We are a company transformed, focusing on continued global growth of our world-renowned designer lifestyle brands.
PVH has a long history of financial growth and operational excellence. Our management team has grown the business to over $8 billion in revenues in 2014, and we are one of largest apparel companies in the world. Over the last fifteen years, our global expansion has been robust. While our revenues were principally generated in the U.S. in 2000, we currently generate approximately 40% of our revenues outside North America. We anticipate that our non-domestic revenue penetration will expand further as we continue to grow Calvin Klein and Tommy Hilfiger overseas and as more customers outside of the U.S. discover our iconic designer lifestyle brands.
We see opportunity for significant growth as we employ our strategic initiatives across our organization. Our global growth strategies include:
- realizing the long-term Calvin Klein, Tommy Hilfiger and Heritage Brands revenue opportunities;
- investing in global platforms and operations to support global growth;
- capturing the digital opportunity, as we focus on growing our sales across all platforms;
- expanding our brands’ presence in Asia and Latin America;
- optimizing our global supply chain to support and drive strategic brand initiatives;
- generating solid free cash flows, which we will use strategically to grow our business and drive stockholder returns;
- investing in and developing our global talent; and
- acquiring licensed businesses where and when we believe that we can leverage our core competencies to operate the business.
Since our acquisition of Calvin Klein in 2003, global retail sales of Calvin Klein products have grown at a 10% compound annual growth rate, reaching $8.1 billion in 2014. We believe significant growth opportunities exist to drive Calvin Klein global retail sales further over time and capture the opportunities identified from the Warnaco acquisition, which include:
Given our wide distribution across geographies and distribution channels, we are focused on maintaining brand consistency. We seek to ensure that our products, quality and distribution reflect Calvin Klein’s premium designer status worldwide. To that extent, we are continually investing in elevating the brand and enhancing product offerings to provide value to consumers. We also support our product lines with 360˚ marketing and communications campaigns (featuring traditional, as well as social and digital media), which are designed to engage consumers, drive brand awareness and encourage consumers to purchase our products.
Strategic Repositioning of the European Business
Europe is the lowest performing region for Calvin Klein, and we are committed to improving margins and generating healthier and more profitable sales. The largest Calvin Klein product offerings in the region include Calvin Klein Underwear, which is performing well, and Calvin Klein Jeans, which is underperforming. We are focused on enhancing our jeanswear product, investing in quality, styling and fits, to address this underperformance. We are also investing in shop-in-shops and retail stores to elevate the in-store shopping experience for the Calvin Klein consumer, while also significantly reducing the brand’s distribution in the off-price and club channel. Over time, our objective is to enhance the overall brand image in Europe and leverage the strength of Calvin Klein Underwear to generate sales in jeanswear, accessories and other categories. To support these initiatives, we have launched marketing campaigns as discussed above along with in-store initiatives to drive consumer engagement, traffic and ultimately conversion.
We have identified several categories where we believe that Calvin Klein is underpenetrated. These categories include:
- Apparel — Outside of North America, our Calvin Klein apparel assortments are underpenetrated compared to our Tommy Hilfiger offerings. We believe that we can grow our non-domestic apparel sales, given our strong brand positioning and proven success in other brand offerings. We believe that jeanswear, womenswear and men’s tailored offerings represent significant opportunities, both in North America and internationally.
- Accessories — We see opportunity to grow our handbag, small leather goods and accessories offerings across our geographies. In North America, we are opening free-standing Calvin Klein Accessories outlet stores, based on encouraging performance in the category. We are also introducing and developing the accessories category in Asia, Europe and Latin America.
- Women’s Intimates — We believe that we can further expand and improve the performance of our women’s intimates assortments, particularly as we leverage our strong positioning and brand awareness in men’s underwear. To that extent, we have been focused on improving our designs, detailing and quality. Fit has been another key focus area, and we are adding extended women’s sizing and tailoring products to accommodate different regional markets. As we make these changes, we also continue to advance our sourcing capabilities, including taking a more regionalized approach, reducing lead times to allow us to respond to customer purchasing patterns and improving speed-to-market for our core and replenishment categories. We have been pleased with performance of several recent global launches, including Modern Cotton and Perfectly Fit.
We believe that the Calvin Klein brand has healthy growth ahead of it. We see the potential for growth across many of our key channels of distribution, including:
- E-commerce — Across all of our geographies, we seek to grow our e-commerce sales within our directly operated sites, as well as those operated by key customers. Accordingly, we have been making significant investments to enhance the functionality, technology and navigation of our e-commerce sites. We are also investing to expand the number of countries to which we ship. To accommodate this growth, we have invested in expanding our supply chain and logistics capabilities.
