Ten­sions Flare Be­tween CK, Raf Si­mons

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re­turns-ori­ented com­mer­cial ap­proach to this im­por­tant busi­ness,” Chirico said. Through­out the hour­long earn­ings call, Si­mons' name didn't come up once.

In ad­di­tion, Chirico said he would shift the focus of the brand's mar­ket­ing cam­paigns, as they have been too skewed to­ward the higher-end 205 line and the fash­ion-for­ward con­sumer. Klein now plans to take a dig­i­tal-first ap­proach to mar­ket­ing. For hol­i­day 2018, it is shift­ing more of its me­dia spend from

“halo mar­ket­ing” to more com­mer­cial, dig­i­tal and so­cial me­dia advertising — a strat­egy that had been some­what fol­lowed prior to Si­mons' ar­rival. The com­pany plans to in­crease fre­quency on so­cial plat­forms, like In­sta­gram, use mi­cro in­flu­encers and host lo­cal ac­ti­va­tions to drive mean­ing­ful en­gage­ment, es­pe­cially with Millennials and Gen Z, Chirico said.

This sug­gests a trim­ming of Si­mons' con­trol over the brand's mar­ket­ing and a strength­en­ing of the hand of Klein's chief mar­ket­ing of­fi­cer Marie Gulin-Merle, who joined from L'Oréal in Fe­bru­ary.

In elab­o­rat­ing on the prob­lems the busi­ness is fac­ing, Chirico said the 205W39NYC col­lec­tion had com­mer­cial is­sues, as did Calvin Klein Jeans, which was re­designed as a more el­e­vated prod­uct at price points that are some 20 to 25 per­cent higher. “The fall jeans re­launch didn't sell through as planned,” Chirico told an­a­lysts. He said he thought the prod­uct at­tributes would war­rant the higher prices, but the com­pany wasn't get­ting the weekly sell­throughs it had an­tic­i­pated. “It was too fash­ion-for­ward and price po­si­tion­ing was too high,” he said. The com­pany is tak­ing the mark­downs on the floor and pro­vid­ing for mark­downs for the bal­ance of 2018 “to get the pain be­hind us.”

Chirico said that by the end of Jan­uary, “our in­ven­to­ries will be in the right po­si­tion and priced ap­pro­pri­ately on the floor, that for jeans, there will not be an is­sue of car­ry­over in­ven­tory on the floor from a mar­gin point of view.”

He did note that Calvin Klein busi­nesses from un­der­wear to men's and women's ap­parel, tai­lored cloth­ing, footwear and ac­ces­sories were per­form­ing very well, and global brand aware­ness “con­tin­ues to be ex­cep­tional.” But he said the com­pany's track­ing stud­ies in­di­cate there's op­por­tu­nity in terms of Klein's con­sid­er­a­tion to pur­chase rank­ing, par­tic­u­larly for its col­lec­tion and jeans busi­nesses, “which sug­gest that we have work to do on the prod­uct and mar­ket­ing side of the busi­ness.”

Calvin Klein Jeans rep­re­sents about 15 per­cent or 16 per­cent of the Klein brand's to­tal re­tail sales glob­ally. But for the

Calvin Klein busi­nesses that PVH op­er­ates di­rectly, it rep­re­sents just over 30 per­cent of the busi­ness, Chirico said. The ceo pointed out that the Calvin Klein col­lec­tion at G-III has been very strong and has had “out­sized growth.”

Mor­ris Gold­farb, ceo of G-III, which has the Calvin Klein sports­wear li­cense for North Amer­ica, said Fri­day that his Calvin Klein busi­ness “has never been better.” The busi­ness, which has healthy dis­tri­bu­tion in ma­jor de­part­ment stores, is re­port­edly on track to gen­er­ate about $1.2 bil­lion in whole­sale vol­ume by year-end, ac­cord­ing to in­dus­try sources. Gold­farb said Si­mons is not in­volved in his Calvin Klein busi­ness. “We don't need the halo. It [Calvin Klein] is our big­gest tro­phy piece, and it con­tin­ues to be that way,” said Gold­farb, not­ing it's the strong­est piece of the G-III port­fo­lio.

PVH projects Calvin Klein rev­enues to grow 7 per­cent for the year.

