Aug 8, 2008

Business - CK,Renaissance in the making

Through the 80s, Calvin Klein was a fashion house poised for stunning growth. Seen as an understated modern brand, from its sell-out jeans, underwear and fragrance lines, it embodied the spirit of the youth of the moment. Nothing defined its successes better than the fact that at the pinnacle of its success, CK One sold 20 bottles a minute in the 90s.

As it celebrates its fortieth year in existence and now without its namesake founder involved, the brand strives to keep its product fresh. When quizzed on the challenges that lie ahead, in an interview with CD , Calvin Klein president Tom Murry pooh-poohs the idea that the brand has little relevance to the current generation . In his guarded but assertive style he underscores the longevity of the brand’s “contemporary take” and says a renaissance is in the making. Now twelve years into his tenure at Calvin Klein, Murry claims the company is seeing its fastest growth rates yet. The brand may have been in India only a year, but Murry is sanguine about a profitable future here.

In the mid-80s Calvin Klein was a strong fashion house. Where is Calvin Klein positioned in the luxury market today?

Actually, so many people perceive us as a luxury company but in fact, we have a small but growing luxury component ($200 million). It’s surprising to us, but we’re not complaining. Today, Calvin Klein is a global lifestyle brand with sales of $6 billion. The brand is split into three tiers: Calvin Klein Collection- the black label which is top end designer clothing, ck Calvin Klein- the bridge collection and Calvin Klein- the white label of sportswear, which is our core business.

We continue to see high single-digit to low double-digit growth and we’re constantly adding more free standing stores and points of sale. Business is actually growing much faster than it did in the 80s, driven largely by the emerging economies. Our business in America is solid but the growth in Asian countries and Russia is meteoric.

You used to be known as masters of minimalism. Is that a tag that still sets you apart?

Minimalism definitely still plays a part in our designs. That said, you have to constantly evolve and re-invent yourself. If you look at any of our clothes today you can see that we’ve evolved. The clothes are not as clean and simple but are still contemporary.

I would actually say the essence of the brand over the last 30 years has been tasteful and modern. We’re quite proud that we’ve never been overly trendy. That’s one of the things we’ll be celebrating this year on our 40th anniversary — longevity.

Diffusion has become the luxury market’s cash cow. Mass marketing has threatened Calvin Klein’s brand image in the past. How do you make sure it doesn’t happen to you again?

We’ve done a lot of research on this and we find that consumers who walk into a store and buy the ck bridge line and those who buy the runway collection are different. They are not confused about which Calvin Klein product to buy. They are saying “I like this product and I trust this brand”.

Another big part of it is about maintaining brand image and brand awareness. It’s important that the consumer has a certain quality of experience whether it is for the white label or black.

During the designer jeans frenzy of the 80s, Calvin Klein jeans were the ultimate in denim luxury. Today the premium denim market is all about the niche brands, with ‘it’ brands changing every season. What are you doing to keep up?

Actually, business has never been better. CK jeans is doing well over $1 billion in retail and we hope to continue to have low double-digit growth for the foreseeable future. We’re happy not to be seen as overly trendy because fashion forward denim brands come and go. We plan to be around for the next 40 years.

Who is your target audience today?

Our research shows that we still have a young customer base, but we also have an older customer base that started out by buying CK underwear and then graduated to sportswear and now perhaps the black collection. Many of our consumers come to us from underwear because that is the most a c c e p t a b l e price point. That works very well for us. The trick to stay relevant is to keep our advertising fresh and our product categories current.

Calvin Klein is known to be one of the most extensively licensed luxury brands. Doesn’t such extensive licensing damage the brand name?

Business is good and our return on investment is high so we have no short term plans to change our licensing model. You have to just make sure you have very strong partners and excellent controls, which we have developed over the years. Having said, that for the first time since 2001, we own our luxury men’s and women’s collection and we are aggressively growing that business through chain stores and multi-brand stores.

You chose to be acquired by Phillips-Van Heusen even though in the late-90 s you had luxury goods companies LVMH and PPR at your door. What has been PVH’s value addition to the business?

PVH is one of the world’s largest apparel companies and it has given us a great corporate platform to grow from $3 billion to $6 billion in less than five years. Calvin Klein was always an incredible business and brand but like most entrepreneur-led brands, you need to incorporate a corporate structure if you want to grow.

You seem to be at it again with sexually evocative advertising. Didn’t your recent underwear advertisement featuring actress Eva Mendes face a ban in some countries?

We always push the envelope with advertising. That’s who we are. In certain countries we have to modify what we do. When we shoot an ad campaign, we do a large number of shots so that we have the flexibility region-by-region and country-by-country to run what we feel is appropriate. Advertising is a powerful tool for us to maintain a certain brand image. We spend over $250 million on advertising and marketing and our campaigns have been very consistent over the past 25 years .

What is your outlook for Calvin Klein in India? Why have you not opted for the permitted 51% foreign direct investment route?

We see India as a very important growth opportunity for us long-term. Every business decision we make is made thinking 5-10 years hence. We’re very impressed by the experience of our partners in India, the Murjani group. So, there’s no question of a direct investment for the time being.

There are definitely growing pains around getting stores located and built, so there’s a level of frustration that we can’t move faster, but all those issues are normal in an emerging market. What’s particularly exciting for us is that according to the latest Nielsen Global Luxury Brands study, the top brand that Indian consumers spend on is Calvin Klein and that if money were no object Calvin Klein would be the second most coveted brand among consumers in India.

Are you planning to do anything about the problem of counterfeit goods in India?

The problem of counterfeit is nothing new for us. We’ve been doing business in China for eight years now. We have a legal network around the world that deals with counterfeit goods and knockoffs, and globally we work with the Mckinsey group and with local governments.

We really have a comprehensive strategy to combat counterfeits, although we realise it will never be 100% controlled. Our company does as good a job as any.

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