We are one of the world’s largest apparel companies, with a heritage dating
back over 130 years. Our brand portfolio consists of nationally and internationally
recognized brand names, including the global designer lifestyle brands Calvin
Klein and Tommy Hilfiger, as well as Van Heusen, IZOD, Bass, ARROW and Eagle,
which are owned brands, and Geoffrey Beene, Kenneth Cole New York, Kenneth Cole
Reaction, Sean John, JOE Joseph Abboud, MICHAEL Michael Kors, Michael Kors Collection,
Chaps, Donald J. Trump Signature Collection, DKNY, Elie Tahari, Nautica, Ted Baker,
J. Garcia, Claiborne, Robert Graham, U.S. POLO ASSN., Ike Behar, Axcess, Jones
New York and John Varvatos, which are licensed, as well as various other licensed
and private label brands. We design and market branded dress shirts, neckwear,
sportswear and, to a lesser extent, footwear and other related products. Additionally,
we license our owned brands over a broad range of products. We market our brands
globally at multiple price points and across multiple channels of distribution,
allowing us to provide products to a broad range of consumers, while minimizing
competition among our brands and reducing our reliance on any one demographic
group, merchandise preference, distribution channel or geographic region. During
2012, our directly operated businesses in North America (United States and Canada)
consisted principally of wholesale dress furnishings sales under our owned and
licensed brands; wholesale men’s sportswear sales under our Calvin Klein,
Tommy Hilfiger, Van Heusen, IZOD and ARROW brands; and the operation of retail
stores, principally in outlet malls, under our Calvin Klein, Tommy Hilfiger, Van
Heusen, IZOD and Bass brands. During 2012, our directly operated businesses outside
of North America consisted principally of our Tommy Hilfiger International wholesale
and retail businesses in Europe and Japan and our Calvin Klein dress furnishings
and wholesale Calvin Klein Collection businesses in Europe. Our licensing activities
principally related to the licensing worldwide of our Calvin Klein trademark for
a broad range of lifestyle products and for specific geographic regions.
On February 13, 2013, we acquired Warnaco, which follows our transformational
acquisitions of Calvin Klein in 2003 and Tommy Hilfiger in 2010, and reinforces
our strategy to drive the Calvin Klein brand’s reach globally. Prior to
the acquisition, Warnaco was our largest licensee for Calvin Klein products
and paid us an administrative fee on sales of Calvin Klein underwear, sleepwear
and loungewear, product categories for which it is the beneficial owner of the
Calvin Klein trademark. Royalty and administrative fee payments to us by Warnaco
accounted for approximately 37% of our Calvin Klein royalty, advertising and
other revenue in 2012. By reuniting the Calvin Klein brand under one owner,
we will have complete direct global control of the brand image and commercial
decisions for the two largest Calvin Klein apparel categories - jeans and underwear.
Under a single brand vision, we will be able to better coordinate product design,
merchandising, supply chain, retail distribution and marketing, which we believe
will strengthen the brand’s image, positioning and execution across all
markets. The Warnaco acquisition also takes advantage of our and Warnaco’s
complementary geographic operations. Warnaco’s operations in Asia and
Latin America will enhance our opportunities in these high-growth regions, and
we will have the ability to leverage our expertise and infrastructure in North
America and Europe to enhance the growth and profitability of Warnaco’s
Calvin Klein jeanswear and underwear businesses in these regions. The acquisition
also brings the Speedo, Warner’s and Olga brands into our Heritage Brands
portfolio. Warnaco also previously distributed sportswear and swimwear under
the Chaps brand, but this license was reacquired by Ralph Lauren Corporation
effective contemporaneously with the Warnaco acquisition. With a diversified
brand portfolio and strong operations in every major consumer market around
the world, we believe our business will be better balanced across geographies,
channels of distribution, product categories and price points, and we will have
the opportunity to realize revenue growth and enhanced profitability.
We completed the Tommy Hilfiger acquisition during the second quarter of 2010.
Tommy Hilfiger is a global designer lifestyle brand under which we design, source
and market menswear, womenswear, children’s apparel, denim collections
and other products worldwide. We also license the Tommy Hilfiger brands worldwide
over a broad range of complementary lifestyle products.
