Global Environment of Business: The Tommy Hilfiger Clothing Company - Case Study Example

Global Environment of Business: The Tommy Hilfiger Clothing Company Introduction Tommy Hilfiger is the brainchild of two experimental, creative and courageous individuals by the names of Tommy Hilfiger and Indian textile mogul Mohan Murjani. They experienced a lot of failures in their previous endeavors before finally pressed the right button in their joint business venture. First, before he became an international recognized designer, Tommy tried various small time business ventures but failed in each attempt. He begun by selling second hand jeans while still in high school and later ventured into designing vests and sweaters. But this did not last as long as he would have loved as he soon went bankrupt. He decided to venture into employment as a freelance designer and simultaneously opened a sportswear company that collapsed in less than a year due to financial inefficiencies. He then joined Jordache fashion house as a designer as a blue jeans designer where he was able to meet Murjani. On his part, Mohan Murjani was hansdling a failing business and was in need of a new idea. Although he was one of the main brains behind the blue jeans craze in the 70s, his own venture, the Gloria Vanderbilt Jeans was not doing quite well. He sought Hilfiger to design for his company; the Murjani International. His move was targeted at resurrecting the jeans craze that was once a Phenomenon in the 1970s. Furthermore, he wanted to introduce new clothing designs that were less expensive and with a high appeal to the youthful generation. 1988, Murjani, Hilfiger and two other investors bought out Murjani International due to its financial woes and changed the name to Tommy Hilfiger.They moved their headquarters to Hong Kong due to the business connections of one of the partners in Asia. This business venture clicked and sales begun to come quickly and they eventually joined the New York Stock exchange in 1992 although this came to an end in 2006 as it was privatized by the Apax partner fund in London. Consequently, their headquarters were relocated to the Netherlands. Currently, it is considered to be one of the most successful fashion brands in the world. Its profits are believed to be around the region of $1.8 billion per annum. It is rated as one of the most creative and influential design companies in the modern times. Their logo is considered to be one of the most recognizable in the world. Almost each an every adult can be able to recognize the blue, red and white colors of the logo. For this reason, he has been able to expand his local and international appeal through his ever improving and unique clothing line. His designs have been able to mentioned in the same breathe as the more revered and celebrated European designers like Yves Saint Laurent, Giorgio Armani, Ralph Lauren, Perry Ellis and Calvin Klein. This success is hugely attributed to the massive branding and promotion campaigns that he used. He publicized his designs and negotiated with retailing stores to stock their products. Most of its success has come from the European continent majorly due to the localization of his design to fit local lifestyles and cultures. For instance, it has diverted from buggy and extra jeans pants in the United States to some well-fitting straight jeans in Europe as well as introducing women wear to the already popular men’s clothing line. As a company, they have been able to learn and adapt to their target market in the best way possible.. Back in the United States, the company is operating in three major segments: Wholesale, retail and licensing. They mostly target the upscale market segments of the country. They achieve this by distributing most of their merchandise to local upscale retail stores such as Kohl and T.J Max. Furthermore, Hilfiger used high end celebrities such as singer Elton John and rapper Snoop Dogg to publicize his designs. This had a huge effect in his sales as more and more people sought for his designs. For the not so high class retailers, they distribute their outdated merchandise mostly from their previous designs. Europe has emerged as the best performing market for Hilfiger. To attract and command huge following he has used European celebrities to to model for his clothes. Some of them are supermodel Kate Moss, David and Victoria Beckham and French international footballer, Thiery Henry. The marketing strategy of the company in this region has paid handsomely as sales from here account for almost half of the company global sales. Even though they have been highly successful in this continent, they concur it has not been an easy sailing. They are constantly facing major operating obstacles. Factors That Have Led to Higher Commodity Pricing In Europe than in the United States for Hilfiger Merchandise. Business operating environment in Europe is highly competitive and demanding. Fred Gehring, the current CEO of the Hilfiger Company concurs that, the operating cost of business in Europe is really high when compared to that of the United States. Actually it is nearly five times more expensive to run a business here than back in the US. Secondly, the European market is hugely dominated by the highly rated Italian and French design Companies. It has been an uphill task to displace or even share the market dominated by these two fashion capitals of Europe. Its image of being an American Company has greatly impacted on its global sales figures. It seems that US brands are not preferred by the European population. Other US companies that are also struggling to stamp their merchandise in Europe are Gap, North Face and many companies. Also, in Europe, The wide demographics of the market affect