Okay. Welcome everyone to the PVH Analyst Day. I'm going to read Manny's favorite page, the Safe Harbor. We obtained or created the market and competitive physician data used throughout this presentation from research, surveys or studies conducted by 3rd parties, information provided by customers and industry or general publications. Industry publications and surveys generally state that they have obtained information from sources believed to be reliable, but do not guarantee guarantee the accuracy and completeness of such information.
While we believe that each of these studies and publications and the other information we receive or reviews is reliable, we have not independently verified such data and we do not make any representations as to the accuracy of such information. The information in our presentation contains certain forward looking statements, which reflect our view as of October 2, 2012, of future events and financial performance. Any such forward looking statements are subject to risks and uncertainties indicated from time to time in our SEC filings. Our future results of operations could differ materially from historical results or current expectations as more fully discussed in our Safe Harbor statements found in our SEC filings. We do not undertake any obligation to update publicly any forward looking statements, including without limitation any estimate regarding revenue or earnings, whether as a result of the receipt of new information, future events or otherwise.
This presentation also includes non GAAP financial measures as defined under SEC rules. Reconciliations of these measures are included in our press release of October 2, 2012, our 2nd quarter's earnings release, which was released on August 27, 2012 and our 2011 year end earnings press release, which was released on March 27, 2012, all of which are available on our website at pvh.com/investorspressreleases. Additional reconciliations for years 2,003 to 2,009 are available in our current reports on Form 8 ks furnished to the SEC on March 17, 2005 March 26, 2007 March 23, 2009 and March 28, 2011. Each of these reports and our current reports on Form 8 ks furnished to the SEC in connection with the October 2, 2012 August 27, 2012 and March 27, 2012 press releases are available on our website at pvh.com and the SEC's site. And with that, I'll turn it over to Manny Chirico.
Thank you. Can you hear me well? Here we go. Thank you. Well, welcome.
Good afternoon. I guess I'd start the presentation because I've been asked the question about 12 times why we moved the location last minute with all the conspiracy theories that are out there. And sometimes the truth is not as sexy as some of those theories. The reality was when we set this up about and announced it and pretty quickly we were up to 35 attendees. And by a week ago, 6 or 7 days ago, we saw ourselves down to 19, and we look like we were dropping 2 or 3 people a day.
And it just didn't make sense with that limited size group to potentially go to Dusseldorf and try to pull this all off and all the work that was going on. So what we really tried to do is bring you here, bring the Tommy brand to life, and I'll talk about the agenda for the day. And we think this is the next best thing to being in Germany, and we can tell you about the brand. And the turnout today is close to 60 stockholders and analysts. So clearly, this will be a more efficient and productive presentation.
The day lines up. It's a full day. So I'll start by thanking you for your attention and your patience. We're going to go through this. We'll try to move through it quickly.
There's a lot of information. I'll give an overview to start the day off. Tom Murray, the CEO of Calvin Klein, will give about a 30 minute overview of the brand, where it's come from, its growth prospects and what we see going forward. Ken Duane will give an overview of the heritage businesses and the significant turnaround that's going on there in that business this year. Then we'll take a break and we'll go into Tommy.
The real focus of this meeting was in Germany was to be on Tommy and we'll continue to keep that spotlight on that business. Fred Gehring will give an overview of the business and the brand and give a global overview of how we're positioned. Gary Scheinbaum, the CEO of Tommy North America will come up, talk about the Tommy positioning here, the strong growth we're
seeing both in our wholesale and our retail business. We'll move
to Germany with the CEO of Germany, Daniel Greider, who really will go through and take us through how we're positioned throughout Europe, the strength of Europe Oliver Tim, the country manager for all of Germany and the surrounding areas, which are made up of 10 countries, but with Germany at its heart, Oliver will talk about the strong dominant position that we hold within that market. He'll take you through pictures and through some numbers, give you a real sense of the strength of the brand, which is core to the strength that we see in all of Europe. Fred will come back and talk about the growth drivers outside of North America and Europe, particularly in Asia, Latin America that we see with the brand, where we're seeing more than double digit growth even in this tough environment as we go forward. Our Head of Marketing around the world for the Tommy brand, Avery Baker, will take you through and give you a sense of the significant investments over the last 3 years we've been putting behind the Tommy Hilfiger brand and really give you a sense of this year's marketing campaign, talk about some of the spend and how we've really tried to reach our consumer through numerous types of media, but also at point of sale where we really engage with our customer.
And then we'll come back and wrap it up and give you a sense of what we see for the next 5 years and the growth drivers of the company. Look, I think around the room, everybody has been to one of our presentations. It always starts with our brands, the 2 global growth engines of the company. For the last 5 years, these businesses have been growing at a double digit top line pace. This year, even in this difficult environment, in local currencies, both of these brands are growing mid single digits between 6% 8%.
So we're seeing very strong growth here. Our heritage business, which has been a very stable cash flow driver for us, which has really established us and has allowed us to make these acquisitions, have had a very tough 2011. We're in a significant turnaround this year, second half. We're highly confident. We see some really positive results there.
And Ken will take you through that and talk about those businesses. When you look at us and we always start and measure ourselves from the Calvin Klein acquisition. Back in 2003, we were about $1,500,000,000 in sales and a little less than $1 a share. We did the Calvin Klein acquisition. We really delivered on all the initiatives associated with that acquisition.
We drove top line and bottom line growth, earnings per share growth in excess of 35% during that period of time of 2,003 to 2,007. We went into the financial crisis with a pretty strong first half of 2,008 and like just about everyone in the industry and around the world, it wouldn't matter where you were, just hit a wall in August of 2,008. The financial crisis hit, and we had a very difficult 12 to 15 months where earnings flat lined. And as we started to come out of that second half of 2,009, we started to see the business come back as North America came back and as Europe came back, in particular in some of the emerging markets, business started to take off. At that point in time, we really saw an opportunity for the Tommy acquisition.
We made that acquisition in the Q1 of fiscal 2010 May 2010 and set targets for ourselves that we've really delivered against. During that period of time, we've grown the earnings per share 30%. And even in a difficult year like 2012 has been, where we have the headwinds of not only the world environment, but also currency headwinds that are impacting both our top and bottom line, We are projecting to grow our earnings per share in the 16% to 18% range this year at the midpoint $6.35 So the business models continue to deliver and the brands continue to deliver. I'll talk about some of the trends in the business as I work to the end of this section and what's happening in 2012. You can see the top line growth during this period of time was 16% and throughout the entire period about 23% earnings per share growth.
Our stock has followed that trend. We again measuring from the same period during that period of time. Our stock is up about 7 fold. These are our competitors in that range and you see how the different performers have. The global players, the players with strong brands and strong operating platforms are the brands that have companies that have continued to deliver against their strategic plans.
During this period of time, we've put on about $4,500,000,000 on revenue. We've added operating margin improvement about over 700 basis points, earnings per share growth of excess of $5 Our market cap has grown by over $6,000,000,000 and free cash flow during this period of time of almost $1,500,000,000 So clearly, we have delivered against what we promised, what we stated that we would do at the beginning of both acquisitions of Calvin and Tommy as we've gone forward. The Tommy acquisition just changed us as a company. When you look at our business segments, our heritage business in 2,009 represented about 2 thirds of our revenues and about 40% of our profits. Today, Calvin and Tommy represent over 70% of our revenues and just about 85% of our profits.
Those are the drivers to growth. The Heritage business is a strong cash flow generator that give us a steady flow and balance to the portfolio. So it is from our point of view, it is a terrific balanced portfolio that we can take advantage, but the 2 growth engines are Calvin and Tommy. When you look at our mix from a revenue and a profitability point of view, pre Tommy, just a little bit over 10% of our revenues were international. Today, that's over 30%.
Probably this year, we'll end closer to 35%. And from a profitability, our Calvin International business licensing model, very profitable at that point in time. But today, international delivering in excess of 54% of the profits of the company. So a much more balanced portfolio, strong operating platforms, North America and Europe, a
developing platform in Asia with some of
our key businesses there and platform in Asia with some of our key businesses there and joint ventures that we've established and looking to develop a platform in Latin America throughout South America as well. So clearly on our road to what we are trying to establish strategically both from a brand point of view and operationally. The brands, when you think about our size of $6,000,000,000 in sales and you consider the significant amount of revenues, particularly the Calvin book brand that we do through royalties. This is just another way to look at it and gives you a sense of the power and size of the brands and the geographic diversity. The 2 power brands clearly growing in South America, particularly Brazil and throughout Asia, China and India driving that as well as Southeast Asia.
But clearly, we'll put more color on this during the presentation and talk about the growth of each of those markets as we go forward for the brands. Again, if you look at each of the operating models, the Calvin business reported sales last year of about $1,100,000,000 operating margins in excess of this is last 12 months excuse me operating margins for the last 12 months in excess of 25%. The businesses that we operate directly operating at about a 13% to 14% operating margin. And then the licensing model with the advertising revenues grossed up on the top line delivering about a 50% operating margin lends to about a 25% margin, very cash flow positive and has allowed us to pay down significant amount of debt and continues to be a big grower for us. The Tommy business, 3.1% in reported revenues worldwide.
We'll talk about that in great detail. Very profitable business. North America, probably about 11% the last 12 months. Europe, internationally closer to a little bit over 13%, 13.5%. We'll put more color on that.
And our Heritage business, the last 12 months has been under tremendous pressure. We've dealt with some self inflicted issues and we've also dealt with the rising cost prices that we've seen from a product point of view. That we feel is totally behind us. We started to see really some positive results in the Q2. And I've been very clear that through the early portions of this Q3, we're halfway through it, this business has really started to kick in.
The eyesight business at J. C. Penney, our dress business, which has continued to grow. And we see this growing back to its historical levels of profitability of 10 plus percent over the next 2 years as we go forward. The environment we're dealing with, you know it as well as I, it is not the most advantageous environment.