We intend to grow our existing Calvin Klein and Tommy Hilfiger businesses,
with particular emphasis on growth in Asia and Latin America, as well as to
increase the revenue and profitability of our Heritage Brands business, through
the execution strategies described below. In addition, we intend to capitalize
on the significant opportunities presented by the Warnaco acquisition, particularly
the opportunities to restore growth and improve profitability in Warnaco’s
Calvin Klein jeanswear and underwear businesses.
Trademarks
We own the Van Heusen, Bass, G.H. Bass & Co., IZOD, ARROW, Eagle and Tommy
Hilfiger brands, as well as related trademarks (e.g., IZOD XFG and the Tommy
Hilfiger flag logo and crest design) and lesser-known names. These trademarks
are registered for use in each of the primary countries where our products are
sold and additional applications for registration of these and other trademarks
are made in jurisdictions to accommodate new marks, uses in additional trademark
classes or additional categories of goods or expansion into new countries.
Calvin Klein beneficially owns the Calvin Klein marks and derivative marks
in all trademark classes and for all product categories within each class, other
than underwear, sleepwear and loungewear in Class 25, which are beneficially
owned by Warnaco. As a result of the Warnaco acquisition, we effectively own
100% of the Calvin Klein Trademark Trust, which is the sole and exclusive title
owner of substantially all registrations of the Calvin Klein trademarks. The
sole purpose of the Trust is to hold these marks. Calvin Klein maintains and
protects the marks on behalf of the Trust pursuant to a servicing agreement.
The Trust licenses to Calvin Klein and Warnaco on an exclusive, irrevocable,
perpetual and royalty-free basis the use of the marks on the goods for which
each has beneficial ownership.
Mr. Calvin Klein retains the right to use his name, on a non-competitive basis,
with respect to his right of publicity, unless those rights are already being
used in the Calvin Klein business. Mr. Klein has also been granted a royalty-free
worldwide right to use the Calvin Klein mark with respect to certain personal
businesses and activities, such as motion picture, television and video businesses,
a book business, writing, speaking and/or teaching engagements, non-commercial
photography, charitable activities and architectural and industrial design projects,
subject to certain limitations designed to protect the image and prestige of
the Calvin Klein brands and to avoid competitive conflicts.
Mr. Tommy Hilfiger is prohibited in perpetuity from using, or authorizing others
to use, the Tommy Hilfiger marks (except for the use by Mr. Hilfiger of his
name personally and in connection with certain specified activities). In addition,
we are prohibited in perpetuity from selling products not ordinarily sold under
the names of prestige designer businesses or prestige global lifestyle brands
without Mr. Hilfiger’s consent, from engaging in new lines of business
materially different from such types of lines of business without Mr. Hilfiger’s
consent, or from disparaging or intentionally tarnishing the Tommy Hilfiger-related
marks or Mr. Hilfiger’s personal name. The products that we are prohibited
from selling include cigarettes, dog food and alcohol. Certain lines of business
will not be considered “new lines of business” for purposes of the
agreement, including apparel, fashion, eyewear, accessories, housewares, home
and bedding products, personal care products, footwear, watches and leather
goods.
Our trademarks are the subject of registrations and pending applications throughout
the world for use on a variety of apparel, footwear and related products, and
we continue to expand our worldwide usage and registration of new and related
trademarks. In general, trademarks remain valid and enforceable as long as the
marks continue to be used in connection with the products and services with
which they are identified and, as to registered tradenames, the required registration
renewals are filed. In markets outside of the United States, particularly those
where products bearing any of our brands are not sold by us or any of our licensees
or other authorized users, our rights to the use of trademarks may not be clearly
established.
Our trademarks and other intellectual property rights are valuable assets and
we vigorously seek to protect them on a worldwide basis against infringement.
We are susceptible to others imitating our products and infringing on our intellectual
property rights. This is especially the case with respect to the Calvin Klein
and Tommy Hilfiger brands, as the Calvin Klein and Tommy Hilfiger brands enjoy
significant worldwide consumer recognition and their generally higher pricing
provides significant opportunity and incentive for counterfeiters and infringers.
