Calvin Klein to Shutter Flagship, Trim Staff With ‘Go-Forward’ Plan
In the wake of Raf Simons’ departure as chief creative officer, Calvin Klein plans to relaunch the 205W39NYC collection business under a new name, design approach and creative direction.
It also plans to trim staff and close its historic New York flagship — moves that will tally approximately $120 million in restructuring costs.
Steve Shiffman, chief executive officer of Calvin Klein Inc., a wholly owned subsidiary of PVH Corp., revealed his “go forward” plan on Thursday, describing several strategic changes to the brand and organization. It was learned that approximately 100 employees were let go across the entire business, including the flagship.
As reported, Klein and Simons amicably decided to part ways in late December after Klein decided on a new brand direction that differed from Simons’ creative vision. Simons’ three-year contract was set to expire next August.
The new name for its top collection is still under wraps, and the company declined to provide details on the new creative direction and who would be designing the collection. According to Shiffman, the new business will focus on connecting directly to all the other Calvin Klein brands and amplifying each category with its product mix and aspirational experiences. Klein’s historic flagship at 654 Madison Avenue is to go dark this spring. It couldn’t be learned if another PVH or Calvin Klein brand would be taking over the corner space abutting Barneys New York.
The flagship, originally opened in 1995, was reimagined under Simons with a floor-to-ceiling installation by artist Sterling Ruby to showcase the Belgian designer’s 205W39NYC collection. Ruby had transformed the boutique in June 2017 from its minimal design by John Pawson to an otherworldly installation consisting of bright yellow walls, industrial scaffolding and soft, tie-dye fabric sculptures. Real estate sources had indicated last week that Klein had signed a new long-term lease last year for the 18,000-square-foot, three-level store, where it paid $852 per square foot. Klein also said it would be evaluating options for future retail locations and will be unveiling new consumer experiences both online and offline.
Separately on Thursday, PVH said it expects to incur pre-tax costs of approximately $120 million over the next 12 months in connection with the Calvin Klein restructuring, primarily consisting of severance, inventory markdowns and allowances, asset impairments and lease and other contract termination expenses, including the closure of the flagship. Cash outflows related to these pre-tax costs are expected to be approximately $60 million over the next 12 months.
Further, PVH updated its 2018 fourth-quarter and full-year outlook, and said it expects revenue in the fourth quarter and full year 2018 to be at least $2.4 billion and $9.57 billion, respectively, which is above plan. It also revised its projected fourth quarter and full year 2018 earnings per share outlook. The company expects its earnings per share on a non-generally accepted accounting principles (GAAP) basis for the fourth quarter 2018 to be at least $1.75, which is $0.15 per share above the high end of its guidance rate previously announced Nov. 29, 2018. It also expects its full year 2018 earnings per share on a non-GAAP basis to be at least $9.50. The projected fourth quarter and full year earnings per share excludes, among other things, the pre-tax costs expected to be incurred in connection with the Calvin Klein restructuring and the resulting tax effect.
Emanuel Chirico, chairman and chief executive officer of PVH, said, “Our improved 2018 outlook reflects the power of our diversified global business model. Specifically, we are experiencing outperformance across all of our businesses relative to our previous guidance, despite the increasingly volatile macroeconomic and geopolitical environment.”
Another new initiative at Klein is the adoption of a digital-first approach and introduction of a new “consumer marketing organization.” The concept is to accommodate the rapidly changing demands of today’s consumers with highly specialized teams focused on new areas including consumer engagement and shopper experience.
WWD reported last week that Steven Waldberg, former senior director, global communications at Bulgari, has joined Calvin Klein as executive vice president, consumer engagement, a new post. He reports to Marie Gulin-Merle, chief marketing officer at Calvin Klein. Waldberg is responsible for marketing, public relations, communications, social and corporate social responsibility. He takes over some duties formerly handled by Rod Manley, who, as reported, resigned his post as executive vice president, influence marketing and communications, to become chief marketing officer of Burberry, effective Jan. 7.
Waldberg takes over some responsibilities from Michael DeLellis, executive vice president, integrated global marketing, who assumed the new post of executive vice president, strategic marketing initiatives and transformation, also reporting to Gulin-Merle. He is in charge of global up-skilling in digital-first marketing and organizational development. This includes training and educating the teams on skill sets specific to mobile, social, content, data and e-commerce.
Another aspect of the strategic plan is the streamlining of Klein’s North America division to become a more effective organization, including consolidating operations for the men’s Calvin Klein Sportswear and Calvin Klein Jeans business as a means to further strengthen the brand’s positioning. The Calvin Klein retail and e-commerce teams will be integrated to create an omnichannel approach mirroring how consumers browse, shop and purchase today.
“Calvin Klein has long been driven by its ability to balance art and commerce in a culturally relevant way — one that has often defied the status quo. Our industry is witnessing a historic transformation in consumer behavior, which presents a significant growth opportunity as we look to grow the brand to $12 billion in global retail sales over the next few years. Now, more than ever, we must double down on meeting consumer demands by creating culturally relevant products and experiences that engage communities by pushing fashion and culture forward,” Shiffman said.
The executive added that these moves would “enable us to run a more modern, dynamic and effective business, as well as allow us to reinvest in the brand.”
The problems at Calvin Klein came to light last month when Chirico was outspoken on the company’s earnings call about his disappointment in the Calvin Klein Collection — renamed 205W39NYC — and Jeans businesses. He said in rather blunt terms that the reimagined Calvin Klein — under Simons’ direction — was not working. He explained the collection needed to become more commercial and that investments in the collection and advertising would be shifted elsewhere.
“While many of the product categories performed well, we are disappointed by the lack of return on our investments in our Calvin Klein 205W39NYC halo business and believe that some of Calvin Klein Jeans’ relaunched product was too elevated and did not sell through as well as we planned,” Chirico said on that earnings call. Further, Chirico said the redesigned Calvin Klein Jeans was a “fashion miss,” telling investors: “From a product perspective, we went too far, too fast on both fashion and price. We are working on fixing this fashion miss, and we believe that our CK Jeans offering will be much more commercial and fashion-right beginning in 2019, especially for the fall 2019 season.”
Calvin Klein’s earnings before interest and taxes for the third quarter decreased to $121 million, from $142 million a year earlier, “primarily attributable to an approximately $10 million increase in creative and marketing expenditures compared to the prior-year period.” As reported, the company also cited gross margin pressure, principally due to more promotional selling in the Calvin Klein Jeans business, particularly in North America.
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