There's not as much wind behind our back as there might have been in 2,009. The consumer is feeling pressure in our 2 big markets North America and in Europe. We're seeing we are seeing solid back to school performance at retail. The consumer is spending money. But again, the overall environment is one that does lead itself to uncertainty.
Unemployment continues to be high, both here and throughout Europe, especially in Southern Europe where there's more pressure. You can't pick up you can't help but pick up the paper and see all the headlines surrounding Europe, the sovereign debt crisis and also the uncertainty that's been around the number of the elections, how that's going to impact some of the policy decisions. In the U. S, we have our own uncertainty, the presidential elections, the financial cliff that's ahead of us and how that's going to be dealt with politically if Congress, the executive branch of the government is going to have the political will to really do what's necessary in order to get the country back on the track that's necessary. And hopefully that will come together as we go forward.
The sourcing environment, we've dealt through the last 12 to 15 months coming into the fall season with a significantly product cost inflation environment where we saw cost up 15% to 16 percent over a 12 month period. We're starting to see that trend reverse itself into the fall holiday season this year, where we're seeing cost down 5% to 7%. I expect that to continue into the first half of next year, where we're looking for similar trends across the business. So that is starting to stabilize and get back to levels and that would clearly help our gross margin in the second half of this year into next year. Again, our philosophy has always been to set achievable goals.
We did that with the Tommy acquisition. We were able to outperform those goals as that chart mentioned. I think we've really set ourselves up with our 2 growth brands to be very well positioned for the second half of this year and beyond, where we really feel that we can deliver against the growth initiatives that are out there and the projections we've given ourselves. Our brands continue to have leadership positions by product categories and by region. We're seeing strong growth.
And I mentioned it at one point, but I don't think it's really focused on. We feel our operating platforms in North America and in Europe, pan European are second to none. We feel we can we have that competitive advantage. We feel that we really are able to deliver. Putting those 2 strong brands on those platforms really will give us an ability as we go forward with some of the initiatives that we had in the past.
And we've always had the philosophy to underpromise and overdeliver. So we try not to get on this treadmill where we're constantly chasing earnings all the time. We take it very seriously where we give guidance that we understand we have the responsibility to communicate where trends change either positively or negative that we have to keep you into that in that environment. We recognize that. And we also recognize that we want to over deliver and we've been able to do that over the last number of years.
And when you take again, just to take you through it, this is us pre the Tommy acquisition. We've put on 2 very strong 3 very strong years during this period of time. We feel like we're positioned in 2012 with the second half to continue that momentum. We're looking for continued strong growth. That's 31% growth during that period of time.
We came out this morning. We updated guidance. I spoke to all of you. I know you saw it. We took our estimates up for the at the top end of the earnings guidance dollars 0.05 a share for the year and the Q3.
We're confident with the back to school trends. We're seeing strong trends in North America, just again, to just give you some ideas. In our own retail business, our Calvin and Tommy retail comps continue to run-in the high single digit range. Our heritage businesses in North America are running low single digit right on plan delivering what they said they're doing, good margin improvement there. In department stores, we're seeing very strong performance with the Tommy brand.
Year over year, we're up about 9%. Calvin continues to grow very strongly, continues to exceed our plans on a wholesale basis. Moving to Europe, we continue to see low teens comps throughout Europe. The trends have been very good. We have not seen any slowdown there.
So a lot of the talk about Europe falling in the ocean, we don't see it in our stores. I've talked about that we're looking at the spring summer sales estimates based on our order books and how that's come together. We're looking for 4% to 5% top line growth in wholesale. We think that's very strong considering the environment, considering that we believe most retailers have cut their open to buy receipt plan anywhere from 5% to 7% throughout Europe or higher depending Northern and Southern Europe. So we clearly continue to feel we're continuing to gain market share in a tougher environment and are performing against that.
So those are the trends in the business. That's what gave us the confidence to raise our estimates as we go forward. And when we talk about and we look out the next 5 years, absent an acquisition and generating a tremendous amount of cash during that same period of time, we are very comfortable during this period of time looking for growth in the 15% range, targeting something in excess of $11 per share. From an earnings point of view, as we look out to 2016, that's a compounded annual growth rate of 15% from an earnings per share from 2012 on. We think it's a prudent reasonable estimate.
I don't want to call anything conservative, but it is they are based on our business plans. It's something that we're very comfortable getting out there and giving guidance to. And it also will as this will start to unfold, this presentation, will support significant cash flow generation, which will allow us options from acquisitions to be more aggressive. The right acquisition doesn't come along with stock buybacks or whatever would be necessary to do the right thing. But the businesses are inherently cash flow positive and you'll see that as we go through this presentation.
Our plan is to really unpack this today starting with Calvin, moving through Heritage and then Tommy. We'll really give you the building blocks for what makes us feel comfortable about this business and brand by brand as we go forward. And then I'll come up and put a little bit more color on this as we go forward. So with that, I'd like to bring Tom Murray up, the CEO of Calvin Klein to take you through that business. Tom?
So if I seem
a little distracted during my presentation this morning, it's because I'm not used to sharing the stage with the Tommy Hilfiger product presentation, not to mention the green horse over there. Usually, we have a very Calvinesque environment for my presentation, but I'll do my best, okay? So we put together some slides to just give you an overview of the Calvin Klein business. In 2011, we grew our global retail sales to over $7,600,000,000 I think you're all familiar with the brand pyramid, but just as a refresher, if you visualize the top of our pyramid, it's Calvin Klein Collection on a black label. The middle part of our pyramid is C.
K. Calvin Klein on a gray label. That's our Bridge business. And our biggest business at the base of the pyramid is our Calvin Klein White Label business. We have over 60 domestic and international licensing partners around the world.
And our business model gives us the opportunity to leverage our brand across multiple products, channels, price points as well as geographies. Last 12 months through Q2, revenues were $1,100,000,000 operating profit of $275,000,000
which was just over 25 percent margin.
Our business breaks down basically into 2 parts. On the one side, we have our licensing business and wholesale collection. On the other side, we have wholesale apparel both retail and wholesale. The all of these businesses are supported by a dedicated in house design studio, dedicated in house advertising agency as well as a dedicated in house PR agency. This is what gives us the ability to really control the brand image all around the world.
Retail sales, we've been able to achieve a 13% compounded annual growth rate since the acquisition back in 2003. And our operating profit, we've been able to achieve a 24% comp annual growth rate since 2003. Our brand strategy will be to continue to drive brand reach and recognition globally through new consumers, regions and channels. We grew the business 14% last year and we added over 400,000 square feet of new retail selling space globally. 2012 continues to experience growth despite European weakness and significant currency headwinds.
We'll continue to optimize investment in strong global advertising. We've been upgrading our e commerce site. And by the second half of next year, we'll have a fully integrated dotcombrandandecommerce site in the second half of next year. Continue to optimize Calvin Klein across all 4 of the major business major regions around the world. And now I'd like to play a 2 minute PR video that just highlights some of the recent celebrity So this really is an important part of what keeps the brand awareness and brand image so high all over the world.
We spend over $300,000,000 a year advertising the Calvin Klein brands. Time Magazine last year named Calvin Klein 1 of the top 100 icons in fashion, style and design. Obviously, collection serves as the halo for our brand. A really key part of our success is combining strong marketing with strong product innovation. The global launch of the CK1 lifestyle, which I think you all may remember last spring, was the biggest offering that we've done, an initiative of that nature, and it combined fragrance and underwear and jeans wear, and that continues to do well for us.
The big initiatives this year were bold Calvin Klein underwear. You probably saw that campaign, underwear in very bright colorations. That's launched in spring and continues to sell well. The fall initiative in jeans is called Jeans Liquid Metal that has sort of a metallic copper colored coating on it and there's a very powerful ad campaign out there with our model Laro Stone and we're starting to see some good performance out of that already. The big fragrance launches this for 2012 just in September recently we started rolling out our new master brand Encounter.
The talent for that is Alexander Skarsgard. You may remember him from the miniseries True Blood. And it's no secret that he's rumored to be the star of the new movie 50 Shades of Grey. So we do hope that that occurs. It will help the cause as well.
Also for fall this year and it just started earlier this month, we're rolling out a new global advertising campaign for Euphoria. We're beginning to shift our advertising mix over to digital. You can see here in 2,009, it was only 1%. This year, it'll be about 23%. One of the main reasons for this is to begin to reach that millennial consumer.
The CK1 campaign that I referred to earlier was our largest digital marketing campaign to date and L2, a digital think tank group called us genius for digital marketing efforts around the CK1 campaign. So we like that word. Major Calvin Klein events in 2012. As always, we'll have our men's and women's runway shows in New York and in Milan. We had a global introduction of CK1 Color Cosmetics in spring of 2012.
We started with 150 doors. We'll be in 4 50 doors by the end of this year. I'm happy to say that that product is selling quite well. So we see that as a major, major volume opportunity for us in the years to come. Where the Calvin Klein Underwear is celebrating its 30th anniversary this year.
And to commemorate that, they developed a new product called Calvin Klein Modern. It's very iconic, the black and gray. So again, great product and great marketing. Watch division is celebrating their 15th anniversary this year and there already have been some activities built around that and there'll be some additional PR activity around that. I showed you the celebrity dressing video a moment ago.
As a result of that and other things that our PR department does, in 2011, we achieved over $400,000,000 in the advertising cost equivalent of editorial coverage. So this and this is primarily as a result of that collection business and this really is an important part of maintaining our brand image around the world. You can see that about half of our business is in North America with about 18% in Asia and 27% in Europe. I'm going to show you a slide a little later on that's going to show some predictable skewing over to Asia in the out years. Outside of the United States, a very important part of our business model is freestanding stores.
As you know, outside the United States, you don't have the department store venue that we have in this country. So you really are very dependent upon freestanding stores. And what they provide for us is not only important branding platforms, but obviously very important revenue platforms. We ended the year 2011 with almost 8 70. We added over 100 stores.