We have a broad, proactive enforcement program that we believe has been generally
effective in controlling the sale of counterfeit products in the United States
and in major markets abroad.
Calvin Klein Business
The tiered-brand strategy we created for the Calvin Klein brands establishes
a strategic brand architecture to guide the global brand growth and development
of all three brand tiers by differentiating each of the Calvin Klein brands
with distinct marketing identities, positioning and channels. Additionally,
branding product across three tiers allows flexibility from market to market
to build businesses that address the differences between markets. After giving
effect to the Warnaco acquisition, we have approximately 50 license arrangements
with third parties across the three Calvin Klein brands. These arrangements
grant rights to market a broad range of products worldwide or in specified countries
and/or to open retail stores in countries outside of the United States. The
Calvin Klein brands are as follows:
• Calvin Klein Collection — our “halo” brand under which
men’s and women’s high-end collection apparel and accessories are
sold both in the United States and overseas.
• ck Calvin Klein — our bridge brand, under which apparel and accessories
are sold through specialty and department stores, as well as freestanding ck
Calvin Klein stores in Europe and Asia.
• Calvin Klein — our white label “better” brand under
which we sell men’s sportswear and license various other lines (including
men’s and women’s footwear, handbags, women’s sportswear,
dresses, men’s and women’s outerwear, accessories, and fragrance)
and our ck one lifestyle brand.
Warnaco is our largest Calvin Klein licensee and also beneficially owns the
Calvin Klein trademark for underwear, sleepwear and loungewear. Acquiring Warnaco
presents us with additional opportunities to grow our Calvin Klein business.
We believe that additional investments above our initial expectations are required
to achieve our goal of rebuilding Warnaco’s global Calvin Klein jeanswear
and underwear businesses. Therefore, we see 2013 as a year of investment and
transition. These investments include (i) enhancing the existing infrastructure
(systems and supply chain), (ii) upgrading Calvin Klein jeanswear product design
and quality with an emphasis on geographic differentiation, (iii) investing
in in-store marketing and the in-store customer experience, (iv) adding appropriate
talent to fill key design, marketing and merchandising positions, (v) rationalizing
global excess inventory levels, and (vi) reducing and restructuring the off-price
and club sales distribution in Europe and North America. Our key strategies
for the Warnaco Calvin Klein businesses include the following:
Improving execution for jeans and underwear and the “Calvin Klein”
brand globally. Since we acquired Calvin Klein in 2003, global retail sales
have grown at a compounded annual rate of approximately 12%. Product innovation,
category extensions and a targeted global brand marketing message are key drivers
for the Calvin Klein brands. By acquiring Warnaco, we have gained full control
of the brand image and commercial decisions for the two largest apparel categories
of Calvin Klein— jeans and underwear — for the first time. Our strategies
to increase demand for Calvin Klein Jeans and Calvin Klein Underwear products
include:
• Enhancing jeanswear design and improving coordination between design
and in-country teams to address local market preferences;
• Aligning merchandise and presentation to be consistent with the global
brand positioning of Calvin Klein;
• Optimizing product assortment across categories, channels and regions;
• Transitioning the Warnaco businesses in North America and Europe to
our existing processes, supply chain and systems to enhance fulfillment of wholesale
orders; and
• Creating a cohesive and consistent single brand message across categories,
including sportswear, jeanswear, underwear and accessories.
Rebalancing distribution and improving profitability in North America. In North
America, we intend to leverage our existing infrastructure and expertise to
improve profitability of Warnaco’s Calvin Klein jeanswear and underwear
businesses by:
• Rebalancing the mix of distribution among the full price, off-price
and club channels;
• Leveraging our North American retail stores to better showcase jeans
and underwear; and
• Expanding category breadth, where appropriate.
