PVH is downsizing its North American retail operations amid struggles accelerated by the COVID-19 pandemic, which forced a $1.1 billion net loss in the first quarter and drove total sales down 43 percent.
The parent company of Tommy Hilfiger and Calvin Klein is exiting its 162-store Heritage Brands outlet business and laying off approximately 450 employees, or 12 percent of its staff. The Heritage Brands business, which includes brands such as Van Heusen, Izod, Arrow, Warner’s, Olga, True&Co. and Geoffrey Beene, generated approximately $3.3 billion across all channels in 2019, but saw first-quarter revenue drop a steep 47 percent.
The Heritage Brands stores are expected to operate through mid-2021 before closing for good.
The job cuts are across all three of the Tommy Hilfiger, Calvin Klein and Heritage Brands businesses, as well as PVH’s corporate functions. They are expected to save the company approximately $80 million annually.
The company expects to incur pre-tax charges of approximately $80 million over the next 12 months in connection with these actions, of which approximately $10 million is expected to be noncash. The charges primarily consist of severance payments, lease termination costs, inventory markdowns and noncash asset impairments.
“The structural changes occurring in the North American retail landscape have required us to take a hard look at our North American operations and identify where we can optimize costs across our business model,” said Manny Chirico, chairman and CEO of PVH.
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Despite being the company’s oldest retail business, the Heritage Brands outlet stores “no longer met appropriate return metrics,” Chirico said.
The COVID-19 pandemic already forced PVH to rethink how it handles inventory, with the apparel giant making the decision to pack and hold as much as $250 million of this year’s spring assortment into 2021.
In a first-quarter earnings call in June, Chirico highlighted the digital businesses of PVH’s core Calvin Klein and Tommy Hilfiger brands as positives for the company going forward. Calvin Klein’s digital revenues increased 40 percent—with the Calvin Klein North America e-commerce business turning a quarterly profit for the first time in its history—while Tommy’s e-commerce sales shot up over 60 percent.
It’s apparent with the continuing shifts in consumer spending habits that PVH is looking to further emphasize e-commerce as a larger part of its offering going ahead—PVH has collaborated with global online giants including Amazon, Alibaba’s Tmall marketplace and Zalando, among others. And with its wholesale partners seeing business steadily improve with the introduction of curbside pickup and ship-from-store capabilities, PVH is taking a “hard look” at how omnichannel developments will play out for the fashion company.
“While these decisions are always challenging, they are strategically important for the long-term health of PVH,” said Stefan Larsson, president of PVH. “The COVID-19 crisis is dramatically reshaping the retail landscape in ways that we believe will be long-term in nature and far-reaching in terms of consumer purchasing behavior. We are adapting our businesses and rebalancing our cost base to improve our competitiveness and financial profile and, where appropriate, are reallocating resources to our businesses that drive greater returns. We continue to focus on delivering sustainable, profitable long-term growth for all of our stakeholders, and we will continue to advance our business by looking for additional efficiencies.”
Although it represents an exit from direct brick-and-mortar sales, Heritage Brands will still live on across many other channels. Aside from the 162 outlet stores, Heritage Brands products are distributed wholesale in the U.S. and Canada through a range of apparel sellers, including department stores, chain and specialty stores, warehouse clubs, mass market retailers, off-price and independent retailers (in stores and online), as well as through pure-play digital commerce retailers.