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CEO Dialogue Series

Business

Focusing on the facts to tailor a new future for fashion

28 September 2021 in CEO Dialogue Series

PVH’s Stefan Larsson on his approach to rebuilding the apparel business, sustainably...

When Stefan Larsson took over as chief executive of Old Navy almost a decade ago, the tired US retail brand, a division of Gap Inc., had been written off by many as it stumbled in the face of nimbler competitors.

But by the time he left to join fashion brand Ralph Lauren three years later, the Swedish executive had turned the company around, applying lessons from an earlier, 15-year stint at H&M, which had pioneered more youthful styles and rapid time-to-market.

The key driver of his ability to achieve success, he said, was setting aside the temptation to be driven by intuition and instead having an honest and open approach to assessing the situation around him and his new team. Setting clear objectives was vital, too.

“When I come into something, whether it’s a new role or a new company, I map out all the facts. So in the Old Navy situation, I mapped out where we really were in terms of the consumer, the competition, our internal KPIs [key performance indicators] and brought the whole management team around the table,” Larsson told IMD President Jean-François Manzoni.

“Sometimes as leaders, we have a tendency to be guided by our intuition. If we speak directly from this intuition, emotionally, it tends to be more difficult to get alignment. But if you put the facts on the table, you can quickly create this shared understanding of where you are.”

At the start, it wasn’t easy. Even though Old Navy was in a bad place, most division heads “walked around with heavy binders proving that they knew they were doing the right things in their areas”, Larsson says. Gathering the top six leaders into a room, he told them that walking around with binders may make everyone feel good temporarily, but the reality was rather different.

“I told them: team, we are in a very tough place. Can we just put all the binders down on the floor and jointly agree where we are, what the three main priorities are, and on our ability to from this moment to learn and execute?” Every week thereafter, he chaired a “learning session” for his team. This fact-based, analytical approach has carried him through two decades in retail to his current role at PVH Corp., where he this year became chief executive after arriving as president just before COVID-19 hit. PVH is a New York-headquartered brand company includes the iconic Tommy Hilfiger and Calvin Klein fashion brands, which make up 85 percent of its revenues. Tracing its roots to a small business making clothes for coal miners in 19th century Pennsylvania, the group has approximately 33,000 employees and generated over $7 billion in revenues in 2020. 

Nowhere to hide

Last year, as the full effects of COVID started to be felt, the facts faced by Larsson were stark: the retail sector was in freefall as lockdowns closed stores, decimating the high street, including iconic apparel brands such as Brooks Brothers, the two century-old shirt and suit maker to former US presidents. “While we were and remain a very well-funded company, we had to sit there and count the money in the bank and say: ‘can we operate for eight or 12 weeks before it’s over?’.” And there was nowhere to hide: the business is as global as the pandemic.

Larsson, who describes himself as “definitely unfashionable” growing up in a small town in Sweden, says the immediate issue for PVH was how brands like Tommy Hilfiger and Calvin Klein could remain relevant in such an environment. It is a question that today seems far-fetched given the rapid turnaround in PVH’s fortunes since then.

In the group’s second quarter ending August, PVH swung from a loss a year earlier to making $279 million in pre-tax profits, while international revenue and gross margin shot past pre-pandemic 2019 levels. Management has twice raised its earnings per share guidance for the full year.

Like many businesses coming out of the pandemic, PVH has been surprised by the speed of the economic recovery and its effect on business performance generally. But Larsson explains that the “super-charging of e-commerce”, coupled with a similar effect on how consumers view sustainability, have helped PVH remain relevant.

Before the pandemic, only about 10 percent of PVH’s sales took place online. Now, a quarter of its sales are done digitally. “We did that in less than 12 months because we had to survive as a company,” says Larsson.

Fashion Forward

Survival for many fashion brands is increasingly about responding to — and anticipating —consumer desires for products using more sustainably-sourced raw materials. There is also evidence that diversity, inclusion and gender issues are front and centre of how a brand performs, all the way from its supply chain right through to the catwalk, and employee engagement. As a report by McKinsey, the consulting firm, put it in late 2019 shortly before COVID-19 emerged: “Sustainable fashion is picking up rapidly among consumers, is starting to become a real driver of purchasing decisions, and is likely to be critical for competitive success in the near future.”

The Ellen MacArthur Foundation, which pioneers circular economy principles in collaboration with the fashion industry, notes that a number of companies have announced bold ambitions in sustainability. These include H&M committing to use 100 percent recycled and sustainably sourced materials by 2030 and US retailer Target aiming for 100 percent sustainability sourced cotton by 2022.

PVH is one of a group of companies working with the Foundation on circular economy initiatives. It also has a broad-based sustainability strategy known as Fashion Forward, which involves meeting 15 goals. These include ensuring that three of its most commonly purchased products will be completely circular, with full traceability of key raw materials, by 2025. Last year, Tommy Hilfiger launched Tommy for Life, a circular initiative to breathe new life into old clothes through recycling, repair and resale.

Larsson says that sustainability and ESG (environmental, social and governance) and company performance are mutually reinforcing and that the starting point for issues like diversity and inclusion is not, as some leaders seem to believe, the profit and loss account. “I don’t start there. I start from who I am as a person, what kind of society I want to live in, what kind of team I want to contribute to. That’s why it’s important to me.”

Nor is ESG a framework that he believes can be imposed on a company through command and control. Instead, it must be embedded across the organization.

“I realized that we cannot have an ESG function. We certainly have a function that helps with following up and guiding us on where we are, but ESG needs to be the responsibility of me as the CEO, the CFO [Chief Financial Officer], the head of Tommy [Hilfiger], the head of Calvin [Klein] and the rest of the leadership team, to create a common understanding across the organization of why this is important,” he explains.

“To me, it’s beyond business. At the end of the day, I want to …have a positive impact too. Yes, we are a business, but fortunately for us in our sector, those two things connect.”

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