We're probably going to end up adding more than 100 stores this year and I believe we'll have over 1,000 freestanding stores by the end of the year. This is our Madison Avenue flagship. I'm sure most of you have probably been in it. People from all over the world every day are in this store and it really has a brand impact enhancing impact on consumers when they're in this store. This is one of our CK Bridge stores over in Hong Kong.
This is on Queens Road very, very productive store. This is a combined jeans and underwear store in Hong Kong. It's about 4,000 square feet also a very high productive plant for us. This is a 2 level store in Beijing. It just has great street visibility with the large mural on the outside.
I'm
going to
talk a little bit about the regions. North America did $3,700,000,000 in retail sales in 2011 with a growth rate of 3 year growth rate of over 10%. If you isolate the United States, it's about $3,400,000,000 or 45 percent of our total global retail sales. First half trends up 4%. And really what's creating a little bit of a downward trend there is our jeans and underwear businesses in the United States, both of which are down double digits.
The one highlight there is men's underwear is showing plus business. But this has been offset by our department store business in many, many of the other categories. And I'll talk a little bit about some of these later on. Our women's businesses are doing very well. Men's sportswear is doing quite well.
Men's suitings, footwear and accessories. So the U. S. Business is very strong and it's offsetting a lot of what's going on with Wernaco. Over in Europe, dollars 2,000,000,000 in retail sales in 2011, 3 year growth rate was up 3%.
You can see the key markets here. And you can see how heavily penetrated we are in Italy and Spain, which obviously has created some headwinds for us based on the economic environment down there. First half trend sales down 10% in constant currency as a result of what I just described. But we believe there's a big short term near term opportunity for us in Europe and that is to put our bridge business on the Tommy Hilfiger operating platform and I'll talk a little bit more about that as we move into the presentation. Asia $1,400,000,000 retail sales in 2011 and 3 year growth rate there has been a robust 16%.
Biggest market obviously is China at $350,000,000 followed by Japan and Korea that are just about even. First half trends continued momentum in the region, plus 5% momentum in the region, plus 5% growth in constant currency. This is driven by China, which is up 18%, growth driven by significant square footage all throughout Asia, but concentrated heavily in China, double digit growth in Hong Kong as well as India, and we are seeing softness in Korea. Everybody, I think, knows that there's a bit of an economic slowdown going on in Korea. Mexico and South America, dollars 500,000,000 in retail sales in 2011, 3 year growth rate up 22%.
Key market there is Brazil with over $200,000,000 in retail sales in 2011. And we believe over the next 5 to 7 years, there's a $1,000,000,000 plus opportunity for sales in this region. And we're seeing expansion in Argentina, Peru and as well as Chile. We also see longer term a bridge sportswear opportunity in this region of the world. First half trends up 13% in constant currency, as I said, fueled by Brazil, which was up 20%.
Our top 3 licensees represent almost 70% of our total licensing revenue. Wernaco at the top with $2,800,000,000 in sales, CODI with $1,400,000,000 and G III with a little over $900,000,000 You can see I'm not going to read it, but you can see all the categories that G III is in and we'll talk a little bit more about G III in a few minutes. Wernicke business down 9% in constant currency in the first half driven by softness in both New York North America as well as Europe. North America and Europe down over 17% 15% in constant currency respectively. But the momentum over in Asia is strong.
Asia and South America continues in 2012 with over 5% 20% in constant currency respectively in the first half of twenty twelve. WarrantyCo is working hard to improve their business. There's a major focus on product. They brought in a senior merchant who has built a strong design team. I was over there myself last week looking at the product.
It definitely has improved and we're hearing positive feedback from the retail community about that product and that's the first time we've heard that in I would say a number of years. So we're hopeful of some retail improvement in North America in the first half of next year. The key initiatives for Warneco, springtime they launched Double Indigo, which was another marketing and product initiative. I touched on liquid metal and bold in the marketing segment. But one of the most exciting things is the CK Push positive bra that you see here modeled by our model Lara Stone.
This just started getting into the stores the 1st part of September and it's selling quite well. So we have high expectations for that
business.
CODI, dollars 1,400,000,000 that was that last year and we expect to see 5% or more growth out of them this year. In 2011, Calvin Klein became the number 3 fragrance brand in the world. We took over Armani's Place. And we believe the Calvin Klein fragrance portfolio has the potential to reach over $2,000,000,000 in retail sales over the next few years. First half trends up over 5% up despite being up against a very heavy first half launch schedule last year.
This year the launch schedule is heavily weighted to the last to the second half of the year. The 2 major launches in the second half is Encounter, which I touched on and Euphoria, which I touched on in the advertising segment. And I did mention the color cosmetics and so that was also in the marketing section. So over at G III, we're actually in more categories than this. Men's and women's outerwear is missing on this slide, but virtually every one of these businesses is good.
I'm over there quite a lot looking at their product and what they do is just continuously improve on product and execution. They're great merchants. They're great students at the marketplace and can't think of enough good things to say about this G3 business. Our owned and operated businesses generated over 6 $60,000,000 in revenue in the last 12 months through Q2 with $78,000,000 in profit and almost 12% margin. This business the owned and operated businesses are comprised of wholesale dress furnishings and sportswear as well as North American retail chain.
And the revenues here have increased about 7% in the first half. And in fact, if you look at all the combined Calvin Klein businesses altogether, it's the same 7%. So despite some of the headwinds that I'm describing, we're really pleased with the way the business is holding up. The way the in house businesses break down, men's sportswear is about $150,000,000 business. We see that having a $200,000,000 opportunity in the near term future.
And the last 12 months through Q2 dress furnishings $79,000,000 and we think we can add an additional $50,000,000 in sales there also in the fairly short term future. The North American wholesale strategic priorities are to elevate our brand through maximizing top door presence. What we mean by that is we're looking in the high velocity stores to improve the size of our space. And every time we do that, we get a benefit for it. Also working hard to elevate our AURs through product enhancement and increasing the intrinsic value, making the product looks more expensive, and we get more for it as a result of that.
We're always looking to grow new consumers, product enhancements and category growth. Another very important initiative is our warm weather climate initiative. So down there in the southern tier, we make sure we're delivering wear now product, getting it on the floor at the right time and we're starting to see some good traction as a result of that. And we'll continue to leverage that millennial consumer with initiatives like the CK1 product initiative that I referred to earlier. And we're looking at the possibility of direct operation in some new markets.
For example, Mexico is one that we're having a look at. So the men's better sportswear, if you break that down, is $147,000,000 business. Sorry, I did sound familiar. Okay. I want to show you some of these shop in shops throughout the United States.
These are all a reflection of larger shop in shops and maximizing the volume potential and high velocity doors. This is Macy's Garden State Plaza, Lord and Taylor in Stamford. Let me get this right in a second. Macy's State Street, Macy's Lenox, I think these are just great looking shops. This is our retail business.
Last 12 months through Q2 generated revenue of over $430,000,000 We operate approximately 115 stores. It's strong comp performance 2011 up 16%, Q1 up 9%, Q2 up 5% and Q3 is trending back towards the 9%. So we're seeing a recovery in that business. Not that the 5% was even that bad, but it's coming back. The North American retail strategies maximize growth and profitability in top performing centers.
We just recently opened a megastore out in Harriman, 20,000 square feet, very, very productive store off to an excellent start. We'll be opening stores of this size in Miami and Las Vegas by the end of this year to the Q1 of next year. And so we see that as a great volume opportunity for us. Also, as a result of new centers opening in 2012 and 2013, we believe that will give us the opportunity to add 30 new stores over the next 5 years. We just opened an accessory store concept down in Dolphin Mall in Miami.
That's off to a good start. We're going to open a couple of more of those before the end of the year. And if they are successful, we believe this represents about a 50 store opportunity over the next 5 years. We just started up in Canada this spring. We opened 5 stores there.
We will open 5 stores by the end of 2012. That business is good. We're opening another mega store up there in Toronto in Bond Mills. That will be about a 20,000 square foot store. And we believe there's the potential to have between 25, 30 stores in Canada.
Also looking at new markets around the world possibly to expand into. We're looking at Guam. We're looking at Caribbean, the Caribbean and we're looking at a few others. I talked about the integrated brand site. And this is the facade of the Harriman megastore that we have recently opened.
This is the cash wrap on the right side. You can see we're ready for business with the size of that cash wrap. And I think very creative mannequin display on the other side by our visual department. This is the accessory store down in Dolphin. So we believe we can add $4,000,000,000 in retail sales approximately over the next 5 years.
And so how are we going to do that? Continued growth in white space, improving global store profitability both on the wholesale side and the retail side and the bridge opportunity that we think can generate about $500,000,000 in the 1st 5 to 7 years of operations. You can see that the brand awareness in the 6 top countries in Europe, we are ranked in the top 5. And I love the fact that we're number 1 in the U. K.
Here's the opportunity that I was referring to earlier. We recently were able to get our bridge business back from Wernaco, who had been operating in Europe because they did not achieve the renewal thresholds. So what we've decided to do, we haven't determined the exact timing yet, but we're already in process. We're going to put that business on the Tommy Hilfiger operating platform, who does an extraordinary job in Europe and has a tremendous amount of credibility with the retail community over there. And with the strength of our brand on top of that operating platform, we feel certain that we're going to have a big business over there.
This just shows you how the growth is occurring by region between now and 20 16. Predictably, the highest percentage of growth is going to be in Asia and in Latin America. This is what I was referring to earlier about the SKU. And you can see in 2011, Asia represented about 18% of our business. And by 2016, it will represent about 24% of our business.
So we really believe that between now and 2016, we can maintain a CAGR of between $8,000,000 10 $1,000,000 and grow our business to over $11,000,000 in global retail sales. And on the revenue side, we see it going from $1,100,000,000 to $1,600,000,000 and we see our operating margin improving from 20 6.1% to 27%. The reason for that improvement is because our owned and operated businesses are growing faster than our licensed businesses. Thank you.