Leveraging our European operating platform and management team. We plan to
integrate Warnaco’s European Calvin Klein businesses into our existing
Tommy Hilfiger operating platform and leverage our systems and the expertise
of our European management team to enhance execution and profitability of the
Warnaco businesses, in addition to managing the Calvin Klein “bridge”
business in Europe that we were to take over in 2013, by employing the following
strategies:
• Streamlining the cost structure within the existing jeanswear and underwear
infrastructure in Europe;
• Optimizing distribution mix by reducing distribution in the off-price
channel;
• Utilizing the Tommy Hilfiger matrix model to improve product placement
and execution at wholesale and retail on a country/regional basis;
• Improving the sales productivity by promoting the Calvin Klein lifestyle
across Europe through more effective merchandising and marketing; and
• Coordinating the European jeanswear and underwear strategy with the
re-launch of the bridge wholesale business.
Continuing expansion in emerging markets. The Warnaco acquisition provides us
with an established presence and local operations in high-growth emerging markets
in Asia and Latin America, where we were less developed. We plan to continue
growing in these markets by:
• Continuing to grow retail square footage in China and Brazil;
• Improving operating margins through improved execution and leveraging
of expenses; and
• Evaluating opportunities to leverage existing capabilities to introduce
and/or accelerate growth of additional categories and brands.
Realizing identified cost synergy opportunities. We believe the Warnaco acquisition
will create significant opportunities to reduce overhead and administrative
expenses. We currently expect to achieve costs savings through synergies, principally
with respect to certain corporate functions and duplicative brand management
functions in North America and Europe.
Tommy Hilfiger Business
We have significantly grown the Tommy Hilfiger business since we acquired it
in 2010. Our strategies for continuing to grow revenues and improve profitability
include the following:
Continue to expand the European business. We believe that there is significant
potential for further expansion in Europe. Among other initiatives, our current
strategies for the European market include:
• Growing the business in product categories that we believe are currently
underdeveloped in Europe, such as pants, outerwear, underwear, accessories and
womenswear;
• Expanding the bags and small leather goods business, which we acquired
from our former licensee in 2010;
• Developing a Tommy Hilfiger tailored division, a business we acquired
from a licensee at the end of 2012;
• Concentrating on the development of the business in underpenetrated
markets where we believe there is growth potential, such as France, the United
Kingdom, Scandinavia and Central and Eastern Europe (including Russia), through
both our own retail expansion and increased wholesale sales, which we intend
to support with increased advertising and marketing activities; and
• Increasing Tommy Hilfiger’s presence in Europe through the opening
of additional specialty and outlet retail stores (both by us and retail partners),
including brand-promoting locations, such as those opened on Regent Street,
London in 2012, Brompton Road, London in 2011, and the Champs-Élysées,
Paris in 2010, and anchor stores in key shopping destinations worldwide, such
as those opened in Frankfurt, Hamburg and Vienna since our acquisition of Tommy
Hilfiger.
Grow and continue to strengthen the North American business. Our overarching
goal in North America is to drive brand elevation in every channel and category
in which we operate, while maximizing our current store portfolio and pursuing
opportunities for growth. We intend to achieve growth in the North American
business by:
• Enhancing our strategic alliance with Macy’s by leveraging our
logistics capabilities and “preferred vendor” relationship with
Macy’s, offering expanded merchandise assortments, adding and enhancing
shop-in-shops in high-volume Macy’s stores, featuring Tommy Hilfiger products
in Macy’s marketing campaigns and concentrating on brand enhancement and
elevation through strategic marketing and investments in partnership with Macy’s;
• Expanding product offerings by Tommy Hilfiger and its licensees in both
the retail and wholesale channels;
• Increasing Tommy Hilfiger’s overall presence and brand positioning
through the opening of a limited number of specialty stores, as well as making
focused capital improvements in our existing retail stores to improve image,
presentation and productivity, and adding square footage in existing locations
and opening new outlet stores, where appropriate;
• Elevating the product presentation and improving the visibility and
exposure of the Tommy Hilfiger brand at The Bay in Canada;
• Investing in advertising and marketing initiatives, such as our well-received
“The Hilfigers” marketing campaign, through TV, print and digital
media, with an emphasis on growing our customer database and expanding our Hispanic
marketing campaign; and
• Enhancing our merchandising focus by delivering the right product regionally
and offering an engaging store experience.