- Retail expansion — We see the opportunity for square footage growth across most of our geographies. We see the largest potential to open additional retail locations in Asia, Latin America, Mexico and, to a lesser extent, Europe, the United States and Canada.
- Wholesale expansion — We believe that we can continue to gain market share and expand our floor space across our key markets, particularly in Europe.
- Travel retail — Travel retail locations, which are located in major airports across the world, are an important component of Calvin Klein’s growth. We see the largest opportunity to open additional travel retail locations in Asia, Europe and Latin America.
Since Tommy Hilfiger has been under our ownership, the brand’s growth and performance has exceeded our expectations. Global retail sales have grown at a 12% compound annual growth rate since 2005, reaching $6.7 billion in 2014. We believe that we can further grow Tommy Hilfiger through a number of product and regional initiatives which include:
Given our wide distribution across geographies and distribution channels, we are focused on maintaining brand consistency. We seek to ensure that our products, quality and distribution reflect Tommy Hilfiger’s premium designer status worldwide. To that extent, we are continually elevating our product offerings to provide value to our consumers. These enhancements have resulted in growth in sales and improved profitability in 2014 in our European and North American businesses. Additionally, we support our product lines with compelling 360˚ marketing and communications campaigns, which are focused on engaging consumers, driving brand awareness and encouraging consumers to purchase our products.
We have identified several categories where we believe that Tommy Hilfiger is underpenetrated. These categories include:
- Men’s tailored clothing — We acquired the European men’s tailored license in 2012. We believe that we can grow this business as we leverage our core competencies in dress furnishings and tailored apparel.
- Underwear — We see significant room to grow the Tommy Hilfiger underwear business as we leverage our Calvin Klein Underwear expertise with regards to fit, styling, sourcing and fabrics. Emphasizing our ongoing support for the underwear and tailored categories, in December 2014, Tommy Hilfiger announced that internationally renowned tennis star Rafael Nadal will appear as the global brand ambassador for the Tommy Hilfiger underwear and Tommy Hilfiger Tailored collections beginning in Fall 2015.
- Women’s apparel and accessories —We believe that we can grow our womenswear assortments including accessories, particularly in Asia, our least penetrated market. Across the world, our women’s offerings are notably underpenetrated compared to the industry standard of approximately 60%-65%. Throughout 2014, we undertook several efforts to raise awareness of and grow this business, which were successful, including the expansion of the Hilfiger Collection wholesale strategy, introduction of a capsule collection with actress Zooey Deschanel and our partnerships with model, author and TV personality Alexa Chung, and style icon Olivia Palermo, who are widely known throughout the fashion community. Additionally, we have upgraded our accessories product offerings and are focused on growing the business, primarily in Europe and North America, through expansion at wholesale, retail and our online stores.
We believe that the Tommy Hilfiger brand has healthy growth ahead. We see the potential for expansion in many of our key channels of distribution, including:
- E-commerce — Across all of our geographies, we seek to grow our e-commerce sales within our directly operated sites, as well as those operated by key wholesale customers. We have been making significant investments to enhance the functionality, technology and user experience across our e-commerce sites. We are also investing to expand the number of countries to which we ship.
- Retail expansion — We see room for square footage growth across many geographies, including Europe, the Middle East, Africa and North America. In addition, we operate concession businesses in key department stores in Japan and see opportunities to secure additional key locations to expand our presence and elevate the brand in that market.
- Wholesale expansion — We believe that we can continue to gain market share and expand floor space across key markets and enhance the brand’s distribution of elevated product categories, including Tommy Hilfiger Tailored and Hilfiger Collection.
- Growing our licensed operations — Our licensed operations in Latin America (particularly Brazil) and Asia Pacific (including China, India, Southeast Asia and Australia) and our global product licenses represent a significant growth opportunity for us. We believe there are ample opportunities for additional licensee, franchisee and distributor locations.
Our Heritage Brands business is an important complement to our global designer brand businesses. We believe that this business can continue to grow, capture market share and generate healthy cash flows as we implement our key strategic initiatives, which include:
Across our Heritage Brands portfolio, we are committed to designing and marketing quality, trend-right products that offer great value to our customers. To help communicate our brand messaging to consumers, we invest in our brands through marketing, advertising and in-store point of sale material. We believe that these marketing techniques drive traffic and enhance the image and desirability of our brands.
