It was one of the mightiest engines in New York's fashion world. Using street-smart salesmanship to play on urban aspirations of upward mobility and suburbia's lust for hip-hop wear, the Tommy Hilfiger company roared past most of the Avenue's established houses to become the industry mass-marketing story of the 1990s. Even when its sales surpassed $1 billion a year and Tommy became fashion's Establishment, the models and hip-hop stars sporting his red-white-and-blue crest kept the company basking in an aura of cool.
So it came as an abrupt reality check on Wall Street this month when the company made the surprising disclosure that sales weakness in the coming year could chop earnings 40%. Tommy stock drooped like a rapper's baggy jeans, hitting its lowest mark in four years and giving up 30% of its value during one day.
As usual, Wall Street overreacted. But the plunge raised a question: How does such a hot brand catch the chills overnight? The answer reveals something about Tommy's strategies but also tells a story of the increasingly hostile climate for stand-alone giants like Tommy, Calvin and Ralph.
In part, Tommy may be a victim of its own successes. After a decade in which the company's average growth sizzled at 48% a year, some analysts fear Tommy's recent expansions into women's wear, perfumes and babygear may have pushed the brand to a saturation point. Tommy products are in 10,000 stores across the U.S. "They've tried to spin-doctor the brand in a dozen different ways without any big successes," says David Wolfe of the Doneger Group, a fashion consulting firm. Tommy's new upscale women's line has had several stops and starts. Says Wolfe: "It's the same strategic dead end Ralph Lauren faced, which is why he acquired [youth-market retailer] Club Monaco. You can only reinvent yourself in so many ways." Trying to buy its way out of trouble, Tommy stumbled in March when talks to acquire Calvin Klein foundered on licensing deals and Klein's steep $1 billion price tag. Tommy thus passed up a priceless publicity windfall, not to mention the $5 billion a year Klein pulls down at retail. Recent news reports have focused on planned closings of image-burnishing but money-losing Tommy stores in London and Beverly Hills.