Even though you didn't say
and I'm going to introduce Ken Duane, that's okay. And I'm sandwiched between heritage is sandwiched between Calvin Klein
and Hilfiger, but that's okay too.
Good morning, good afternoon. I'm going to take you through the Heritage Brands. I have 15 minutes to do this, so start the timer now. Heritage Brands, we continue to drive significant cash. So where about cash flow?
Basically, our business is split into 3, a third, a third and a third. A third of it is dress furnishings, which is our dress shirts and neckwear and a portion of underwear, sportswear and then retail, but a third, a third and a third and that's where our revenues fall. When you look at the businesses in dress shirts, close to 1 in 3 dress shirts sold in the United States is a PVH dress shirt, 45% of our share in chain stores and top stores. And we have the top 3 brands, Arrow Van Heusen and Jeffrey Bean. In neckwear, we're the world's largest neckwear company.
We have a 50 percent share here in the United States. And in sportswear, we have the best selling men's brand in Van Huse and number 1 and ARO number 3. And Izod is the 3rd largest selling men's knit sports shirt. In retail, we have 500 Van Huse and Izod Bass outlet stores, 2nd Q12 and for our 11 comps are about plus 2%. So first half comps of 12% are relatively flat.
So that gives you a pretty good overview of who we are. When you look at what do we want to do and what's our strategy? Well, maintain and neckwear, I've already said we own 50% of the market share. In dress shirts, it's 45.5% of the market share. And that continues to grow.
And you might ask where that growth comes from. We see a lot of that growth coming from, quite frankly, from private label. We're seeing continued growth in the dress shirt area and market share. Woven shirts is 14%, knit shirts 12.6% casual pants 7%, which is a relatively new entry for us. We're competing on the casual pant floor today with the likes of Dockers, Hager's and the other big players and growing at a pretty good base there.
In underwear less than 5%, but with Tommy Hilfiger, we've signed on Michael Kors. In Chaps, we're doing the underwear. So it's a relatively new business for us, but growing. Okay. So break down the heritage division in the last 12 months 2nd Q and 2012 and what happened?
What went wrong? Well, the headwinds, first off, when you look at our business and you talk about our business, we're a moderate play in the sportswear department. Cotton went from $0.70 up to $2.35 And at the time it was $2.35 everybody was leaning on $2.50 $2.75 Nobody knew where it would stop. Well, it's back to $0.70 So we knew where it would stop. It came way back down.
So across the world as we look and that was 12 months ago. So in 2011, you were faced with all of that, your business. And particularly in the second half of 2011, you were faced with a cotton based business and cotton prices being anywhere from $1.85 to 2.35 dollars a pound. Now as you're looking out on the second half of twenty twelve and first half of twenty thirteen, certainly you're seeing cotton prices in that stabilized back to historical levels, which is in that $0.60 $0.70 a pound area. So dress furnishes and Van Heusen, Arrow, we're doing close to $1,000,000,000 in revenue, drives $95,000,000 We want to maintain and invest in those two businesses.
Timberland and Izod Women's were businesses where we were doing close to $130,000,000 worth of volume, dollars 2,000,000 worth of profit. Have now exited those businesses both Timberland and Izod Women. And Izod and Bass, we had $610,000,000 worth of volume generating relatively no profit in 2011. So what do we need to do? We need to go back and fix those businesses.
So overall, close to $2,000,000,000 worth of volume with $98,000,000 worth of profit. So look at it. On the initiatives for 12, elevating the in store experience in the top doors, market share growth via cross channel, where we took our dress furnishing dress shirts and we expanded Van Heusen from I can't call it JCPenney anymore, it's JCP. We expanded Van Heusen from JCP into Kohl's and we expanded Arrow from Kohl's into JCP. So we took the mid channel.
We expanded the mid channel. It's been very positive for us, positive market share growth. Exit the underperforming business, as I already talked about that. We got out of Timbaland and IZOD Women's. Redirect our marketing spend.
Well, we just signed on the IZOD side some of the things that we were doing relative to the Indy 500 and Indy Grace Car series. We were getting a lot of awareness around IZOD, but it wasn't connecting with our consumers. So we're looking to deemphasize that. We've gone back into the golf area in IZOD. We just recently signed Webb Simpson.
Some of you may have seen him on
the Ryder Cup this weekend. We own Kevin Na. And we're directly we're connecting with our consumer through our business. Turnaround our Izod Men's, all 680 we opened up 680 Izod shops at JCP and the performance to be tested, the performance is they're performing very, very well. And Turnaround Brass, that's we hired a new person Kristen Burrows who came to us from the Sperry brand.
She's done a very good job in turning that business around. So we're very positive about the initiatives we'll put in for 2012. When you look at the heritage brands and dress furnishing strategy, we manage a portfolio of brands. We manage a portfolio of businesses. We manage a portfolio of brands.
Our neckwear and dress shirt divisions continue to grow through cross channel expansion. I spoke about that. The Insignia business, which is a relatively new business, when we bought the neckwear company as Superba, they had an Insignia division within there that had Ted Baker, John Varvatos and Better Brands Ike Baja. We took that. We implemented it in our dress shirt division and it's given us the opportunity to sell what we call sell away from the middle up on the mezzanine which is the Nordstrom's Neiman Marcus and Saks Fifth Avenues in dress shirts.
And the dress shirt business quite frankly continues to be very strong. It's a strong performer and they're best in class. The dress shirt, dress furnishings area is best in class. Van Hughes and the Arrow businesses remain healthy. We maintain and protect that business longevity.
Both brands are working. Both brands are moderate plays and they're working very, very well. Reinforce our value equation. So growth through cross channel expansion, which I talked about. Kohl's and JCP expand the web presence.
We have a web landing page that we come to. And as you click on it, you can go shop at JCP, Izod, etcetera. It's worked very, very well. Targeted investments in marketing, the Van Heusen Institute of Style. We've built a platform for Van Heusen, which is the Institute of Style.
It's our platform. And on that platform, we're today loaded on Steve Young and Jerry Rice and it's been very, very well received. We have national advertising. We're tied in with the National Football League on our advertising campaign and it works very, very well on our brand awareness. Van Heusen retail, solid performance at retail across all categories with dress furnishings as a standout.
It acts as a strategic complement. Van Heusen retail is a strategic complement to our wholesale business and continue to strengthen the value proposition, the product assortment and presentation and we have targeted new store growth in some of the best new centers around the country and around North America. Turn around the business. Izod was one of those parts of the business that needed to be turned around. And I'm here to tell you that in the first half of twenty twelve we've seen it, but certainly in the second half as we've come out and what we're looking at for 20 13, it's clearly in the middle on the wholesale side in the turnaround.
We focused on the men's sportswear business and department stores. We exited the women's business. We developed a strategic plan to strengthen the IZOD men's business and connect to the consumer and marketing to our consumer base. And here you see one of our other players, which is Kevin Na and one of our Izod commercials. JCP is a key partner for wholesale.
So JCP, I'm sure all of you are familiar with the new JCP transformation. We've been an integral part of that transformation. They opened up 680 shops, 70 plus of them are 1100 square feet and the balance are in the 500 to 600 square feet. The performance since they opened, which is right around that mid September area from September 1 to September 12 has been very, very successful. The challenge still remains at JCP as a corporation.
They've got to drive footsteps into the store and drive traffic into the store. But I'm here to report that on the IZOD side, the experiment has been very, very, very well received. We had $10,000,000 investment in the shops and the commitment with JCP for the next few years. Here you get a look at what was the original Manhattan Mall, which is right up the street across from Macy's here at Roosevelt Field. So one of the constant complaints that we had from our customers in some of our focus studies was, I love your marketing.
I like your product. I like what you're doing. But I can't when I go into the department stores, I don't find a loving partner in your brand. You don't have a home like Hilfiger and Calvin Klein have. Well now at JCP, clearly, we have that type of home in that type of environment.
So our early learnings from the J. C. Sharp experience, our sales trends continue to be driven are going to continue to be driven by in store traffic. That's going to be important for JCP and continued improvement tailored of our marketing message. Initial sales are strong running up 40%.
That's conservative since the installation of the shop. Quite frankly, I think the September sales to LY are going to be up closer to the 50%, 60% range. Our eyes on retail will act as a strategic complement to the wholesale business and active inspired product focus with the emphasis on active golf. So connecting you with what Izod's all about, which is a sports spirited colorful inclusive brand. And that's what our retail strategy is.
We have some targeted store growth strategy. So when you look at in retail and turnaround in Bass, we talked about IZOD and what's going on within IZOD and the success that we've had certainly on the wholesale side. But then when you look at Bass, we have a new management team. They're in place. They've rightsized the real estate portfolio.
They've targeted some real estate growth. They've continued to elevate the in store experience when the consumer comes to the store, improve new prototype store layouts and fixturing, strategic product investments. Bass owns some heritage brands that are Weejuns or the Bucks or the Sunjuns, some real names that go way, way back in the history of what is Real Americana, strengthen those prices, strengthen those value propositions, work on go back to product, product and product, targeted store growth strategy and we have new divisional leadership in place as I said with Kristen and Burrows. So Heritage Brands will add modest growth over the next few years. From 2011, you look at a 2.3% increase to 2016.
As we look, it's a measured growth opportunity, but consistent cash flow opportunity too. When you look at what happened in 2011 as we came down and we in the last 12 months operating, which would be half of twenty eleven and the 1st 6 months of this year, clearly we were hit with the cotton prices. But as we look out in 2012 and you look into 2016, returning to what we call the double percentage back 10% or better operating margin on the bottom line. So we're very optimistic about where we're headed. So revenues in the $1,800,000,000 today growing to about $2,200,000,000 in 2016 and the operating margins going from where they are 7.2% to 10% to approximately 10% in 2016.
And with that, I will turn it over to Fred Gehring.
