This article first appeared in The State of Fashion 2022, an in-depth report on the global fashion industry, co-published by BoF and McKinsey & Company. To learn more and download a copy of the report, click here.
Since becoming chief executive of the group that owns Calvin Klein and Tommy Hilfiger in February 2021, Stefan Larsson has been clear and consistent about his mission at PVH Corp. “I keep coming back to the same [idea], which is our ability to stay true to the iconic DNA of our brands and keep connecting them closer and closer to where the consumer is going,” he says. In a crowded and disruptive digital market, the seasoned executive considers creativity one of the most important differentiators. One way to accomplish more creatively, he suggests, is for companies to break down the traditional boundaries between internal and external activities, in favour of a “network” approach.
Like most of its peers, PVH is emerging from a period of great challenges, during which the company moved to boost its e-commerce channels and reprioritise domestic consumers, especially in the US where foreign tourists generated more than a third of sales prior to the pandemic. To gain market share in the year ahead and indeed for the long term, “it’s never been more important to invite in [voices from the outside], to let [them] be heard,” Larsson said, referring not just to design functions but sustainability initiatives and workplace culture. “We have to be leading big companies and big brands in a much more entrepreneurial way than before to win.”
BoF: Europe is PVH’s largest region in terms of revenue, and its brands benefit from a healthier wholesale market there too. Are there lessons that you can take from your stronger markets to apply to the North American market, where discounting and the shift to digital have been disruptive?
Stefan Larsson: The consumer is moving and continuously moving fast — and the barriers have come down, and the noise levels have come up, and the consumer has all this choice — so it’s the importance of connecting with the consumer through creativity and design that drives engagement. Equally important is to connect with technology and become more data driven to understand more about where the consumer is going. Having a systematic, repeatable operating model is also going to be more important going forward.
BoF: But how does that focus on being intimately connected with the consumer impact your global distribution strategy?
SL: It’s about growing with a mix in those channels that reflect where the consumer is going. The consumer also wants to shop at the likes of Zalando, About You, Amazon and Tmall. So increasingly, it’s about winning in the digitally led marketplace, and looking at it as an integrated marketplace region-by-region and almost city-by-city. The biggest opportunity to grow, by far, is direct-to-consumer e-commerce and third-party e-commerce, both with pure players like Amazon, and with more traditional wholesale partners.
BoF: Most customers around the world have gradually started to return to their pre-pandemic lives or something close to it, but international tourism is still depressed; in the US, most international travel bans were only due to be lifted in November 2021. How has this informed your view on refocusing the business around domestic consumers?
SL: Where we were the strongest with the domestic consumer pre-Covid is where we weathered Covid the best. And where we had the most dependency, or an over-dependence on tourism, we had the most work to do to win more with that domestic consumer. So strength has to be built into every market [in terms of the domestic consumer going forward].
BoF: How do you see recent and future supply chain disruptions permanently changing your production strategies and your sourcing footprint?
SL: We still as an industry have too long lead times, and there is a big opportunity to better match planning and buying to demand, and that’s something that we learned when Covid hit. The second-biggest learning is to build resilience into the supply chain now, with an awareness that [crises like] pandemics do happen. Also to build in a geographic and partnership approach where we are able to compensate for what happened during [an event like the] pandemic and continue to supply the business with goods.
BoF: How are you thinking about cutting down on lead times next year?
SL: For us, it starts with making sure that every single product in the assortment has an intent, and our focus is on the most essential categories and then, within those categories, developing hero products. Once we do that, we create the foundation for planning and buying inventory closer to demand, because we have fewer SKUs and more focused product silhouettes. Then we can work more with flexible and more agile supply chain set-ups, cutting the lead time by getting much more focused and upfront in the categories and the product silhouettes that matter, and then getting closer [to demand] when it comes to deciding fabric, colour and where in the world these products go.
