Wal-Mart Purchase of Hilfiger Discounted
By George Anderson
The rumor that Wal-Mart had approached one of the banks representing Tommy Hilfiger Corp. to possibly acquire the apparel manufacturer was shot down by many analysts almost as quickly as it took off.
The initial report that Wal-Mart was interested in Hilfiger came from Women’s Wear Daily.
The rationale for a potential Wal-Mart bid was that the chain is looking to upgrade its image and entice consumers to give its fashion department a chance, many of whom shop in the store for everyday items but go elsewhere to buy clothes.
The company has been trying to improve the stature of its apparel departments with resets that make the sections easier to shop and highlight the chain’s George line of designer clothing, according to Bloomberg News.
Trying to develop a hipper reputation for clothing, said Patricia Edwards of Wentworth, Hauser & Violich, will not include a purchase of Hilfiger. The chain, she said, “has been very clear in the past that they don’t want to pay up to have a designer name.”
Ms. Edwards also doesn’t see a fit for Hilfiger clothes in Wal-Mart. “To skip straight over moderate and go directly to the low end consumer doesn’t make sense,” she said. “It would be a tough sell for Kohl’s to get him, let alone a Wal-Mart.”
Ben Strom, an analyst at Variant Research, said the Hilfiger brand has not done well in recent years but that a deal with Wal-Mart doesn’t make sense because outlets that currently carry the brand would likely drop it should a deal with the retailer take place.
Other potential suitors for Hilfiger, as reported in WWD and elsewhere, include the investment firm Apax Partners.
Jones Apparel Group, Perry Ellis International, Li & Fung USA, Kellwood Co. and Liz Claiborne have reportedly been contacted by Hilfiger’s bankers and have taken a pass.
Moderator’s Comment: Do you see Hilfiger making sense as an acquisition for Wal-Mart or another retailer? What does Wal-Mart need to do to create a hipper
image for its fashions?
To the poll question, we said there was a zero percent chance that Wal-Mart would acquire Hilfiger. We explained it all in an interview with MarketWatch
Radio yesterday. For those so inclined, you can hear it by
clicking here. –
George Anderson – Moderator
I can understand Wal-Mart wanting to license a lower priced version of the Hilfiger line. But not own an apparel company. Retail is tough enough without getting involved in the vagaries of the fashion business and import business.
This partnership makes sense. Wal-Mart obviously wants – and needs – to scale-up their apparel offering and the Hilfiger brand would give them instant credibility. On the other hand, Hilfiger dept. store business is awful, has been worsening for years, and has inferior senior management leadership. (I’m not assuming, as I’m a former market rep. in men’s sportswear collections for the nation’s largest department store chain and I’ve experienced it first-hand.) Why not try something extreme? Their business will not get better where it is now, especially with Macy’s going the other direction in brands (Lacoste, Kors, Ben Sherman, growing Polo, etc. in men’s alone).
Hey, if Mossimo went from the runways of Paris to Target, why shouldn’t Hilfiger try Wal-Mart? If the company wants to be profitable – and isn’t that every company’s goal? – they’re better off partnering with the largest company in the entire world. Humility – not pride – is pretty cool!
TH is not a strong brand, but WM doesn’t need to buy a strong brand. What they need is a brand with credibility, and then they need to reinforce that credibility. They could try to rebuild a brand’s credibility, but that might be just as much work as starting one from scratch. The deal-breaker for WM and TH might simply be that TH’s price might be too high for the value WM will receive. Whether WM gets TH or not, the difficulty will be WM’s management of a fashion brand. Will they know when to keep hands off and when to intervene? Will they give it the time it needs to build? Would they be better off subleasing some space (on a test basis in a few locations) to H&M and/or other people with a demonstrated record of retail success in low-priced popular clothing? When Sears bought Lands’ End, it didn’t seem to help at all, so just buying a brand isn’t good enough to insure success.
Sounds like Hilfiger is convincingly disinterested in a WM hookup. However, as with the dreaded ownership votes of confidence for unsuccessful coaches in professional sports – followed quickly by firings – perhaps the coquettish Hilfiger doth protest too much. Are they squirming around for a better deal so they can walk away with beaucoup (boo coo for those in Rio Linda) monetary units and forget their initial mission (which is what I would do – toes in the sand)?
Hilfiger successfully positioned itself as a mid-high-end supplier/designer of trendy threads for urban youth. A narrow but lucrative niche. WM’s bidness is largely suburban and rural. Does this work? Mebbe, mebbenot. Martha Stewart works fine at the flailing/failing Kmart, but her appeal is much broader than Hilfiger’s. If Tommy finally agrees to sell, Target and Sears should be their least-preferable, acceptable purchasers. To preserve and protect the brand they’ve worked so hard to establish, they need to aim for a retailer with a better urban image if they decide to sell.
I think it would be the kiss of death to Hilfiger as a brand. That is, if it isn’t headed in that direction already.
Is Tommy Hilfiger up for sale?
Is Wal-Mart on a trading-up trail?
Such a weird mating makes little sense.
Wal-Mart hardly needs this consequence.
Just look at the Kmart competition
Featuring Ms. Martha’s own rendition.
As good as Martha’s wide assortments are
They can’t compensate for the Kmart scar.
“How,” I cry, “Will Tommy improve Old Roy?”
Or are Tommy and his bankers just being coy?
Is Tommy now a transfixed entertainer
Who thinks he’ll be on a TV retainer.
But there’s money in whatever occurs.
The bankers get rich, the rest is a blur.
Can’t believe Wal-Mart needs this provident
So I must wonder what’s the intendment?
Will WM make this acquisition? Scenarios exist where it’s a possibility. What if WM was trying to acquire a fashion capability….forget the Hilfiger brand equity. What about the people assets in the org? Maybe?
Probably not. Probably a dumb rumor. But then again, we outsiders seldom know as much as we think we do.
As to TH being a good acquisition for any retailer. Hmmm. Why? Other than providing a lifestyle retailer with a captive brand, what would the purpose be? Let’s speculate. Take an alternative product retailer…say…Renovation Hardware…and say they wanted to add apparel and accessories. Would TH as a captive brand make sense? Maybe.
Bottom line, the purchase price inflation to account for the brand equity is probably not worth the somewhat convoluted value any retailer might see in TH.
From a strategic position, it makes sense to acquire vs.
start from ground floor up. And WM may need a couple more men’s and
women’s brands. Such Brands would inspire the mid to upscale
shopper, not in WM’s shopping corral.
However, the business of upgrading and being more upscale in
brand fashions needs a culture and proper retail environment
to flourish. WM has neither!!!!!!! Could you see the greeter of older years responding to a
fashion oriented young adult with, ‘Who Is Tommy Hilger?’ Doesn’t fit or work with the present WM outlet. Hmmmmmmmmm
Hilfiger seems to have degenerated into the purveyor of choice for “gang colors” in my neck of the woods. I think they would be smart to sell before their marketing plan totally ruins any image they have left. I don’t think that Wal-Mart could possible do any more damage to the Hilfiger brand than they are doing to themselves.