PVH relies on strong brands as inflation rises

PVH, the owner of apparel lines including Tommy Hilfiger and Calvin Klein, believes that strong brands will be vital to tackling the challenges posed by rising inflation.

Costs are rising by double digits

• On a recent earnings call, PVH reported that its costs are up by 10% on average due to upticks in the price of raw materials and freight.
• “In these inflationary times, what’s going to really make a difference is brand strength, brand relevance, product strength, channel execution [and] channel relevance,” said Stefan Larsson, PVH’s chief executive.
• In Europe, for instance, “we see so much strength in all of that which positions us really well in order to navigate these inflationary challenges,” he added.

Strong brands have greater pricing power

• A major benefit of having robust brands, Larsson noted, concerns pricing power, and selling through goods without the need for discounts.
• Efficiency savings will undoubtedly play a role in countering inflationary pressures, but the willingness of consumers to spend more on their favourite brands and products is still essential.
• “When we look at that loyal consumer that shops both Calvin [Klein] and Tommy [Hilfiger], we see that we have an ability to drive pricing power,” said Larsson.

Passing costs onto the consumer

• Such pricing muscle will be invaluable given PVH is aiming to pass its rising costs onto the consumer, while recognising this approach has limits.
• In Europe and Asia, “where we have great strength and demand for the brands, we’re not necessarily seeing any resistance at all with consumers” regarding that approach, Larsson said.
• In North America, supply chain delays and a slow recovery for tourism are “clouding” the situation, meaning that gross margins may come under greater pressure.
• Even in that market, Larsson noted, “We already see very strong sell-throughs. We see pricing power increasing.”

The big idea

“We plan to mostly mitigate inflationary pressures with price increases and continued less promotional activity.” – Jim Holmes, interim chief financial officer, PVH.