Macy's teams with Hilfiger to gain edge

By Barbara Rose
Tribune Staff Reports
Published October 27, 2007

Department stores enjoyed their century in the sun, when they were arbiters of fashion and shoppers looked to them for the newest designs.

The designers have had their day in the sun, too, with companies like Tommy Hilfiger opening their own boutiques and going public, selling investors on the idea that a big name is worth big money.

Now we've entered the era of discounters and specialty stores, and the decision by Macy's and Hilfiger to team up in an exclusive arrangement underscores how each is trying to regain momentum.

Macy's, now a national department store chain, announced an agreement Friday for exclusive rights to sell Hilfiger's biggest clothing lines.

Macy's will feature the label in national campaigns, expand its Hilfiger offerings and place them more prominently in stores, while Hilfiger will phase out its sportswear at other re- tailers such as Bon-Ton Stores Inc.'s Carson Pirie Scott and Dillard's.

By fall 2008, the designer's sportswear will be available only at Macy's, the designer's own stores and Tommy.com. Licensed products such as accessories and fragrances will continue to be sold more widely.

Deal called coup for Macy's

Retail experts said the deal is a coup for Macy's, which is trying to boost its sales by offering merchandise customers can't get anywhere else, and it's potentially a win for Hilfiger, which is trying to reinvigorate its brand and sales.

"There's no question both brands are very well known, but they've both faced problems in recent years," said Atlantabased marketing consultant Laura Ries. "This is a good answer for both of them.

"For Hilfiger, the exclusivity will ensure Macy's promotes them and gives them lots of attention and focus. For Macy's, [it will help] give people a reason to shop there."

The deal is the latest in a slew of exclusive agreements by store chains with designers as a way to differentiate themselves in a fiercely competitive environment. But Macy's move stands apart because the Hilfiger brand is so widely known.

"Just about every department store in the U.S. had a Hilfiger boutique at the peak of his fashion run, 15 to 20 years ago," said retail consultant Dan Skoda, former president of Marshall Field's when the chain, now part of Macy's, was owned by Dayton Hudson.

But the designer expanded into too many categories and markets, and its brand lost some of its cachet, experts say. It struggled with fashion makeovers, jumping to an edgy urban look and then back to something more classic.

The company was acquired for about $1.6 billion in December 2005 by private-equity group Apax Partners. The Macy's deal sparked speculation Friday that Apax is positioning the business for a public offering.

"Off of this deal, I wouldn't be surprised to see Apax making them public again," said retail analyst Brian Sozzi of New York-based Wall Street Strategies. "There should be a nice little boost" to Hilfiger's results from additional promotion, sourcing efficiencies and other synergies.

A Hilfiger spokeswoman declined to comment on the speculation.

In a statement, designer Hilfiger said the recent consolidation of department stores has made the alliance "more compelling and logical."

The deal also could improve Macy's results, which have been disappointing since the 2005 acquisition of May Department Stores Inc. and the consolidation of regional chains such as Marshall Field's under the Macy's brand, which alienated some customers.

The agreement is a major step in the chain's strategy to use its national reach to make it worthwhile for big-name brands to team exclusively with Macy's. This fall, for instance, Macy's launched an exclusive home furnishings collection with home maven Martha Stewart.

About 35 percent of Macy's merchandise is exclusive or available only in select stores, a spokesman said.

 

Hilfiger a strong seller

Hilfiger already is a strong seller for Macy's and one of its most important sportswear brands, representing between $200 million and $250 million in annual sales, sources estimated. Macy's stores generate sales of $25 billion.

"Strong and well-established brands like Tommy Hilfiger set Macy's apart," Terry J. Lundgren, Macy's chairman, president and chief executive, said in a statement. "So offering this brand on a much more exclusive basis is another powerful reason for customers to choose to shop at Macy's."

As part of the deal, Macy's will increase the number of Hilfiger shops in high-volume Macy's stores, renovate and upgrade existing shops and feature Hilfiger collections in its marketing campaigns. The companies will also work together on new ventures and brand extensions, Macy's said.

Macy's shares closed Friday at $33, up 54 cents.
 

Copyright © 2007, Chicago Tribune

BACK TO NEWS