#Business of #Fashion: @bof writes: CEO Talk | Tom Murry, President and Chief Executive Officer, Calvin Klein

Tom Murry | Photo: Danny Clinch

30 November, 2011 by Imran Amed, Editor

LONDON, United Kingdom — It’s not every day that you get to meet a CEO who oversees a fashion brand which does more than $7 billion in sales at retail. Indeed, Calvin Klein is one of the most successful American fashion businesses of the last 25 years.

But the Calvin Klein business is markedly different from many of its peers (particularly those based in Europe) in that it is almost entirely a licensing business, with scores of different agreements with partners who design, produce and sell Calvin Klein branded products from underwear to jeans to fragrances, and then pay a royalty on sales back to Calvin Klein.

In recent years, while some other fashion brands have been buying back their licensees, Calvin Klein has continued to push forward with a model that was born early in the history of the business, when Calvin Klein himself was still designing for the brand. Based on the success of this model, the Calvin Klein business was acquired by PVH Corporation in 2003, a massive brand conglomerate which also owns other licensed fashion brands Tommy Hilfiger, Van Heusen, IZOD, ARROW and Bass.

The day after a dinner in London to celebrate the Design Museum’s new home at the former Commonwealth Institute, I sat down with Tom Murry, chief executive of Calvin Klein, to learn more about how he makes this licensing model work.

BoF: Having grown up in North America, Calvin Klein was a brand that was everywhere I looked. But here in Europe, the brand doesn’t seem to have as much of a presence. Could you talk a little bit about your priorities for the European market and how this compares to your presence in Asia, where I understand your business is quite big?

Tom Murry: It’s deceiving what you observe, and sometimes this is different from reality. We actually do about 30 percent of our business in Europe, 50 percent in the US and about 20 percent in Asia. So we actually do more business here [in Europe] than we do in Asia.

We also have more free-standing stores here than we have in Asia. Our business model for Europe is primarily a free-standing store model. We do sell to department stores, but the most important part of our business model for Europe and Asia is free-standing stores.

BoF: Stores directly owned and operated by you?

TM: No, not directly owned by us. We operate primarily a licensing model, so we want our licensees to operate a lot of those stores directly. It’s a model that works very well. If you have really good licensees and philosophically they are on the same page — that is, as it relates to protecting the brand while they are growing revenue — then it works very well.

We are fortunate enough to have this today, but it wasn’t always that way. We have been here for 15 years now and we have weeded out the bad [licensees] and replaced them with good ones, Warnaco is our biggest licensee and we have a very good relationship with them, it’s a global jeans license; a global underwear license.

BoF: Yes, I understand that in all there are more than 40 licensing agreements across multiple geographies, and product categories. I’m curious about the decision to operate the business in the way that you do, when so many other brands seem to be buying their licensees out to take things back in-house. When a lot of the operations and consumer-facing elements are managed by others, you might not have as much control as you would were you to own everything. But the flipside is that to grow the business you require less capital to open stores, for example.

TM: Actually the way it works, we have complete control. We control everything. Our contracts are incredibly comprehensive. If you were to walk into a store, there is nothing about that store that we didn’t design or approve. The location, the design of the store, retail fit out, the fixtures, often the product mix that goes in there, all the creative, all the advertising, whether it be institutional or co-op advertising, the visuals.

Now having said that, we have over 700 free-standing stores around the world, and many, many more points of sale and shop in shops, but we really track the free-standing stores as they are really important branding platforms as well as revenue drivers.

BoF: How do you oversee such a vast network of stores to ensure the consumer experience and brand communication are in line with your vision?

TM: It’s difficult. We can’t really keep an eye on 700 different stores and more, so that part relates back to my earlier comments about having a licensee that’s on the same page and understands that it benefits them as much as it benefits us to protect the brand and do the right thing for the brand, and follow the guidelines we set.

We do spot checks all the time, all over the place, and we do have offices in Milan, Hong Kong and Tokyo. If we do see something we are not happy with, or we don’t agree with, then we communicate immediately with the licensee and get it fixed up.

We didn’t really sit back 15 years ago and say, ‘You know what, we are going to operate a licensing model instead of an operating model.’ What happened was we already had a big licensing business.

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Tags: bof, branding, business, calvin klein, fashion, licensing, tom murry