Tommy Hilfiger Essay Example

luxury goods.

Furthermore, ‘Hilfiger began only with a men’s line, but its men and women’s clothing each account for about half its sales’ (Daniels et al, 683:2009). Therefore, for woman’s clothing, the estimated growth figures in an emerging market, in this example, Brazil, are set to grow 6. 2% from 2013 to 2014 (Barnes, 2013). It is clear the emerging markets are growing more rapidly than the United States. Although the European markets are not growing as quick as the emerging markets, Europe is still increasing quicker than the U. S.

This may be a key factor why Hilfiger decided to sell on an international basis than focusing purely selling in a domestic market. The increasing growth rates of the emerging markets are associated with the BRICs countries (Brazil, Russia, India and China). These countries have a wealth of human capital and natural resource which why developed countries, such as the U. S, engaged in foreign direct investment (Jain, S:, 2006). This illustrates another motive why Hilfiger might have begun to sell internationally to make use of the large supply of land and labour which is possibly cheaper than domestically.

According to Daniel’s, et al (683: 2009), ‘Hilfiger began pushing internationally in 1996, and international sales now account for 49 % of total sales. Europe alone accounts for 37 % of sales’ (Daniels et al, 683:2009). This suggests that nearly half the sales are generated internationally and Europe establishes a high market share. According to the European Union (2012), ‘in 2010 Europe’s population has 738 million people which equates to 10. 7% of the world’s population’. Although this does not appear to

be large amount, the North American population has 345 million people, which equals to 5% of world population.

Therefore Europe’s inhabitants are over double the amount of the U. S. In addition, the population of Asia in 2010 has 4164 million people which equates to 60. 4 % of the world’s population (European Union 2012). The difference in population size across the globe would have been another key factor for Hilfiger to pursue the international market. To support this, Agarwal, S & Ramaswami, S, (1992) states, ‘market potential (size and growth) has been found to be an important determinant of overseas investment’.

Furthermore, Dunning (1981) proposes that the location specific advantage, in which Dunning discusses the size of the market, is one of three conditions that needs to fulfil foreign direct investment from firms (cited from Jones, J & Wren, C, 2006). It is clear that focusing sales in the domestic market would have been disadvantage to Hilfiger. Invested internationally to create more demand and make use of the resources is fundamental in foreign direct investment.

This would have prompted Tommy Hilfiger to sell on an international basis rather than focusing purely on the domestic market. ‘Larger firms are able to capture “ economies of scale” and hence produce goods more cheaply than smaller and presumably less efficient firms’ (Brown, D & Swanson, L 2003: 234). This is apparent, with ‘Tommy Hilfiger and its partners operate over 350 stores worldwide’. (Tommy Hilfiger, 2012). By becoming a larger firm and having a large number of stores worldwide will secure the economies of scale.

This has a variety of benefits for the Tommy

Hilfiger which will help lower production costs and with the extra profits, Hilfiger may want expand further to capitalized on new markets. In addition, with stores worldwide it may help reduce the risks of depending on one market to support the long term future of the Hilfiger’s corporation. These benefits for the Hilfiger business can be associated with Dunning’s eclectic theory which looks at the collective view of the benefits engaging in Foreign Direct Investment, (FDI), (Gilpin,R 2001).

One of the rewards in FDI the location specific advantages which includes, greater market opportunity, diversification of risk and lower labour costs (Bhatia, S 2008). According to, Weele, A, (2005: 139) ‘Due to the high labour cost levels in some European countries, it is hard for some enterprises to compete. For example, Western Europe is expensive for the clothing industry to operate in’. Therefore, another motive why Hilfiger may of wanted to sell abroad to take advantage of the cheaper labour costs.

‘Due to lower labour and production costs, many companies also cite BRIC as a source of foreign expansion opportunity following the end of the cold war’ (Vikas,S, 2011: 135). This clearly advocates that many firms invested in cheap labour offered by the BRIC countries, in which Tommy Hilfiger may have utilized when investing into international market. ‘One of the motives for FDI by service MNEs is to protect or strengthen an international market position vis-a-vis one’s major competition’, (Jiatao, L & Guisinger, S, 1992: 10).

This is evident in Europe, as Hilfiger chose a number of celebrities, such as Kate Moss, Thierry Henry and David Bowie to try and appeal to European

markets to strength his European image. However, according to, ‘Hilfiger’s CEO, Fred Gehring, worries that so many changes for Europe create both a nonuniform image and an addition to costs’, (Daniels et al, 2009: 685). According to, Ferrel, O & Hartline, M, (2011: 246), ‘price changes may result in minor modifications to the product, distribution, or promotion strategies’.