Well, I think we're going to give you
a chance to everybody have a little bit of a quick break 5 minutes. We'll set up for Tommy to take you through that. So again, if anybody wants to grab soda, coffee, the restrooms are right through those doors. But let's we're doing really well on time, so let's keep it there. So let's not lose everyone to the BlackBerrys and phones.
So 5 minutes, please.
Okay. I think we can get started again After the surreal mega billions of Calvin Klein, we have to return to the modest world of Tommy Hilfiger. This is a story that is going to be told by several people that Manny already indicated. I'll do a bit of an overview snapshot of the business and want to explain some nuances particularly as it relates to the past and only in as far as the past impacts today and more importantly the future. And then obviously I will give it to Gary, Daniel, Greider as the CEO of Europe respectively in the United States and then all of the Tim we brought in over from Germany.
First of all because after making sure that Tommy Hilfiger dominates all of Dusseldorf to the fact that every window and every apartment store is Tommy Hilfiger on the occasion of your visit today, we decided to like let him bring Dusseldorf here. But importantly also because in as you will see in the European presentation, the organization we have built in Europe with our divisions and then our countries and the interaction between these two functions in the organization is very, very I think very, very important for the success that we have achieved. And it's interesting to see not only the dominance of the brand in the German greater German area countries, but also the perspective of a country manager in the organization and how it interacts with the head office. Today, Tommy Hilfiger is a $5,600,000,000 brand, not too shabby either, I want to say. As you can see, 35% of it is in North America.
Importantly, Europe, in the meantime, with 45%, Mexico, South America, Asia self explanatory. It's what we say classic American cool preppy with a twist. It has very, very strong global brand awareness of course and I think is by now generally seen as one of the most important accessible designer lifestyle brands. And the classic American cool position is one that will down the presentation get a little bit further explanation because it hasn't always been that clear especially not in this part of the world whereas in other parts of the
world that's consistently always
been the story. The reported always been the story. The reported revenues in the last 12 months ending the Q2 of 2012, dollars 3,100,000,000 1.8 percent internationally and 1.4 percent North America, dollars 387,000,000 in operating income with a 12.5 percent margin. If we look at the world broken down in North America, Europe and then the rest of the world, here you see at the top boxes the reported earnings and at the bottom what it means in retail value where obviously all the wholesale business as well as the royalty income from licensees is reflected at retail value. That's where the 5.6% get bridged down to 3.1%.
As you can see here, 44% of the business in North America, but drops to 35% really on the basis of the rest of the world going from 10% to 20% when we really raise it to report its value at the retail level. In North America, 72% retail. Wholesale is still dominating in Europe with 68%. And in the rest of the world, it's pretty much all retail, which is really the impact of our subsidiary in Japan, which is 100% retail business, which I'll talk about later in the presentation. And then we look at the snapshot over the world, 11.50 stores, the numbers are self explanatory, 500 of which we operate ourselves, obviously, mostly in Europe, the United States and Japan.
Every other part of the world is mostly through licensees and distributors. And also in Europe besides the several 100 owned operator stores, there's also several 100 stores operated by franchisees. So our retail presence, Tommy Hilfiger Stores around the world is now a true force with 11 50 stores and more than 10,000 doors globally. I wanted to talk to you a little bit still about the history of the brand and why more than in any other brand in other company, I think it plays an important role. If we talk about North America, obviously, the brand where the country where the brand was born and created, it really went through over the last 15 years a number of different lives.
Mean, there was the initial most of you will probably also remember the initial life of Tommy Hilfiger as truly classic American core collegiate preppy with a twist, how it was started in the late '80s and lived through most of the '90s. It then really became super popular trend, a hype, if you wish, but in the process exploded in sales terms, but also became an urban brand and peaked out really in 2000, which at that time was about a $2,000,000,000 business almost 90% United States almost mostly wholesale with really a schizophrenic existence if you wish of being on the one hand preppy and on the other hand urban. That clearly couldn't sustain itself and then the brand went for a period of 5 to 6 years into serious decline, which obviously led to confusion in the marketplace. The then management group tried to like reinvent the brand every year, tried to find lost ground, tried left, tried right, classic modern, basically what we call a zigzag period, which confused the consumer. It also made the product very promotional, because every effort was made to make money on it even after markdown.
And this negative cycle has been very defining unfortunately also in the business the way we found it in 2,005, 2,006 when at the time we bought it, it private and tried to like reorganize it. And it proved on the one hand very easy to convince individual consumers about the essence and the integrity of the brand as it was once created. But at the same time, we also found that America in general was a marketplace with a remembering of the difficult periods in the past. So the confusion played a role and called for a strong and urgent need for repositioning and basically bringing it back to its roots. And that's what's been happening basically in the years from 2006 to 2010 and then subsequently after the sale to PVH with incredible support from the PVH Group and stepped up marketing, which Eevre will talk to you about later, really going back to our roots classic American cool and also connecting with the American consumers really picking it up.
As you can see growth in the last 3 years has been fantastic. And so we've come full circle in a way if you wish in the United States where we are back to the roots and back with positive momentum and growth rates that are reminiscent of the earlier years. So I think the story of America is a very complex one. It's like a true turnaround story of a brand and a successful one, but doesn't tell the story the way it happened around the world. Because if you go to Europe, there was never the explosion of the urban business.
It was always classic American cool. It has been consistently that way uninterrupted very clear in ongoing positioning always trading up and in an elevated position basically with a very clear point of view. It has been uninterrupted in growth. Obviously, basically the whole reason why we show you the past is because we want to show you this chart. 24% CAGR over all these years, a little blip obviously in 2009, but consistently going that way.
So all these difficulties that existed over time in America never existed in Europe. And our ability to do certain things in Europe today with the brand are therefore less hindered by some of these issues from the past. It becomes less and less the case in the States as well. More and more we can run the brand in a very aligned manner. But still every day we realize that sometimes America requires different solutions than what we can do in Europe.
And when we go internationally outside of Europe, we look at Asia. Basically, it's the same as it is in Europe. It's always been the way it is today. It's clear, consistent. It's never been urban.
It's classic American cool, preppy with a twist and that we call focused and clear. It's a base on which we expand and build with very much the same initiatives that we apply in Europe. Same thing really happens in India, obviously much more new. So couldn't even have any of the issues of the past. We go to Mexico even though it's border on the United States.
It never really had those issues, always been a preppy brand. Same story in South America where I'll show you later on we run a fairly big business. And then the only market really where we are faced today still with some requirements of repositioning is Japan. I have a section later on to talk a little bit about Japan. We won't bother you with it now.
But really it comes down to a repositioning whereby some of these issues that have existed in the past in the States actually also made their way to Japan, believe it or not. And it's been overdue to try to align the brand in Japan with the rest of the world. So that's the one area where we really face this challenge. But other than that, I think that this will be the last presentation where we'll talk about the past, because this repositioning initiative in America is now really behind us. And as an For now, we can start to look forward with this brand around the world and run it as a true global brand with a very heavily aligned harmonized approach in business, marketing and commercial objectives.
So with that, I would like to give it to Gary to talk to us about the business in North America. Thank you.
Good afternoon. Okay. Tommy Hilfiger, North America. We had a number of targets when we were first acquired that we wanted to accomplish. And I'm very pleased to say that it was an incredible team effort and a great assimilation into the PVH world.
They've been great partners and we've gained a lot of great support. Our synergies are ahead of schedule and above plan as it relates to everything from distribution center to IT. Our cleanup in our secondary channel is something that we needed to do for sure. And as Fred spoke about, we want to continue to upgrade and elevate and clean up any of those misperceptions of the past. So that's working quite well.
Our improved positioning to align with Europe and rest of world brand position and product, I'll get more into that and that's going very well. We continue to raise our average unit retails, which has helped our profitability quite a bit. We improved by 30% from the 26%, 27% range up to in the mid-30s. We also have made quite a good investment in our exclusive relationship with Macy's on the top 50 doors. So we have much better floor space as well as shop environments are greatly upgraded.
And we've implemented multiple initiatives in store as it relates to merchandising, marketing and the customer experience, which is something we live and breathe every day. Okay. I guess that was all right. So as we talked about earlier, the last 12 months, 2012 revenue at $1,800,000,000 and our operating profit at about almost 12%, dollars 159,000,000 As they mentioned earlier, Fred mentioned 73% of the last 12 month revenue is in retail and our comps have been quite good. In 2011, we were at 14% in the first half.
I'm pleased to say we're up 13% on top of that. So the business has been quite good in retail. And wholesale also at 27% of the revenues has been running very well at Macy's up 9% and actually the Bay in Canada is 20% ahead of plan and the AURs in Canada are in the mid-40s. So we're very pleased with our initial entry there in men's, more to follow. So some of the key strategic initiatives, we want to continue to elevate the brand across all channels and have total alignment and consistency with the brand as it exists in Europe and Rest of World and keep upgrading and elevating.
We want to engage the domestic consumer through a great price value proposition, but continue to upgrade product, our presentation, our marketing and again very aligned with our global position, consistent messaging. We're going to drive higher AURs, which we've been doing. We're now again in our retail business is up over 8% in AUR on top of last year's 7% with elevated product, new product initiatives across wholesale and retail also at Macy's, the AURs are significantly up. Optimize the Macy's partnership through improved brand visibility and perception, particularly in the top doors, which we'll talk more about. Drive licensing income growth at Macy's through significantly broadened product presentation and key product classification expansion, which will improve overall profitability.
So we've been gaining quite a bit a better space and new product introductions and licensing, all of which will continue to improve our brand position. So Selectively expand and test specialty store presence to raise perception of the brand in North America. I'll talk more about this, but again to try and balance out that perception and continue to improve our perception with our target consumers. We're going to elevate tommy.com, which is very important to raise brand perception and be consistent with the specialty store assortment. So what we see in Fifth Avenue in our specialty stores is what you'll experience in terms of the product, the marketing and the overall positioning on e com, which I think is very important to move us forward in a balanced way.
