Case Assignment: Tommy Hilfiger

Less than a decade ago, Tommy Hilfiger (the company) was selling billions of dollars a year in affordable fashions, cosmetics, and accessories, and Tommy Hilfiger, the designer, was successful enough to be recognized on a first name basis. Nonetheless, operating exclusively in U.S. markets, left the company vulnerable to a turbulent retail industry and limited the companys growth potential. With annual revenues of $1.9 billion domestically, Tommy Hilfiger began investigating growth opportunities in Europe and Asia. At the height of its U.S. popularity, Hilfiger opened a large store full of traditional Hilfiger apparel on Bond Street in London.

Then very quickly, the companys success dried up. Sales dropped to $1.1 billion only a few years after they had peaked, and then plummeted to a comparatively paltry $260 million. As a result of this astounding 86% drop in revenue, the company closed 30 Tommy Hilfiger stores in the United States and shut down its childrens wear and Tommy Jeans divisions. Overseas, Tommy was sputtering. The Bond Street store closed the same year it opened, largely because of differing European fashion tastes.

Slow growth rates were not the only reason for the dramatic change in the companys performance. More damaging was the rapid consolidation of U.S. retail stores. Many of the major department and discount stores where Hilfiger items are sold have either closed or been purchased by large department store chains. Today a few retailers, like Macys and Kohls, account for more than a third of U.S. clothing sales, and those same retailers often sell their own private brands, too.

To avoid stalling out completely, Tommy Hilfiger needed to figure out how to expand globally. The failure overseas of Tommys traditional U.S. look prompted the designer to adapt to cultural differences in Europe and Asia. The biggest change was the decision to start creating designs uniquely for the European consumer. Hilfiger opened a design center in Amsterdam, dedicated to designing clothes and accessories for consumers from different European cultures. For example, because Germans and Italians have different preferences for sweaters, Hilfiger has created a line of sweaters for Germans clients, which is different from what it designs for Italian clients.

Those differences made it difficult to balance global consistency with local adaptation. In addition, as managers soon discovered, the European market differed greatly from the U.S. market. CEO Fred Gehring said, The fragmentation of dealing with all these little mom-and-pop stores is so alien to American businesses, yet, these stores are the backbone of every major brand that sells in Europe. Further, because there are so few locations for new stores available (unlike in the U.S.), it makes more sense to work with existing retailers. To handle the fragmented market, Hilfiger opened 21 regional showrooms, featuring 25 clothing lines, each with several tailored to particular markets. Even though that led to higher operating costs, operating in that manner enabled the company to achieve much higher profit levels and to place its products in 4,500 boutique stores in 15 European countries.

In addition to selling branded apparel in boutiques, Hilfiger opened 34 company-owned Hilfiger Denim stores throughout Europe. Designs and layouts of the stores and their merchandise are tailored to the cultural tastes of the countries where they are located. Hilfiger has a higher margin on products sold at its company-owned stores, as well as complete control over the facilities. The new strategy of a mixed distribution channel and locally adapted designs has been a success. Today, European sales now account for 37% of Hilfigers $1.78 billion in sales.

In the case assignment for Chapter 8, you learned that Tommy Hilfiger Corporations U.S. sales had peaked at $1.9 billion in 2000, falling to $1.1 billion in 2003 and then to just $260 million today. In the United States, a few large retailers now account for more than a third of all clothing sales. Furthermore, they increase their profits by selling exclusive private-label brands that squeeze out Tommy Hilfigers products. Given its dependence and vulnerability within a shrinking U.S. market, Tommy Hilfiger decided that it needed to grow in Europe and Asia. But it cant follow its previously unsuccessful strategy of simply exporting U.S. fashions, cosmetics, and accessories to other countries.

ANSWER THE FOLLOWING QUESTIONS: (3-5 sentences in each question would be great)

1. How much should Tommy Hilfiger, which unsuccessfully pushed its U.S. products overseas, adapt its products to different cultures in Europe and Asia? Can it have a standard set of products or should they be different in each market and culture?

2. Who should make key decisions for the company? Should managers at headquarters make these decisions, or should managers in different countries make them? Should Tommy Hilfiger run its business around the world the same way it runs its business in the United States?