This is evident when analysing the changes Tommy Hilfiger has created in order to fit culturally into the European market. According to Daniels (2009: 685) ‘Hilfiger has found throughout Europe that there is hardly any demand for the cotton sweaters so popular in the United States, so it has switched to wool sweaters’. This highlights that Hilfiger needed to change the materials to fit into the European cultural demands. The price for one pound of wool is $2. 31 compared this to one pound of cotton, 46. 75 cents (Women’s Wear Daily: 2008).

Therefore it is clear the different materials have increased prices, which adds to additional costs in Europe. Furthermore, the Italian market expects more luxury items, such as leather jackets and cashmere sweaters, which again would have led to higher prices in Europe. Finally, Hilfiger had to adjust the jeans to a slimmer fit and reduced the size of the logos on shirts (Daniels et al, 2009: 684). It is clear to fit into different cultures Hilfiger had to make alternations to his brand that was successful in the U. S. However making these changes is fundamental to compete against other European designers.

‘European operational costs are about three times those in the United States because of its more fragmented retail and

wholesale system’ (Daniels, 2009: 686). When analysing Hilfiger’s stores, the majority of European clothing sales come from over 4,500 small boutiques stores across Europe and in contrast, within the U. S Tommy Hilfiger relies in the larger department stores to sell merchandise (Daneils, 2009: 686). In addition to facilitate the distribution of Tommy Hilfiger Merchandise within the U. S the distribution centers are located in Los Angeles, Georgia and North Carolina, to name a few.

In Europe the main distribution is in the Netherlands (PVH, 2011). Supplying a wide range of stores across Europe from one distribution center would cost more in operations than supplying America, due to larger number of supply outlets. Furthermore, finding ideal sites for company owned stores is difficult because prime locations are often occupied by other business’s (Daneils, 2009). Therefore if a site comes available, competition maybe fierce which would increase the price of the location It is clear the extra costs for supplying European market will have affected the prices in Europe.

Covering the additional costs would have led to higher prices in Europe than in the United States for Hilfiger merchandise. Having higher prices in Europe rather than the United states could cause potential problems for Tommy Hilfiger. The consumers in Europe may feel discrimination against for paying higher prices for similar product. However according to Arnold, R, (2008:498) ‘price discrimination is a structure in which a seller charges different prices for the product it sells and the price differences do not reflect cost differences’. Therefore, Tommy Hilfiger is not price discriminating.

However, consumers from Europe may look to import Hilfiger merchandise online as the

prices in the U. S will be cheaper. For example, a Tommy Hilfiger polo top would a cost a consumer in Britain ? 70. 00 (Tommy Hilfiger, 2013) and shopping on Amazon, a similar Tommy Hilfiger polo top from the U. S is $42. 00 (Amazon, 2013). Therefore, this would create a problem for the Tommy Hilfiger Corporation.

In addition, if the consumers in the European markets do buy Hilfiger merchandise they would expect better quality if it is the same product as the U. S. Secondly with higher prices in Europe, taxation may increase, which would potentially decease profits. Another global factor is the volatilely of the exchange rates. ‘A common definition of exchange rate risk relates to the effect of unexpected exchange rate changes on the values of firm’, (Papaioannou, M, 2006: 4) An example of this could be a European Tommy Hilfiger franchise owner who wishes to pay the head office in the U. S, with the revenue made from a weeks’ worth of trading .

However, for this example, let’s say the exchange rate equates to 1. 2 euro to 1 dollar. Therefore if the value of the euro depreciates to 1. 3 to 1 dollar, paying the Head office in the U. S would create a loss because the Dollar has appreciated. Therefore when the dollar rises profits fall which again potentially takeaway any profits made in Europe. Identifying a number of issues that Hilfiger may encounter by having higher prices and trading in Europe it is still advantage selling internationally than domestically.

Philips-Van Heusen (PVH) Corporation Report who is now owns the Tommy Hilfiger Organisation recently documented

a report which states, ‘In 2011, Tommy Hilfiger achieved revenue of $3. 1 billion. In doing so, we saw 43% and 60% growth in revenues in North America and internationally’ (PVH, 2011). Compared this with, Daniels et al (2009: 683) the figures which, ‘analysts estimate its annual sales to be about $1. 8 billion’. Therefore with the continually growth, it is clear that Hilfiger has benefitted to selling internationally. In short, he tailored his merchandise to the demand of the consumer in each country.