Tommy Hilfiger Looks to Technology as It Combats Macy's Decline

(Bloomberg) -- PVH Corp.'s Tommy Hilfiger division is looking to technology to bring buzz to a three-decade-old brand that's been walloped by the department-store industry's decline.

Though Tommy Hilfiger's same-store sales plunged 11 percent in North America during the most recently reported quarter, e-commerce has emerged as its biggest source of growth. The business is increasingly relying on social media to target millennials and reinvigorate a brand that's closely linked to the '90s.

There's plenty of pressure to move quickly. One of Tommy Hilfiger's strengths -- its close ties to Macy's Inc. -- has become a weakness. Macy's, the biggest PVH customer and the exclusive department-store source of Tommy Hilfiger's general apparel in the U.S., is shuttering 100 locations after suffering from declining sales and slow foot traffic.

To adapt, Tommy Hilfiger brand chief Avery Baker is making it easier for shoppers to order clothes directly. She introduced the newest collection at a fashion show this month next to a Southern California beach -- rather than a typical New York venue -- and invited 2,000 regular shoppers to watch it. People could instantly buy outfits from an app featuring 3-D images of the runway. Within 24 hours, more than 15 styles were sold out online.

“We are living in an age where there is demand and expectations of instant gratification and immediate access,” Baker said. “That's why technology and continuing to explore innovation in that area is so important.”

Tommy Hilfiger and Calvin Klein each account for about 40 percent of PVH's sales. While total revenue at the New York-based company grew in the quarter ended in October, comparable sales for both labels dropped in the U.S. -- partly because a strong dollar restrained tourism.

In 2015, Tommy Hilfiger got 30 percent of its North American revenue from department stores, with most of that coming from Macy's.

The exclusivity agreement with Macy's is threatening to stifle Tommy Hilfiger, according to Bjorn Bengtsson, an adjunct professor of fashion marketing and product development at the Parsons School of Fashion in New York.

“It makes it very hard to expand your brand's reach to other consumer groups,” Bengtsson said. “You are locked in to their customer base and have very little room to maneuver your design and product assortment.”

Tommy Hilfiger's brick-and-mortar woes have also weighed on PVH's stock in recent months. Following weak earnings posted at the end of November, the shares have fallen 15 percent. That compares with an 8.2 percent gain for the Standard & Poor's 500 Index over the same stretch.

The task of modernizing the brand falls to Baker, an almost two-decade veteran at Tommy Hilfiger. She's relying more on digital marketing and partnerships with young influencers, such as model Gigi Hadid, who has almost 30 million followers on Instagram.

The efforts have begun to pay off, said Marc Beckman, co-founder of New York-based advertising agency DMA United.

Tommy Hilfiger “took a brand that four years ago really was very dusty,” Beckman said. “It's a lot more relevant with younger people now.”

Wall Street also is optimistic that PVH can turn things around. Of the 17 analysts tracked by Bloomberg, 10 have a buy rating. Six have a hold recommendation, and one recommends selling.

The Feb. 8 show in Venice Beach, California, was Tommy Hilfiger's first to debut a collection outside New York in 20 years. It spurred an online sales surge in the first 24 hours that was more than twice as large as the one that followed a September event in Manhattan, Baker said. More than 50 percent of traffic in North America and Europe came from first-time visitors to the website, she said.

Tommy Hilfiger isn't alone in seeking new venues for fashion shows: Designers Tom Ford and Rebecca Minkoff also ditched New York for L.A. when they debuted new collections this season.

PVH, which gets 45 percent of its revenue from outside the U.S. is diversified enough to weather the storm facing the domestic retail industry, Baker said. But that storm makes brand building even more important now, she said.

To woo more customers, Tommy Hilfiger is considering producing runway shows in additional cities, Baker said.

“We are living in a transformational time in our industry,” she said. “Keeping the attention of today's consumers is one of the hardest things for anyone in the branding industry. There's so much choice.”

To contact the reporter on this story: Stephanie Wong in New York at swong139@bloomberg.net.

To contact the editors responsible for this story: Nick Turner at nturner7@bloomberg.net, Lisa Wolfson