the preference of the market. Different countries prefer different tastes. It is not like the USA where the taste of the customers is not widely divided. For instance, in Germany where Hilfiger is quite dominant, men prefer high cotton content shirts and they prefer to pay more to get what they want. Furthermore, Europeans prefer woolen sweaters and cardigans which are more expensive than the cotton ones. Hence, we can say more design changes in Europe is one of the major causes of high Merchandise price in this market. Moreover, The European distribution chain is more fragmented than in the US which has a concentrated distribution channel. According to the economist magazine: Paris, Copenhagen and London have in the last year overtaken Tokyo and Osaka for the next three positions, and most other major EU cities have risen in the rankings over the previous year. The main reason for this has been the relative strength of the euro and sterling against the US dollar and the Yen, although many of the big European cities experienced lower year on year price rises in the EIU-selected basket of goods. (The Economist, Mar 7th 2007 issue), Available at: http://www.economist.com/node/8809633. Problems That Hilfiger Might Encounter by Having Higher Prices in Europe than In the United States By having higher prices in Europe, The Company might be making a mountain that they may be unable to climb. First and foremost, the sale of their merchandise in this market segment might stall and stagnate. And since the design used in Europe are very different from those in the United States, there may lack a fallback market for their excessive stocks since the European design is less popular in the US. Secondly the pricing in the United States might soar even more to compensate for the losses experienced in Europe due to slow sale of the company merchandise. This will generally lead to a catastrophic situation where the company will find itself making lots losses from unsold goods. As we know, the competition in the US is stiffer than in Europe thus this will work to their disadvantage due to the uneven pricing issue. Furthermore, if their pricing grows more in Europe, they further decrease their popularity in Europe than it already has. This will give the European design more power than they are already wielding. The Pearson Education Inc.,have clearly indicated these in their study on their publication on Global marketing. It states: In the United States, the retail market is more concentrated and produces greater efficiencies which can be passed on to consumers. Also, in some cases, European consumers were demanding higher quality materials be used for the clothing. Price differentials between Europe and the United States can bring about a few difficulties such as gray market activity and image problems. (Pearson education, Inc., pp 185) Available at: https://www.sidweb.espol.edu.ec/public/.../doDownload?...17. Effects of Moving Upmarket By moving upmarket, the company might get public backlash by annoyed Hilfiger fans who may feel left by the higher pricing of the merchandise. This will lead to lose of market share to other competing companies eyeing the same market segment. Also, the cost of operations might go up since the materials to use to design high end designs may cost more than the initial materials previously used. This may have adverse effects on the functioning of the company. Consequently, it may lead to shrinking sales. The company might lose highly talented staff since high end designs will not require as much staff as the production for mass market. The more clients targeted, the higher the number of employees needed and vice versa. This move may also greatly benefit their competitors in the market as their staff will move on to them. In contrast, they can move upmarket and still command more market share. To do this, they will need to increase the number of retailers in their supply list. The more products they have in high end retail stores the more the sales since their targeted market is highly liquid and have no problems making impulse purchases. Also, they will need to carry out further research in their products so as to come up with cool high quality merchandise that will appease their clientele in the up market locations. Strategies of Concurring Europe By Non-European Companies. To enter this market, the non-European brands should adapt the European fashion culture. They should set up independent branches in the European region to increase their presence. Moreover, they need to do their research really good regarding the most preferred designs and include a variety of materials used in their designs. As we have observed, Europe is a market of varying preferences and companies need to come up varying merchandise made from varying materials. The branding and promotion of their goods should be increased. They exploit all avenues of advertising to increase their visibility which will in the long run lead to higher sales as their products become more popular. Companies should also use highly popular models to showcase their designs. In Europe footballers are highly respected professionals since soccer is the most popular sport. They should use most of these as their models. Finally, they should have sound finance information so as to manage their operation in this hostile continent in terms of business operating costs. References Pearson Education, Inc., Managing International Operations, (pp 185), Available at: www.sidweb.espol.edu.ec/public/.../doDownload?...17., Accessed, 8/5/2013. The Economist, Mar 7th 2007 issue, Europes high-priced life: Why living in Oslo, Paris or London is so costly Available at: http://www.economist.com/node/8809633, Accessed, 8/5/2013. Read More