WASHINGTON The images are forever seared in our brains.
A topless 15-year-old Brooke Shields pouting, "Nothing comes between me and my Calvins." Pop-singer-turned-actor Mark Wahlberg improbably making boxers chic. Waif-like British model Kate Moss, at 18, wearing only the scent of Obsession perfume.
For nearly four decades, Calvin Klein Ltd.'s provocative advertising in magazines, on billboards and TV has helped turn the brand into the Coca-Cola of the fashion world. From underwear to haute couture and fragrances, Calvin Klein has become synonymous with simplicity, youth and sex.
That image is now so powerful that Phillips-Van Heusen Corp. the company that bought the pioneering U.S.
designer's label in 2003 is convinced the world is ready to see a lot more Calvin Klein. They're planning golf shirts, mattresses, makeup, luggage as well as new sportswear and fragrance lines. And to sell it all: a new chain of Calvin Klein stores.
"The strong marketing campaign over all those years is what created that demand," acknowledges Tom Murry, 56, Calvin Klein's president. "It's not American, it's a global image that we're selling. The words that we hear back from customers all say 'clean, contemporary, sexy.
' "
The company is counting on consumers from Toronto to Tokyo plunking down as much as $8-billion (U.S.) a year on CK paraphernalia within five years, nearly double the $4.
5-billion they currently spend. Meeting that target would put Calvin Klein in the same league as fashion giants Polo Ralph Lauren and Giorgio Armani.
"Calvin Klein is one of those brands that is incredibly widely recognized around the world," pointed out analyst Jeff Mintz of Wedbush Morgan Securities in Los Angeles.
"It's not quite Coke, but it's one of those powerful global brands."
For Mr. Murry, the stakes are huge but the strategy is dead simple just keep adding new products that round out the Calvin Klein lifestyle.
The company has 20 new products ready to launch.
"We are a global lifestyle fashion brand," explained Mr. Murry, who joined Calvin Klein 11 year ago.
"Our strategy, in broad strokes, is to get into every appropriate product category and every appropriate channel of distribution on a global basis. We don't want to get into anything that would damage our brand. We try to focus on things that will enhance and make the brand stronger.
"
The Calvin Klein renaissance comes four years after Phillips-Van Heusen, a maker of lower-end men's shirts, stunned the fashion world by paying $700-million for the company, started by Mr. Klein and childhood friend Barry Schwartz in 1968.
Critics were quick then to write the brand's obituary.
The founding designer's exit, they said, would destroy the brand's cachet, and make the label a ball-and-chain for the new owner.
But PVH whose roster of brands includes Kenneth Cole, Izod, Arrow, Bass, CHAPS and Van Heusen wasn't interested in milking a declining business. Where others saw market saturation, PVH, which today lays claim to one of every three men's dress shirts sold in the United States, saw global opportunity.
The company, known for its business acumen, has aggressively invested in the brand, while folding back office functions into its existing operations. It's paid handsome dividends. Calvin Klein retail sales are up 60 per cent since the takeover, to $4.
5-billion from $2.8-billion in 2003. The big home runs for the company fall under the umbrella of men's and women's sportswear, shoes and accessories what it calls the "power" side of the business, mostly sold in major department stores.
The vast majority of the business is done through licensing deals with other vendors. Calvin Klein retains tight control on product development, advertising and marketing, even billing its licensees for a large chunk of those costs. Calvin Klein spends roughly $200-million a year selling its brands, with about 90 per cent of that cost borne by licensees.
Calvin Klein, meanwhile, gets a fixed royalty on all sales. The company won't say what percentage of sales it pockets, but analysts say fashion industry licensing deals are typically in the 7- to 10-per-cent range.
If 10 per cent of the revenue from licensing deals goes to Calvin Klein, the other 90 per cent winds up in the hands of a carefully selected group of partners, who make and distribute the products.
"The revenue isn't high at all, but the profit margins are great." said Mr. Mintz, the analyst.
Calvin Klein generates about 10 per cent of PVH's overall revenue, but an incredible 40 per cent of its profits.
And the business has become increasingly surprisingly global. About half of Calvin Klein's licensed sales now come from outside North America primarily Europe and Asia.
Asia is now the company's fastest-growing market.
Instead of being a drag on profits, Calvin Klein has emerged as the PVH flagship. The company credited the division for propelling the company to a 38-per-cent profit surge in fiscal 2006, which ended Feb.
4. Profit was $155.2-million, up from $117.
5-million in 2005. Revenue rose 21 per cent to $557-million.
Not surprisingly, the company has become a favourite of analysts, many of who have strong buy recommendations out on PVH stock, which has more than quadrupled since 2003.
Most analysts cite the momentum created by surging Calvin Klein sales for their enthusiasm.