And we'll maximize our retail store portfolio and megastore opportunity, which I'll talk a little bit more about and leverage the Canadian opportunity, which is going quite well and still has more growth potential. So on maximizing the store portfolio, we see opportunities to gain 400,000 square feet or 40 new stores over the next 5 years. This is a blend of specialty and outlet stores and this will take place in U. S, Canada and Guam. Square footage expansion in addition to new stores is very important to us.
We continue to look at our key locations and expand square footage there. We typically find that we gain 25% to 30% in top line very quickly when we do this. It allows us to show all of our product categories in a much more significant way. Additional 100,000 square feet will be added over the next 5 years of which 50 will be in 2012,013. So that's happening sooner than later.
Continue to capitalize on the megastore success. Megastore, as it was mentioned in the Calvin presentation, these are stores for us that are typically 13,000 square feet or bigger, and they typically do, at least $15,000,000 actually our lowest level now is 17,000,000 all the way up to a $70,000,000 store in Orlando. So we're going to continue to capitalize on these stores. They're up 16% this year on top of great success last year. We're going to continue to improve our and involve our in store product and presentation in these stores.
We can have more elevated prices, higher AURs. We regionally manage these. And we're going to drive and maintain our foreign tourism sales through a number of ways that we work with our markets through marketing and working with the tourist groups. And we'll continue to dedicate additional space as we expand these stores across all product categories to continue getting that kind of growth. Here's just an example of one of the mega stores.
We have 7 of them. Actually, the 7 stores this year are projected to $280,000,000 $123,000,000 in 4 wall operating profit and that will be at a 44% rate. So they're very, very profitable and productive. These are some of the windows. We really treat them like specialty stores that are extremely volume driven.
But from the windows to the in store presentation, these stores, I think, are very positive for the brand. We also will expand and selectively test some U. S. Retail specialty stores. We're currently in an effort to balance out the brand position in the U.
S. As we talked about some of the concerns in the past, it will allow us to elevate the brand positioning to create full price Tommy Hilfiger lifestyle store, align the product and the brand position with our Europe specialty stores and anchor stores. So we start in Europe, we work very closely with that product and we make it happen in the U. S. Stores.
We currently operate 15 specialty stores in North America. We're going to open up 3 in 2013, 1 in Gardens Day Plaza, which will be great to have it very close by, another one in Florida Mall and then also in San Diego in Fashion Valley. So those are going to be brand new entries and we're very excited about what we're doing there. The new flagship store also that we're going to be opening in LA on Robertson, it's a focus here on elevating the brand and providing brand visibility on the West Coast, which should be really positive for So just these are pictures of some of the existing specialty presentations that go on in some of our better stores. This is just a flavor of what the direction for these specialty stores is going to be.
And the other thing that's very important to us based on our history is to continue to drive the domestic consumer into our retail stores. We want to leverage the Hilfiger's marketing campaign, which is also working already working quite well and we're getting a lot of great attention and customer feedback. Deliver the right product regionally. We're constantly profiling our stores and offer an engaging store experience. We continue to leverage the national marketing to engage our audience with TV, print, digital media.
We're going to continue to grow our customer database and cultivate the close to 4,000,000 existing domestic customers and build on that. And also launch Hispanic marketing campaign where we have really outstanding following around the world and in the U. S. From our Hispanic customers. We will continue to drive an increased emphasis around regional marketing, which we find really works for us, focus on partnerships to drive targeted local customers into stores.
We work with local corporations, with tourist groups, partner with the CK and Heritage divisions around cross store programs where we can partner up with our brother and sister brands to help each other out in driving traffic and focus capital improvements in our retail stores. We have a number of great things we've done with our bigger and our new stores, but we also want to continue to update our portfolio and our aged stores with current visual and productivity standards, fixturing, mannequins, all those things which give off a great impression. And when we do that, we typically see the business really bounce nicely from that as well. In our wholesale business, which is really moving in the right direction, our objective is to elevate the product presentation, improve visibility and exposure of the Tommy Hilfiger brand at Macy's in the U. S.
And at the Bay in Canada. Our strong wholesale performance continued in the first half of 'twelve with the Macy's exclusive. We elevated the brand position. And in Canada, we continue we will continue with the Bay, which as I said is up already 20% to plan with the women's product. And our women's product in Canada in specialty and outlet is performing very well.
So I'm very confident about what that launch will bring. We revalidated the Macy's partnership and the brand strategy, aligned the marketing message at Macy's with Global Marketing in 2012. So they've really started partnering with us and taking our direction and our guidance on how the marketing should look for Tommy Hilfiger at Macy's and it's come a long way. Align the new Macy's global account strategy with Europe specialty and outlet product and continue to improve brand perception increasing retail price points where the AURs have moved up very nicely. So the top fifty doors are where so much of the action is and we've continued to upgrade and invest in these top doors.
20,000 square feet has been picked up across the top doors with a $10,000,000 shared CapEx investment with Macy's. These shops that have been renovated and updated, their performance has been very strong. So overall, we're performing up 9% to last year at Macy's. But in the last 2 months in men's, we opened up about 11 out of the soon to be 25 expanded doors in the top 50. And we've already seen a 17% increase in men's in 2 months versus the 10% overall in the rest of the doors.
And then in women's, out of 14 doors that we've opened, we've had a 34% increase since those doors opened in the last 2 months against the trend in the other doors of 6%. So really working well and as we continue to do that, I think there's great upside. We're going to implement product elevation, presentation and new initiatives across all product lines. Women's is less of just a jeans brand now in department store in Macy's and it's more of a lifestyle brand and there'll be regionalized product and an introduction of handbags, which we've done, and that's off to a good start and there's a lot of potential there as well. Targeted distribution is focused on our brand elevation and exclusive distribution in U.
S. And Canada. So, the overall sales reduction in secondary channels in Canada, we've really cut back on all the off price business there, so that we can really position our retail and wholesale businesses for the maximum success and a clean environment. And we've also reduced the account basis as we know with our exclusive with Macy's in the U. S.
To clean up the market as well. So some of the shots of Herald Square, just to give you a feel for how the department store shops also are quite aligned with what we're doing in our stores around the world. So there's a great level of consistency, which I think helps us really deliver the message of classic American Cool with this preppy point of view. And this is Women's at Health Square. Okay.
Thank you.
Welcome to Europe. Welcome to a very fragmented market complex business that you see in Europe, because we have many, many languages. We also have different accents in English as you can hear. We have also different many different currencies. We have a lot of 1,000,000 people.
We have a lot of differences also from north to south, especially in the northern And
we
have also major economic differences. And we have also major economic differences. However, we in Europe, we don't have one retailer, pan European retailer because every country is actually doing his self and has his own department stores. And also the media, we don't have a pan European media. Everything actually has to be done separately in the country.
Long time ago, because the business is so complex and because it is fragmented, we said we're going to run this business with a matrix organization. What does that mean? We have actually in all the countries, we have a setup where we put the country manager in place. And also in Amsterdam, we have actually all the different divisions where we have a VP in place. All of them are responsible for their own P and L.
But when you see the countries, they have to talk or they talk and give all their inputs to all the divisions and also divisions get all the input from the country. So the most important thing having this in place, you will see just in the next slide where you have the different responsibilities. But with that format, we take care that we always have at all time a checkered balance. So you see that the divisional manager is basically responsible for the product and the company manager is responsible for sales, means again the divisional manager is responsible for buying as a for the pricing, going margin, the order book control, the stock control, the order fulfillment and so on, which then goes in his P and L. On the other side, you have the country manager who is responsible for the sales, for the planning, for the key accounts management, the gross margin, so after markdown sales, the customer base control, customer approval, customer service and accounts receivable that comes all to the countries.
So having this versus the other constantly be in communication with each other, the check and balance as I said is always in place. And with that, we can guarantee that there is no surprises. There is no surprises when we go to market with a new collection. There should be no surprises because there is a constantly exchange of information and making sure we can improve every season and every year. Our brand is built in Europe on actually 3 pillars.
1 is the on the left side is more the casual sportswear, men, women's and kids, where it has a higher average price and where we compete to brands like HUGO BOSS, Ralph Lauren and Ghent. And then we have the tailored part, which is more tailored quality clothing dress shirts, which you can also mix with sportswear. But there we compete more with the Black Label HUGABOS with Stenia and Windsor those kinds of brands. And the last pillar that's more the young, the denim related men's and women's with a little bit lower average retail price where we clearly compete with Diesel, Ripley and G Star. We define between 2 businesses wholesale and wholesale which we do about 70% retail we do about 30%.
Wholesale we do at a complex business with around 7,000 wholesale customers. However, in the telesales customers 3% are key accounts. But with the 3% key accounts, more than 50% of the business is done. There we have department stores like El Corte Inglese, B&C Breininger and so on. And we have in all those stores a big shop in shop system in place.
On the other side, we have the retail business with also more than 75,000 square feet retail area, picture place also what you see in wholesale. And there we have anchor stores in Cologne, Paris, London, Hamburg and so on and where we also define the retail business into full price outlet and concession sales and then also the e commerce is in the retail business, the nonfond forget the anchor stores which we have in the big cities. So that's how we actually divide the business in Europe. As I said, the distribution structure, actually we serve out of Europe more than 50 countries. Out of more than 19 showrooms that's needed because all those 7,000 customers I told you, they come to our offices or to our showroom actually 4 times most of them 4 times a year where we show them 2 main collection and 2 small collections.
And actually that in Europe we also have more than 2,000 headcounts. Only a few countries most of them are our own subsidiary as you can see in red. And then we have agency actually only Portugal, Spain and Belgium. And then we have a few distributor mainly in Greece and in Israel and that's how we do this business. The wholesale business a little bit in detail.
As I said around 70% of that, We built that business in 15 years from $0 to $1,000,000,000 It is 9,600 doors are served. So not only customers, it's 7,000 customers, but some of them they have more than one door. Germany is our biggest market. And actually when you see on the left side, you will see that menswear is our biggest division and then denim our 2nd biggest. However, in denim we have men's and women's combined.