Leveraging and enhancing each division’s positioning in the market
- Dress Furnishings — We operate the world’s largest dress shirt and neckwear business. We are focused on maintaining and expanding our positioning as we introduce innovative new styles and designs. Across our businesses, we are continually evaluating new brand licensing opportunities, which will allow us to leverage our strong established platforms in the dress furnishings category.
- Sportswear — Across our sportswear offerings, we are focused on elevating our products through quality, detailing and fashion. Brand specific initiatives exist as well. For IZOD, we seek to expand our offerings at Kohl’s Corporation, grow our golf business and continue to invest in in-store branding and new shop presentations. For Van Heusen and ARROW, we are focused on strengthening our position in the mid-tier department stores, reinforcing the value equation for each brand and growing through cross-channel expansion.
- Core Intimates — We see a healthy path of growth for Warner’s and Olga. Within our existing wholesale presentations, we have been investing in enhanced fixtures, signage and additional marketing support. These investments have led to improved sell-throughs, as they have helped elevate our brand perception with consumers and showcase our products more effectively. We also believe that we can expand our distribution, particularly within the mass channel and throughout Mexico (primarily across mass retailers).
- Swim — Given Speedo’s strong reputation in the world of competitive swimming, we plan to continually innovate and extend our product offerings of swimwear and swim products. We also see potential to broaden the brand’s customer base and relevance beyond the competitive swimmer population to reach more general fitness and recreational consumers. We look to leverage opportunities around the 2016 Olympics to further fuel the business.
We believe that we can expand our distribution, particularly through:
- E-commerce — E-commerce is a notable focus area, as we seek to increase our presence within the e-commerce sites operated by our key department store partners, through pure-play e-tailers and through our directly operated www.SpeedoUSA.com website. Through third party websites, we are focused on expanding our product offerings, raising their profile, and improving our sell-throughs. Within our directly operated Speedo USA website, we are focused on generating higher traffic, enhancing our technologies and improving website navigation.
- Wholesale expansion — We believe that we can expand our penetration across key wholesale accounts by gaining market share, opening additional shop environments (including leveraging our recent launch of IZOD at Kohl’s and expanding ARROW across J.C. Penney Company, Inc. locations starting in Fall 2015) and expanding our product offerings.
We intend to expand the international distribution of our heritage brands. To date, we have done so principally through licensing. We have approximately 45 international license agreements, covering approximately 165 territories outside of the United States, to use our heritage brands in numerous product categories, including apparel, accessories, footwear, soft home goods and fragrances. We also conduct international business directly, selling dress furnishings and sportswear products to department and specialty stores throughout Canada and operating a select few stores in Canada. Recently, we expanded our joint venture in Australia and New Zealand to include the license for Van Heusen. We believe that our strong brand portfolio and broad product offerings enable us to seek additional growth opportunities in geographic areas where we believe we are underpenetrated, such as Europe, Asia and Latin America.
Other Strategic Opportunities for PVH
While we believe we have an attractive and diverse portfolio of brands with growth potential, we will continue to explore acquisitions of companies or trademarks and licensing opportunities that we believe are additive to our overall business. New license opportunities allow us to fill new product and brand portfolio needs. We take a disciplined approach to acquisitions, seeking brands with broad consumer recognition that we can grow profitably and expand by leveraging our infrastructure and core competencies and, where appropriate, by extending the brand through licensing.
Calvin Klein is one of the best known designer names in the world, offering a modern design aesthetic. The Calvin Klein brands — Calvin Klein Collection, Calvin Klein (platinum label), Calvin Klein (white label), Calvin Klein Jeans and Calvin Klein Underwear — provide us with the opportunity to market products both domestically and internationally at various price points, distribution channels and to different consumer groups than most of our Heritage Brands business product offerings. Global retail sales of products sold under the Calvin Klein brands were approximately $8.1 billion in 2014.
Tommy Hilfiger is one of the world’s leading designer lifestyle brands and is internationally recognized for celebrating the essence of classic American cool style, featuring preppy with a twist designs. Founded in 1985, Tommy Hilfiger delivers premium styling, quality and value to consumers worldwide under the Tommy Hilfiger, Hilfiger Denim, Hilfiger Collection and Tommy Hilfiger Tailored brands. Global retail sales of products sold under the Tommy Hilfiger brands were approximately $6.7 billion in 2014.
Our Heritage Brands business encompasses the design, sourcing and marketing of a varied selection of prominent brand-label dress shirts, neckwear, sportswear, swim products, intimate apparel, underwear and related apparel, as well as the licensing of our owned brands (other than the Calvin Klein and Tommy Hilfiger brands), for an assortment of products. Global retail sales of our Heritage Brands business were approximately $3.7 billion in 2014.