Expansion of opportunities outside of Europe and North America. Our opportunities
in the rest of the world can be achieved by:
• Leveraging Warnaco’s operational experience in Asia and Latin
America to facilitate the growth of the Tommy Hilfiger business in these regions
over time;
• Capitalizing on opportunities to grow the Tommy Hilfiger business by
repositioning the Tommy Hilfiger brand image to be more consistent throughout
the world, and elevating the brand’s visibility and positioning, such
as through the opening of our first Asian flagship store on Omotesando in Tokyo
in April 2012, and introducing regional sizing, enhancing product offerings
and adopting other initiatives targeted at local market needs;
• Continuing the development of our joint ventures in China (operations
started in August 2011), India (acquired interest in September 2011) and Brazil
(operations started in January 2013) by expanding the brand’s retail footprint,
enhancing product and increasing price points; and
• Continuing a balanced strategy of acquiring licensees, distributors
and franchisees where we believe we can achieve greater scale and success compared
to our partners, while at the same time licensing businesses for product categories
and markets when we believe experienced and/or local partners provide the best
opportunity for success.
Further improve the e-commerce channel. We intend to seek to improve the online
capabilities and functions of the Tommy Hilfiger European and North American
e-commerce sites to improve the shopping experience and increase sales.
Heritage Brands Business
Our Heritage Brands business remains an important part of our overall business
mix. We intend to integrate Warnaco’s Speedo, Warner’s and Olga
businesses into our Heritage Brands business. Our key strategies for the Heritage
Brands business include the following:
Continue to strengthen the competitive position and image of our brand portfolio.
We intend for each of our heritage brands to be a leader in its respective market
segment, with strong consumer awareness and loyalty. We believe that our heritage
brands are successful because we have positioned each one to target distinct
consumer demographics and tastes. We will continue to design and market our
branded products to complement each other, satisfy lifestyle needs, emphasize
product features important to our target consumers and increase consumer loyalty.
We will seek to increase our market share in our businesses by expanding our
presence through product extensions and increased floor space. We are also committed
to investing in our brands through advertising, sponsorships and other means
to maintain strong customer recognition.
Pursue international growth. We intend to expand the international distribution
of our heritage brands, including through licensing. We have approximately 40
license agreements, covering approximately 145 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 believe that
our strong brand portfolio and broad product offerings enable us to seek additional
growth opportunities in geographic areas where we are underpenetrated, such
as Europe and Asia.
In order to implement the strategies for the Heritage Brands business described
above, we have a number of initiatives in place, including the following:
Maintain and protect our top-performing dress furnishings divisions. Our dress
furnishings divisions continue to grow through cross-channel expansion and market
share gains. We are focused on elevating the in-store experience in top doors
and identifying brand and channel opportunities for additional growth.
Exit underperforming businesses. We successfully exited our Timberland and Izod
women’s wholesale sportswear businesses in 2012 and continue to evaluate
our businesses for productivity and profitability.
Targeting marketing spend. We target our marketing expenditures on initiatives
that we believe will reflect each brand’s core image, resonate with the
target consumer and enhance the in-store shopping experience or encourage sales.
Focus on turnaround initiatives where appropriate. We are focused on revitalizing
the Izod men’s business at wholesale (including at J.C. Penney through
the new full lifestyle presentation, upgraded product and complete shop-in-shop
experience), as well as right-sizing the Heritage Brand retail divisions’
real estate portfolio, while elevating the in-store experience and making strategic
product investments to refocus on the brand’s heritage and value proposition.
Other Strategic Opportunities
We intend to continue to build our brand portfolio through acquisition and licensing
opportunities. 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.
Seasonality
Our business generally follows a seasonal pattern. Our wholesale businesses
tend to generate higher levels of sales in the first and third quarters, while
our retail businesses tend to generate higher levels of sales in the fourth
quarter. Royalty, advertising and other revenue tends to be earned somewhat
evenly throughout the year, although the third quarter has the highest level
of royalty revenue due to higher sales by licensees in advance of the holiday
selling season. We expect this seasonal pattern will generally continue.