So if you really take then women's wear, it would be 16% would be our 2nd biggest division only for female because in footwear, it's also men and women is actually mixed. And then very important you see the slide in the middle where the total wholesale business is actually when you hear about the Europe there is we call them the PIX countries that's Portugal, Italy, Greece and Spain, where you hear the most problem. And Oman, you see that they only do 27% of our wholesale sales. So the rest of the sales is all in the other countries where are still strong. In retail, actually when I the first one on the top, you see that only 5% is coming from this PIX country and 95% is done in the rest.
In store by ownership, as we already heard, we have basically 1 third of our retail stores is done owned and operated and 2 thirds is done by franchisees. In the stores, you see there men's where is our biggest collection division and women's wear already here in the stores in number 2nd followed by denim. We also have different concepts in the stores. We have men sportswear concept. We have denim concept.
We have children concept. We have only men's special with the tailor. So we have everything in place and we can play with it depends on the location and the place in the city we have. If you combine wholesale and retail together, the pigs country repeat Portugal, Italy, Greece and Spain only represents 21%. So the risk as we as you know and read in the newspaper is limited to our brand and the most of the majority comes of the rest of Europe.
The growth opportunity, actually I see 3 big pillars here. First of all, it's the product category. There we have all the different divisions in place. We see big potential in womenswear, tailored and also accessories, which I explain a little bit later. And then we have the different channels.
We see the most opportunities in e commerce, but also retail franchisees. And then we have the different markets, not only the rapid emerging markets, but we also see opportunities in other markets in Europe. I talk a little bit more about the tailored business, which we just have taken in house and basically will be fully integrated by the end of this year. That business the tailored business which is very important for our brand in terms of image, but also in growth was launched through a license agreement with the Strelson Group in Switzerland that was in 1997. And they built actually this business to a very substantial, very healthy, very good business over the years.
So it is today €65,000,000 business. Again, by the end of the year, we should have brought this business in house. We had already our first collection in place. We built a good team around it and we already had low single digit growth with our first collection for the next season. Tailored business as I said, we focus on that.
We think that in the next 5 years, we actually can double that business. If we do the collection in the way we have with a dedicated team, very good team. And the other part is actually accessories where we see today a €30,000,000 business which we can double over the next 5 years. Also adding some accessory stores which is a combination between accessories, but also has shoes in it, which we believe that has a big potential also. Women's wear currently €150,000,000 The growth potential there in the next 5 years should be up to 250,000,000.
What we have done there, we invested into a new VP that basically started yesterday, a very known person. We also took a head of the creative team, somebody that came from a competitor from us. And we actually upgraded the whole team effort and invested, so we can bring the product to the next level. And this is one next to tailored, next to accessories, one of our key division and growth potential for the future. But we also want to continue with controlled space with the great location.
Actually, we want to grow with controlled owned and operated stores rollout in A locations. We think that every year we can open something like 30 stores per year owned and operated, but also as franchisees. We can add additional square footage in our existing outlet stores where we have incredibly like for likes growth this year. We also can look in different formats to take back some franchisee stores. So we can also the integration of the offline retail, online retail and the social media really work into the multichannel area.
We also can look further into what I already mentioned some mainswear stores where we have the combination to being tailored because it's now in house and menswear. That's all possibilities and potential growth for the future and the accessories I already mentioned. Continue with the e commerce growth. Today, this business represents about 4%. In the last few years, we had a CAGR of more than 50% and we think that this business can grow in the next 5 years to €150,000,000 There is various initiatives where we are convinced and very important business that we can control and really add some new countries, add some also categories to it, which are currently on page.
Just recently, we launched Italy, Switzerland and Russia and you can imagine the potential that we have there in Russia. This is show you a little bit how we actually how we look into the different countries in this fragmented markets. And this gives us a little bit where and how big is our market penetration. So you see on the basically on the right side that's the most important factor where we split those market in the different or we measure them on the different penetration. Basically there's the total apparel business that you can see here.
And then on the right side you see the Tommy business how much we do in these different countries and how much of the percentage in total they bring us. And then you easily can calculate the market penetration. Since we have this market penetration, we actually split those countries into nurture countries. Nurture countries are countries where we don't want to particularly grow because the penetration is already high. So there we don't want to add new customers.
Then we add we split also in expanding countries where we do want to add customers but limited. And then we have the conquer market where we really have a low penetration and there is still room to increase with new customers or actually a lot of new customers, different channels where we can expand. So, nurture, expand and conquer and this you see on the next slide, we plan to grow in the Nutri countries around 5%, in the expanding countries about 10% and in the conquer markets about 15%. Now you see Italy is a conquer market. You have probably a question mark.
We do because at the moment last year Italy was a conquer market and we thought we can grow there. But as you know things have changed. And therefore we shift Italy actually to a northern country and we will see how it works over the next few years to grow that business. However, then you see that in Russia, Eastern Europe and the Middle East, which we call the rapid emerging markets, we have definitely see a growth of 15%. And then basically in France and in U.
K, which are still under penetrated because it was a little bit a slow start from our side. And there we also have to see how for example France is developing. If we can continue that growth we have currently double digit growth we can continue. But at the moment we see that as a conquer country and we always update every 6 months. Here are our initiatives for the emerging markets.
Currently in REM, we have around 90 or nearly 100 Tommy stores, 85 shop in shops. We have 19,000 square foot branded space and over 5 70 wholesale POS. We have clearly that big market. We want to focus on 5 areas. So Russia, Ukraine, Israel and the Emirates, South Africa that's the five focus areas because if you're going to go into everything at the same time it's not efficient.
Of course in the due course we can add also the other areas and we see there one of our big potential to grow the business. Some highlights. We grow REM over the past 3 years with 25% growth. We think we can continue with that growth. It is important for example in Russia that you build the market from Moscow with owned and operated stores especially with flagship stores that you build the rest of the country probably with franchisees to really give the brand the right image and the right platform to grow.
Then in the Middle East, you actually can drive your business beyond the Dubai. You can go into Abu Dhabi, Saudi Arabia, Qatar and Kuwait. There's a lot of potential especially I wanted to mention shopping centers. It's huge. You can go there in men's, in sportswear shop, in denim shops, accessories, everything you need is there and is waiting.
And then also we can develop South Africa, which we only started small with in South Africa with the department stores where we do 10 shop in shops. Also there we expect soon big potential. Then I go a little bit into more the countries. U. K, our business what you see here is actually at Brompton Road, our new building.
It's 2 floors. It's a fantastic new shop, which I encourage you to have a look when you are there. And then on the top of it, we have a new showroom, huge showroom space where we can show the brand in the best. And we also added the Island business to the U. K.
Similarly in France, there we have opened a new showroom also. Actually we are performing in France very outperform our competitors. It goes very well which was mainly wholesale market in the past, but already 1 third is retail and we believe that we can get momentum in the retail business, but also in the franchise business. And with that store you see here is at the Champs Elysees in Paris and with the new showroom, I think the brand has also here a very strong platform.
What I would like to introduce
you now is what Fred said, we have these country managers in all the countries. They are close to the customers. They know exactly what's going on. That's our ears and our eyes in the markets. That's the ears and eyes and the mouth that talks to our divisions in Amsterdam.
And one of these company managers is now here. And I would like to introduce you to Oliver Timm, who is now explaining you and showing you the business not only in Germany, it's in the Termini countries and also in the countries around him. Oliver?
So welcome to Dusseldorf. I want to use opportunity and give you an overview about the market situation, the Germany plus area. So in 2011, we made €704,000,000 retail value in 10 countries as you can see here. So it's Germany, Austria and Switzerland, Poland, Czech Republic, Slovakia, Hungary, Slovenia, Croatia and Bosnia Herzegovina. Local headquarter for this area is in Dusseldorf.
We have also showrooms in Hamburg, in Munich, Zurich, Switzerland and Salzburg, Austria. In total in this area, we do have 164 retail stores, more than 1,000 shop in shops and 1100 people are working for the company in these 10 countries. This is a very important part of our business. So 60% of our total revenue, nearly 60% of our total revenue we are generating in dedicated floor space. You can see that it's our own operated franchise and shop in shop is doing the biggest part with 364,000 square feet.
So in total, we have dedicated floor space of 555,600 square feet. So I need to say that's really a unique situation for a premium brand like Tommy Hilfiger in the market. So we managed over the last 3 years to grow in this certain area. So 23% over the last 3 years, you can see that we have grown to 11.96 point of sales in the whole area. This is the research coming from H&P.
H&P is one of the biggest apparel consultants in the German business representing a €3,000,000,000 retail turnover. So it's coming from them. You can see here how we're doing next to our competitors. Marco Polo is a German local brand and you have Scand, BOSS, Ralph Lauren in the same schedule. So you see retail stores, we are leading.
You've got the franchise stores. Shop in Shop, we are before the number 1. So it's really a premium, premium position in the market. And the most important part is then the revenues that we are leading there as regards to our competitor field. So this organization is responsible for the whole business.
It's got the holding as a roof doing the general management controlling and finance for the countries. And then you've got on the one side the wholesale structure and on the other side the retail structure. So to go a bit more into depth of the wholesale business, this is also coming from H and P. So you can see our market share, so how are we doing in the business. So we are the number one premium brand followed then by HUGO BOSS in their core market.
The core market is HUGO BOSS Germany. Then you've got Marco Polo, it's a German brand and then it's Gantt and Ralf is on rank number 25. So the full focus on the top 10 key accounts is a very important goal for us I need to say. So 40% of our total order book we're doing with our top 10 key accounts. We managed to grow with the last pre spring and spring order another 30% with the most important accounts.
This is also showing how much we are growing as you've seen before in the dedicated space because these guys are giving us more place in their certain department stores. So for us, we have a lot of growth potential over the next years. So you can see Men's Wear, there's enough potential to grow Women's Wear, we think we can double the business over the next years. Tailored has a big potential for us. So we have the clear goal to get to be one of the market leaders in the market.
