hoard of US$400 million made it a potential takeover target. Tommy was struggling with its confusing brand image and was not able to update it. On the other side, it was fighting overexposure and inability to diversify into its own retail outlets while other brands had found ways to diversify their department store distribution by expanding into mass-market chains like the Kohls group and Wal-Mart stores....
Exhibits
Exhibit I: Tommy's Declining Growth Post 2000
Exhibit II: Tommy Hilfiger Extension of Product- Line Through the 90s
Exhibit III: Tommy Hilfiger Revenues and Growth over the Years
Exhibit IV: Sales According to Segment during the Decline Phase
Exhibit V: Outlook of Tommy Stores after the Decline Started
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