The dis­con­nect be­tween spend­ing and sales was clear to see in Calvin Klein's num­bers for the third quar­ter. Earn­ings be­fore in­ter­est and taxes de­creased to $121 mil­lion from $142 mil­lion a year ear­lier, which the com­pany said was “pri­mar­ily at­trib­ut­able to an ap­prox­i­mately $10 mil­lion in­crease in creative and mar­ket­ing ex­pen­di­tures com­pared to the prior-year pe­riod.”

The firm also cited gross mar­gin pres­sure, prin­ci­pally due to the greater pro­mo­tional sell­ing in the jeans busi­ness, par­tic­u­larly in North Amer­ica, as the com­pany moved to ad­just in­ven­to­ries.

As for re­tail per­for­mance, sources close to the com­pany claimed that the 205W39NYC col­lec­tion was whole­saled at too many stores and sell-throughs have be­come a con­cern to man­age­ment. Many of the items are marked down on re­tail web sites. Stores that carry the col­lec­tion in­clude Saks Fifth Avenue, Match­es­fash­ion. com, Neiman Mar­cus, Nord­strom, Dover Street Mar­ket and Bergdorf Good­man.

Ken Down­ing, se­nior vice pres­i­dent, fash­ion director of Neiman's, has had suc­cess with the col­lec­tion.

“Cus­tomers have been very en­thu­si­as­tic about the leop­ard pieces this sea­son — the over­size leop­ard hair calf printed coat and the midi duster from fall run­way. The full, cir­cle skirt and leop­ard match­ing shirt have been pop­u­lar as well. The check cir­cle skirt has also been well re­ceived by cus­tomers,” Down­ing said. He also noted that the plaid Pendle­ton fringe trim coat has sold well. “The Warhol white and sil­ver dress, and jean have been items cus­tomers have em­braced,” he said.

But while Calvin Klein vastly ex­panded its 205W39NYC dis­tri­bu­tion, it didn't ex­pand its own col­lec­tion stores be­yond the sole one on Madi­son Avenue. As part of his man­date, Si­mons set out to redo that store in a bright yellow in­te­rior with scaf­fold­ing — tem­po­rar­ily.

The trou­bles at Calvin Klein also are in stark con­trast to the per­for­mance of PVH's other mar­quee brand, Tommy Hil­figer, which de­liv­ered a very strong quar­ter. The brand con­tin­ues to ex­pe­ri­ence global mo­men­tum, with strength across all prod­uct lines and chan­nels of dis­tri­bu­tion, Chirico said. Rev­enues at Hil­figer grew 11 per­cent and earn­ings rose 16 per­cent, pri­mar­ily driven by strong rev­enue growth and ex­pense lever­age. In­ter­na­tional rev­enues in­creased 16 per­cent in the quar­ter and comps rose 13 per­cent.

As re­ported, PVH's overall rev­enues in­creased 2 per­cent to $963 mil­lion in the third quar­ter. Within that, Calvin Klein In­ter­na­tional rev­enue rose 3 per­cent, while North Amer­ica rev­enue edged up just 1 per­cent to $481 mil­lion, as growth in the whole­sale busi­ness was par­tially off­set by a 2 per­cent com­pa­ra­ble-store sales de­cline.

PVH's stock price took a dip right af­ter it re­leased re­sults Thurs­day af­ter­noon, but inched up 0.7 per­cent to $110.51 on Fri­day.

While Chirico was blunt about Calvin's per­for­mance, an­a­lysts were gen­er­ally bullish that PVH could turn the brand's for­tunes around.

Alex Arnold of Odeon Cap­i­tal said, “They've rec­og­nized and ac­knowl­edged where they have to make changes and they're be­ing very proac­tive about it.”

Michael Bin­netti, a re­tail an­a­lyst at

Credit Suisse, added, “I think the kind of prod­uct that they put out that didn't work seems like the kind of prod­uct that he [Si­mons] is re­ally en­thu­si­as­tic about. It might be a lit­tle bit out there and a lit­tle bit too fash­ion for­ward for the true core Calvin Klein pre­mium cus­tomer.”

He added that if the de­signer is un­will­ing to change some of the prod­ucts, “he might be better off else­where.”

Bin­netti added, “If it was an­other com­pany that wasn't as good at this, I'd be more wor­ried. But I give them the ben­e­fit of the doubt that they'll be able to fix this.”

When asked if he thinks Si­mons will stay on af­ter Au­gust, Steven Marotta, an­a­lyst at CL King & As­so­ci­ates, said he had “no rea­son to be­lieve oth­er­wise.” ■

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