The consultancies/judges – Boston Consulting Group, Deloitte, Booz Allen Hamilton
The process – Teams of 3 students; 5 days to analyze, strategize, and solve the case; 3 days to prepare for the competition; 20 minutes to present
The prompt – Transforming Tommy Hilfiger, Harvard Business School Case
It was February 2005, and Fred Gehring and Ludo Onnink—CEO and CFO, respectively, of Tommy Hilfiger Europe (the European subsidiary of Tommy Hilfiger)—had just left the conference room in Amsterdam after hearing Tommy Hilfiger’s quarterly results. For the fifth consecutive year, the results in the U.S. were disappointing; sales had declined by 11% on average over this period, dropping from $1.9 billion in 2000 to $1.1 billion in 2005. In Europe, however, the firm’s performance continued to be strong with sales growing at more than 40% a year, from $82 million in 2000 to $428 million in 2005 (see Exhibit 1). In an attempt to compensate for the decline in its core Tommy Hilfiger brand, the company had acquired the rights to the Karl Lagerfeld brand and was contemplating further brand acquisitions and expansions.
Gehring and Onnink were concerned that Tommy Hilfiger’s steady decline in the U.S. would start spilling over to the European business, which thus far had been insulated and was growing at a healthy pace. The two were already beginning to field more questions from their European wholesale customers who frequently travelled to the U.S., about the brand’s increasingly “down-market” image across the Atlantic. Furthermore, they weren’t convinced that the new global management’s plan of turning Tommy Hilfiger into a multi-brand retailer would address issues with the core brand and stem the decline in sales and margin compression in the U.S. Gehring and Onnink were convinced that they could only protect the European operations for so long. The bleeding in the core U.S. business needed to stop because it had the potential to take the whole company down. They concluded that the only way to save the company was to completely redefine the direction of the U.S. business. In their opinion, U.S. management was so obsessed with gaining back lost sales in the American market that it risked neglecting the momentum outside the U.S. In fact, it was the “U.S. problem” that needed to be ring-fenced and eventually fixed.
But how could this be done without disrupting growth outside the U.S.? Gehring and Onnink had been unsuccessful in trying to convince the U.S. management team and the board that a drastic change in the strategy of the company was needed. They now decided that the best way to embark on such a fundamental change was to take the company private and effect the change themselves. Were they going to be able to find the right partner in this new endeavor? And how could they restore Tommy Hilfiger to its original glory?
THE CASE QUESTIONS: Could they [Gehring and Onnink] turn the company’s performance around in the U.S.? And what changes, if any, should they make to support the global expansion of the company? What should their immediate next steps be?
- Mary Davis (ERE, SAIS ’16)
- Zhidong Yang (Canadian Studies, SAIS ’16)
- Charlie Smith (Middle East Studies, SAIS ’15)