This week (14 November) PVH Corporation sold its three brands Warners, Olga, and True&Co to Basic Resources to support its long-term PVH+Plan of focusing on its core brands Calvin Klein and Tommy Hilfiger.
Inside the PVH Corporation and Basic Resources deal
The transaction, expected to take place by the end of November, has been finalised for an all-cash purchase price of $160m, subject to adjustment.
It also includes an additional earnout, which is based on the net sale on a portion of the acquired businesses for calendar 2024 with a maximum value of $10m.
Basic Resources, led by CEO Salomon Harari emphasised the strong consumer resonance of the Warners, Olga and True&Co brands and said: “Under these powerful brands, PVH has built a business that offers innovative, solution-oriented products that strongly resonate with consumers.
“We look forward to welcoming the team and leveraging our resources and expertise in the market to drive continued growth by offering customers well-designed high-quality products.”
GlobalData apparel analyst Neil Saunders describes the transaction as a “positive” move for both parties but suggests it is riskier for Basic Resources as it is now responsible for making the acquisition work.
Whereas the transaction will help PVH dispose of the brands that no longer fit into its core lifestyle category, said Saunders.
Here’s why the deal matters
PVH Corp CEO Stefan Larsson said the company intends to offload its three brands to Basic Resources as part of its continued transition in accelerating its focus under the PVH+Plan to build on its flagship brands Calvin Klein and Tommy Hilfiger into “the most desirable lifestyle brands in the world.”
In April 2022, the US apparel company presented the PVH+Plan as a multi-year strategic growth plan that detailed how the company planned to leverage the strength of its Calvin Klein and Tommy Hilfiger brands in all regions to help reach its revenue target of $12.5bn by 2025.
During this time, PVH said that by leveraging the full power of its flagship labels it was “building on its market-leading strength in Europe, accelerating from strength in Asia Pacific, and unlocking the full potential of the strength of its brands in the Americas.”
PVH’s heritage brands segment, which included Warner, Olga, and True&Co had faced significant downturns in its recent results with revenue decreasing 11% in the second quarter ended 30 June 2023, as they grappled with challenges to stay relevant among consumers.
Tommy Hilfiger experienced a 6% increase in international revenue, or 3% on a constant currency basis, while North American revenue increased by 4%.
Calvin Klein's revenue increased by 3% globally and 2% internationally, while North American revenue decreased by 9% due to a decrease in the wholesale sector.
GlobalData apparel analyst Alice Price said at the time that North America continued to be a “thorn in PVH’s side” as Calvin Klein failed to “capture consumer attention.”
Price advised that PVH would have to focus on improving “brand relevance and engagement” in order to begin laying the groundwork for recovery.
However, she added that “marketing alone” would not be enough to turn PVH’s brands around, instead, she said: “It should focus on improving its product offering, as standing out with a desirable and aspirational offer is integral to capturing consumer spend in the current economic climate.”
Saunders is convinced that with the three brands being in the intimate space they fit well with the existing Basic Resources portfolio.
“While not the most adventurous of brands, they are all pretty solid and have a good position in the market,” he said.
“Basic Resources will want to try and bolster sales and reinvigorate them, especially as some have struggled to grow over the past year or so,” added Saunders.
Basic Resources had not responded directly to Just Style’s request for comment at the time of going to press.
PVH did not elaborate further when questioned by Just Style on why it chose to sell its three brands to Basic Resources or what this move would mean for its core labels.
According to GlobalData senior analyst Pippa Stephens selling brands such as Warners, Olga, and True&Co will help PVH focus on developing its core proposition, which has been struggling recently.
She explains that despite these brands making up only a small portion of the group's sales, letting them go will hopefully improve PVH's fortunes in the future.
Key takeaways for the fashion industry
PVH’s continued mission to accelerate recovery, prioritise and have a clear focus on unlocking the full potential of its core brands began in 2021 when it offloaded its Heritage Brands business to Authentic Brands Group (ABG).
The fashion conglomerate sold the Izod, Van Heusen, Arrow and Geoffrey Beene brand trademarks and certain related inventories and other assets for $223m.
In early 2020, it completed the sale of Speedo North America swimwear business to Pentland Group, the parent company of Speedo International for $170m.
In the short term, we may see fashion companies scramble for growth against an incredibly challenging economic environment, so it is likely that bigger companies will continue to divest smaller or weaker brands in a bid to unlock some capital and boost finances.
Last month for instance (October 2023), online retailer Asos was reported to be in the early stages of offloading its Topshop brand to Ted Baker-owner Authentic Brands Group.
Whilst analysts believed Topshop could thrive under Authentic, they warned Asos against the longer-term effects of a hasty decision to rebalance its profit sheet.
Another fashion conglomerate that wanted to invest and focus resources on its core brands was Wolverine Worldwide.
Wolverine Worldwide CEO Brendan Hoffman said at the time that the decision would allow the company to put more resources into branding Merrell’s lifestyle business, extend Saucony’s reach, stabilise Sweaty Betty’s UK and Ireland market and explore opportunities globally, including the US and China.
In February 2023, JD Sports sold five fashion brands to Flannels and Sports Direct owner Frasers Group.
During the announcement, Stephens told Just Style that with the retail market struggling due to surging inflation rates and reduced consumer confidence, JD Sports would benefit from focusing on developing the key aspects of its core proposition, rather than its smaller brands, to ensure it continued to thrive.
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