BoF: Many companies have benefitted from reducing their inventory and focusing on their hero products, and that’s helped them cut down on discounts and raise their average unit retail (AUR). What will distinguish the companies that are able to keep that momentum going in 2022 from those sliding back into bad old habits?
SL: The winners will be those who keep developing a systematic focus on building assortments of products that [stand] out in a sea of generic products. Next year, I believe we are moving into an era in this sector where creativity will become even more of a differentiator — style, taste, original creativity — and then technology will be an amplifier of that. But I’m surprised that there hasn’t been more conversation about the importance of competing with creativity.
BoF: Tommy Hilfiger was still staging runway shows before the pandemic, but Calvin Klein no longer does, and both brands have been focused on collaborations. In our fast-moving digital world, do you see collaborations as the best way to create halo moments that attract customers to your brands?
SL: The consumer appreciates the iconic brands with staying power, where they have a certain level of predictability. They also love creative newness like never before, and the mix of those. Staying true to the iconic nature of your brand, and then utilising that iconic nature as a platform to amplify new up-and-coming creativity — it creates newness and relevance for the consumer. The consumer is taking down barriers. They don’t look at it like, “Is this Calvin or Heron Preston?” They’re saying, “Oh, I love Calvin, and I love what Heron is doing, and I love the mix.” So that, I believe, will just continue.
BoF: Are there trade-offs when moving towards sustainability goals while also optimising the supply chain, whether that relates to environmental concerns or workers’ rights?
SL: Our experience is that most often they go hand-in-hand. We just had our big yearly supplier summit. What I asked them for, and what I committed to them, was to tap into some of their innovation and expertise because a lot of them are moving forward in making more sustainable sourcing and production. One mega trend I see overall in the sector is the importance of breaking down the traditional boundaries of what’s in the company and [what is done externally]; what can be accomplished together as a network — whether it’s creativity, sustainability and supply chain, or technology. It’s looking at how we can follow the consumer and maximise our positive impact by working together in a way that breaks down the boundaries of what traditionally we said we wanted to do [internally] as a big company.
BoF: We’ve seen several textile recycling projects come out of both Tommy and Calvin. What do you feel has the greatest potential to scale in the next year?
SL: Tommy has piloted something called Tommy For Life, where we bring back old pieces and clean and repair and resell them. We’re taking a lot of action to try to see what we can do, and what can be scaled. We’re moving forward on a number of fronts, and we are increasingly looking at identifying the big needle-movers that we can drive over the next few years to make a real positive impact. So it’s a combination of going big — where we see we can go big right away, like sustainable products and VPPAs (virtual power-purchase agreements), and the solar roof on our [distribution centre in Venlo, Netherlands], to testing circular design and circular product initiatives — and testing small, so that we can then learn and scale over time. [But most of all, it’s about] being humble enough to realise that we have 90 percent of the work still to do [in this area].
BoF: What about opportunities in the metaverse and virtual goods? Do you see that as something that could become a revenue driver for the business?
SL: One thing we learned through Covid, and the disruptions ahead of Covid, is that when you see those exponential growth rates of consumer-shifting behaviour, you need to follow that, including the meta-world, and be open to how the consumer wants to engage — and be open to the possibility that it could, sooner rather than later, be an income stream.
BoF: The fashion industry is currently facing a talent crunch. What does it mean to be a competitive employer in 2022, and how might that evolve going forward?
SL: Just like the consumer, team members also have a lot of choices. The traditional way of running a big company — where you told people what to do and the further down you got in the organisation the more you’d just execute — is going to be obsolete. If you’re really clear on the vision, you’re really clear on the priorities, you can empower team members across all levels of the organisation to make decisions to follow the consumer. It will put pressure on us to become much more inclusive, much more engaging and much more diverse. It’s going to be our job to invite team members, independently of where they are in the organisation, to engage and see that they have impact in not only driving to become one of the winners from a shareholder return perspective, but also doing it in a way that maximises our positive impact from a [diversity and inclusion] and sustainability perspective.
This interview has been edited and condensed.