Design
Our businesses depend on our ability to stimulate and respond to consumer tastes
and demands, as well as on our ability to remain competitive in the areas of
quality and price.
A significant factor in the continued strength of our brands is our in-house
design teams. We form separate teams of designers and merchandisers for each
of our brands, creating a structure that focuses on the special qualities and
identity of each brand. These designers and merchandisers consider consumer
taste and lifestyle and trends when creating a brand or product plan for a particular
season. The process from initial design to finished product varies greatly but
generally spans six to ten months prior to each retail selling season. Our product
lines are developed primarily for two major selling seasons, Spring and Fall.
However, certain of our product lines offer more frequent introductions of new
merchandise.
Calvin Klein has a team of senior design directors who share a vision for the
Calvin Klein brands and who each lead a separate design team. These teams control
all design operations and product development for most licensees and other strategic
partners.
Tommy Hilfiger seeks to reinforce the premium positioning of the Tommy Hilfiger
brands by taking a coordinated and consistent worldwide approach to brand management.
Products are then adapted and executed on a regional basis in order to adjust
for local or regional sizing, fits, weather, trends and demand. Tommy Hilfiger
management believes that regional execution and adaptation helps it anticipate,
identify and respond more readily to changing consumer demand, fashion trends
and local tastes or preferences. It also reduces the importance of any one collection
and enables the brand to appeal to a wider range of customers.
Contingent Purchase Price Payments
In connection with our acquisition of Calvin Klein, we are obligated to pay
Mr. Calvin Klein contingent purchase price payments based on a percentage of
total worldwide net sales of products bearing any of the Calvin Klein brands
with respect to sales made through February 12, 2018. Our obligation to make
contingent purchase price payments to Mr. Klein is guaranteed by our domestic
Calvin Klein subsidiaries and is secured by a pledge of all of the equity interests
in our Calvin Klein subsidiaries and a first priority lien on substantially
all of our domestic Calvin Klein subsidiaries’ assets. Events of default
under the agreements governing the collateral for our contingent payment obligations
to Mr. Klein include, but are not limited to (1) our failure to make payments
to Mr. Klein when due, (2) covenant defaults, (3) cross-defaults to other indebtedness
in excess of an agreed amount, (4) events of bankruptcy, (5) monetary judgment
defaults and (6) a change of control, including the sale of any portion of the
equity interests in our Calvin Klein subsidiaries. An event of default under
those agreements would permit Mr. Klein to foreclose on his security interest
in the collateral. In addition, if we fail to pay Mr. Klein a contingent purchase
price payment when due and such failure to pay continues for 60 days or more
after a final judgment by a court is rendered relating to our failure to pay,
Mr. Klein will no longer be restricted from competing with us as he otherwise
would be under the non-competition provisions contained in the purchase agreement
related to our acquisition of Calvin Klein, although he would still not be able
to use any of the Calvin Klein brands or any similar trademark in any competing
business.
Competition
The apparel industry is competitive as a result of its fashion orientation,
mix of large and small producers, the flow of domestic and imported merchandise
and the wide diversity of retailing methods. We compete with numerous domestic
and foreign designers, brands, manufacturers and retailers of apparel, accessories
and footwear.
We compete primarily on the basis of style, quality, price and service. Our
business depends on our ability to stimulate consumer tastes and demands, as
well as on our ability to remain competitive in these areas. We believe we are
well-positioned to compete in the apparel industry. Our diversified portfolio
of brands and products and our use of multiple channels of distribution have
allowed us to develop a business that produces results which are not dependent
on any one demographic group, merchandise preference, distribution channel or
geographic region. We have developed a portfolio of brands that appeal to a
broad spectrum of consumers. Our owned brands have long histories and enjoy
high recognition within their respective consumer segments. We develop our owned
and licensed brands to complement each other and to generate strong consumer
loyalty. The Calvin Klein and Tommy Hilfiger brands generally provide us with
the opportunity to develop businesses that target different consumer groups
at higher price points and in higher-end distribution channels than our heritage
brands, as well as with significant global opportunities due to the worldwide
recognition of the brands.