“Nothing comes between me and my Calvins” purred 15-year-old Brooke Shields in 1980. That was the start of the designer jeans era of the ’80s – when everyone was looking at everyone’s back jeans pockets to see who had made the jeans.
Between underwear, fragrances, clothing and home designs (bedding, bath accessories like robes) Calvin Klein has put his name on just about everything that could go on a person’s body.
The brand started in 1968 and by the late ’70s it was famous among New York’s elite. It was at this high time in the brand’s existence that licensees started pouring in.
Many consumers don’t realize that most of Calvin Klein’s goods were not made by his company. Licensed arrangements for accessories, watches, coats, jewelry, hosiery, swimwear and fragrances made up the bulk of the products that carried the Calvin Klein logo in the ’80s and ’90s.
Brands usually get royalties of between 5 and 20 percent of the wholesale price of a licensed product. The strength of the Calvin Klein brand however, brought royalty arrangements that were some of the best in the world.
Why So Much Licensing?
You would think with Mr. Klein’s success, he would want to make all his products himself. Gucci and YSL proved that licensing does not always have favorable results.
Calvin Klein Inc. tried to make its own products, but the production costs were too high, along with problems of excess inventory. These high costs nearly destroyed the brand. By 1999, 90 percent of the company’s revenues came from licensees and the brand had products in more than 40 categories.
The Dark Side of Licensing
When Mr. Klein tried to sell his company in 1987, but that didn’t go through because of a bad stock market. Klein managed to regain profitability in the early ’90s however, and then put his company up for sale again in 1999. People were shocked. The company seemed to be in good shape. Klein was asking for a reported $1 billion though, which is a hefty price tag for a company that almost declared bankruptcy in 1992.
The main problem with the company: the dilution of its brand. Calvin Klein Inc. had so many licensees. The brand’s success depended on too many different organizations so no one wanted to take the risk of purchasing it.
The brand’s positioning was also confusing. With so many products at different price points and carried at so many different levels of stores, consumers didn’t know if the brand was high-end or low-end. Some licensees even compromised the quality of the brand by producing products that were below the standard the licensing agreements called for. By 2001, many U.S. department stores stopped carrying Calvin Klein’s high-end products. A survey conducted by the Luxury Institute ranked Calvin Klein first for familiarity among rich U.S. women, and last for status. Not good.
Calvin Klein Inc. was bought in 2002, however, by shirt maker Phillips-Van Heusen for $400 million in cash, $30 million in stocks and licensing rights and royalties that total $200 to $300 million. Not quite the $1 billion Klein himself thought his company commanded.
Of course, this is a somewhat happy ending for brand dilution: Calvin Klein still found a buyer, 15 years after its initial sale. Many companies aren’t that lucky. If brand dilution wouldn’t have happened to the Calvin Klein brand, perhaps Mr. Klein could have gone into retirement over 20 years ago.
Comments