It's all a long way from the tiny coat shop that the Bronx-born Mr. Klein started in 1968 with a $10,000 investment from his friend, Barry Schwartz.
It didn't take long for Mr. Klein's line of minimalist designer coats to attract the attention of some big New York City retailers, including Bonwit Teller. A year later, Mr.
Klein appeared on the cover of Vogue, and his career took off. Over the next decade, he added full lines of men's and women's clothes, sportswear, blazers, lingerie, belts, scarves, shoes, furs, sunglasses and sheets. By 1977, it was already a $100-million-a-year business.
But it was the designer jean and those Brooke Shields ads that turned Calvin Klein from an up-and-coming fashion designer for the well heeled into a pop icon. By putting his own name on the back pocket, Mr. Klein helped introduce designer sportswear to the masses.
In the first week his jeans went on the market in 1978, shoppers snapped up 200,000 pairs.
Calvin Klein figured out early on that sex sells. And pushing the limits of decency in its advertising has been the part of the company's M.
O. ever since. In one of the early jean ads, the teenaged Ms.
Shields says: "I've got seven Calvins in my closet, and if they could talk, I'd be ruined."
As the designer jeans trend faded in the mid-1980s, Calvin Klein used the same technique to sell classic underwear boxers and briefs. He soon turned that into a $70-million-a-year business, with the help of young models such as Mr.
Wahlberg and Ms. Moss.
By 1984, Calvin Klein was selling $600-million worth of branded merchandise in 12,000 stores around the world.
A recurring theme in his design has been to blur the lines between men's and women's fashions, including adapting male boxers and briefs for women.
In 1995, Calvin Klein enraged anti-pornography activists with a series of ads that featured adolescent girls and boys in suggestive poses modelling underwear. The company was forced to cut the campaign short after complaints from then U.
S. president Bill Clinton and several religious groups.
The 1990s weren't as kind to Calvin Klein as its first two decades had been.
Mr. Klein had hoped to eventually take the company public, but sales went flat, triggering frequent disputes over royalties. The company flirted with bankruptcy in 1992, and rumours of a takeover persisted for much of the decade.
Mr. Klein and Mr. Schwartz would not cash out until 2003, when PVH paid $400-million in cash, $30-million in stock and piece of future royalties.
Mr. Klein stayed on for a while as consultant. But these days, he just pockets royalties on a brand that is now just shy of 40 years old.
Mr. Murry, Calvin Klein's president, attributes the company's longevity to shunning the fickle trends of the fashion industry.
"One of the keys to the success of Calvin Klein is that we are not trendy," he admitted.
"What we do is manufacture modern, contemporary, tasteful, timeless kinds of products."
A big challenge facing the company is making sure the brand can survive being pumped up with all those products. Fashion experts acknowledge that Calvin Klein enjoys incredible consumer awareness and a cachet.
But some, like Toronto retail consultant Wendy Evans, worry its image is becoming confused as it expands far beyond its fashion roots. "It's become a bit diluted," she said.
To ease the ups and downs in the business, such as the ones that got Mr.
Klein into trouble, PVH has made sure that it's constantly selling a wide array of brands through multiple retail channels and prices ranges. So it sells dress shirts for as little as $12 all the way up to $10,000 Calvin Klein Collection evening gowns.
PVH chief executive officer Manny Chirico recently admitted that the Calvin Klein couture business is essentially a $200-million loss leader for the rest of the Calvin Klein brand.
"We don't plan to make money in this business," he bluntly told analysts last month. "It's brand marketing. It sets the tone for our big businesses.
"
The newest of those "big businesses" is a planned Calvin Klein retail chain. The stores will be lavishly decorated in mahogany, stone and blackened metal, each spanning to 10,000 square feet, which is large by mall standards. The company plans to open five stores this year on a test basis at malls in major U.
S. cities, selling a broad range of men's and women's clothing, plus all the latest add-on products, from watches to fragrances. It's planning another five stores next year, with an eventual target of 100 stores nationwide, and possibly in Canada as well, Mr.
Murry said.
"We'll see how big it can be," he said. "It will, at some point, reach an optimal size, maybe up to 100 stores.
"
The stores are a major risk for a company the size of Calvin Klein, but well within the means of cash-rich PVH to nurture, according to analysts.
And like its classic products, Calvin Klein is taking a conservative approach to the future. It's opening new stores cautiously, expanding its brand mainly through licensing, and is ready to deal with any bumps on the fashion runway.
"Outside of a major economic downturn or a terrorist event, I don't see any obstacle out there," Mr. Murry said confidently. "The brand is strong enough that whatever business we get into, as along as the product and the execution are good, we'll succeed every time.
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