Denim and for sure like Daniel was mentioned before the food accessory business is a very important business that we see there a lot of potential. Then to come into I'll get into the retail business. So here's the landscape again with all the 10 countries. So we do have in total 164 stores representing 391,000 square feet in the market. 88 of these stores are owned and operated, so full price.
We've got 76 franchise stores. We do have anchor stores in Germany, in Hamburg, Berlin, Dusseldorf, Cologne, Frankfurt, Munich, Zurich and Switzerland and Vienna and Austria. We have another 25 outlets in the market and we are planning over 60 new stores in the next 5 years in all of these countries. So how are we doing? As you can see in the headline, Tommy Hilfiger retail business is performing well, I would say very well.
In comparison, total German fashion retail sales declined by 2% from March to August 2012 and we reached and achieved a double digit growth in the same period of time. So how's the growth potential in this retail area? As you can see, we see that we have potential to increase our space with anchor stores. I will show you later on some pictures
of the Dusseldorf store that I
was originally planned to show you real in real life. So we will double the space. Stuttgart in south of Germany where all the car industry is with Porsche and Mercedes. We're planning anchor storage in Aver in Switzerland, Prague and Czech Republic and another one in Munich, the second one in Munich, Germany. We are looking for more freestanding and mall stores especially.
And to say in the tailored area as you've heard before, we bought it back from a licensee partner and we see there are big potential in the market for freestanding tailored menswear stores and also for the footwear and accessory stores that we just opened the first one at the beginning of this year and we will open a second one in Munich this week. Out of stores, we want to enlarge our existing outlets in all over the countries. So where we can have the chance to increase the space, we want to increase it because they're performing outperforming you need to say. And for sure, we see a big potential in the South European or South Eastern European markets. We just opened Zagreb in Croatia last week and we see there a big potential.
And for sure, we want to further improve our comp sales, IPT, APT conversion rate and so on we did over the years and we're going on to perform there even better. Some highlights, some pictures. So this is Dusseldorf, beautiful store. So we will double the space here. It's in the best location, I need to say.
So the store will have then 11,000 square feet selling space with a facade of more than 174 square feet. So it will be I think one of the biggest and longest facades that we do have. It's in the hub between the Kerbogen, that's the small version of Fifth Avenue, I need to say. So it's the best location you can be and this is also the mother of the German business. It all starts and begins 11 years ago there at this beautiful store.
Some rendering to give you an impression how the store will look like then next year. Then we come to Oktoberfest. Now we come to Munich. So that's Hymer as soon as I know. So if I'm wrong, please correct me.
It's Hymer the world's biggest menswear department store with more than 108,000 square feet. So it's a huge store. It's also an icon I need to say in the apparel business in Germany. And we will open there for the next Oktoberfest not only for Oktoberfest but it's the best timing. So if you're there in Munich, you can please come by and see our beautiful 38,300 Square Feet Big Men's Shop and Store.
So it's representing men's wear tailored accessory shoes and so on. This is a great positioning for the market. Then that's also shop in shop, but just to show you how we are looking in the market. It's really like a premium positioning in the market. That's Breuninger.
Breuninger is one of the premium luxury retailers department stock concept overall in Germany and we just opened there last month 160 square feet big shop in store and it's really outperforming this but also a partner from the day 1 we are working with. Last but least I would like also to give you the information on underlying that we have a very close cooperation between the countries and the central organization means the headquarter. So nobody is sitting in an ivory tower doing collections not at all. We have always a check and balance. The countries are always involved in adoption meetings even in the range plans to make sure that there will be no surprises when we are entering and starting the markets.
And that's also I think one of the keys why we are so successful. Thank you very much.
Well, obviously that I mean I have to say I'm very so proud because it's such a fantastic presentation and that's 2 dimensional. I would wish you would have all been able to be in Dusseldorf and see it 3-dimensional because when you see the actual operation, the building, the people, the passion, the quality, the energy, it is second to none. And without doing any injustice to Oliver, who arguably runs the best of these organizations around Europe, we do have 7 or 8 more of them in other cities around Europe that have many similarities. Obviously, they're a little bit smaller because Germany is the biggest, but it's the same approach with the same cohesive branded power and interaction with Amsterdam to make sure that we leave no opportunity untapped to do business. However, always with respect to the brand, never to push the brand and the business harder than the market can handle.
So it's kind of like a second nature in the organization to always do the business today that we planned yesterday and actually be busy with tomorrow's business at the same time as opposed to try to milk an opportunity, ride momentum and run into a wall, which we've seen obviously examples of around us as well as in our own brand in the history. So we've been very, very sensitive to that over the years. And when Daniel and Oliver explained the growth opportunities that exist around Europe, I can imagine that people start to think with $1,500,000,000 in the meantime in total business, how far can it go? I think it can go very far. And arguably 80% of our business is in the areas of Europe that are relatively speaking in strong shape.
Clearly, the situation out there is not easy. So maybe shorter term, we have to pace it a little bit, but I think there's huge pockets of opportunity as explained in these presentations. When we go outside of Europe, we go to Asia and the rest of the world. Asia is basically a $600,000,000 total business in excess thereof. Really major 5 centers Japan, China, India, Korea, Southeast Asia.
Japan, the numbers are here represented. Japan is a subsidiary, I'll talk about in a minute that operates 160 stores. China, a relatively new joint venture India, a joint venture with Arvind Korea is a license agreement with SK Networks and Southeast Asia is a license agreement with Dickson Concepts. Some of these markets I'll highlight because they have some story to be told. I touched upon Japan earlier in the presentation.
Japan goes back 15 to 20 years was a license agreement with Itauchu originally a wholesale business. 8 7, 8, 9 years ago transformed itself into a retail business. In 2008, we bought the license brought in house. From 2,008 to 2010, we operated the business pretty much exactly as it was done before with a relatively medium positioned market presence, not that visible, generally A2 locations and with about 1 third of the business through a local brand that was Japan specific called Tommy. We have experienced obviously the tougher economic climate that Japan lives through.
And at the same time, we initiated about 18 months ago an initiative to reposition the brand and bring it in alignment with the rest of the world as we have done over the years and tried to do and are still doing really in the United States. And that meant an elevation of the brand, more visible locations at retail, a higher level marketing, higher price points, better qualities and basically an overall repositioning. To that effect, we brought John Ermendinger, who joined us a little over a year ago as CEO, Asia. We actually agreed with him to operate from Japan. John has been running the Gap Japan business for 6 years before he joined us.
So he's uniquely qualified to like lead a Japanese effort. And considering the importance of this turnaround, while he continues to oversee the all over Asian business, he has a disproportionately large amount of his time and attention focused on the Japan business. We believe it will take some time. Over this year, we are experiencing high single digit negative comps that are not necessarily a surprise, but nevertheless negative comps are never really a pleasure. So we're eagerly awaiting the effect of the initiatives that are in place, probably really will kick in the second half of next year.
So Japan for us is short term repositioning with no growth. Longer term, we do think that as much as Japan may not be a growth market per se, for us it can be. If we look at our chief competitors around Europe and how we kind of like outperform them in volume terms in Europe and when you look at what they do in Japan, we normally should have a long way to go. Very important in Japan as well as later on in China and India and other markets in Asia is the proactive initiatives related to the supply chain, dedicated product development for those markets, Asian sizing, counter development, counter sourcing in countries that are relevant for those markets. All these things are underway and should pay off in the future.
This is our flagship store that we opened a little less than a year ago in Tokyo, a major store, a major investment, which is one of the anchor initiatives really for us to like give the brand a much greater share of voice and visibility in the marketplace. Then we go to China. China is a joint venture since a year ago when we took the license back from Dickson who had been operating a relatively smaller business for a number of years. It's running at about $80,000,000 in sales doing phenomenally well. It's a minority of the business is owned retail.
A majority is franchise stores. It is run by a gentleman called Steve Shen, who used to be the CEO in China for Esprit. Esprit, one of the big success stories in China. Internationally, obviously, a little bit going through a little bit of a tough phase, but in China still very, very important. He has taken the business over from Dickson a year ago.
It is tracking, as I say, exceedingly well with also in this year, year to date double digit positive comp store sales. We know that there's lots of talk about China and a bit of slowdown in our business arguably on a small base, but in our business not really visible. We are positioning Tommy Hilfiger the way we exist elsewhere, which means affordable luxury, opening price point luxury, premium, whichever way you want to call it, clearly not luxury. And pure luxury is obviously China is the destination for all. So it's like a mad rush to go in those markets and secure the relatively speaking still limited real estate.
We are not battling that. We are placing ourselves where we do belong, casual classic American cool, young at heart for a younger casual consumer happens to be really what a Chinese consumer is all about. And so we feel very confident that China can be a tremendous success story and growth story for us. Having said that, there too the supply chain initiatives are very important, develop domestic sourcing for the dynamics as in China. Again, supply chain very important.
The days I think from the past when brands like Tommy Hilfiger were doing business in these parts of the world in a reactive manner with all kinds of pick offs and tag ons and product floating all over the world, I think soon are going to be over. There needs to be a proactive approach to product development, be market competitive, the consumer is getting more sophisticated, competition is getting stronger and we are I think well on track to do all that. Now we go to Mexico and South America, a big business relatively speaking, €440,000,000 And dynamics as in China, again supply chain very important. The days I think from the past when brands like Tommy Hilfiger were doing business in these parts of the world in a reactive manner with all kinds of pick offs and tag ons and product floating all over the world, I think soon are going to be over. There needs to be a proactive approach to product development, be market competitive, the consumer is getting more sophisticated, competition is getting stronger and we are I think well on track to do all that.
Then we go to Mexico and South America, a big business relatively speaking €440,000,000 and that is really with Brazil representing maybe less than 10% of that. So Mexico, quite important, a license agreement with Grupo Accra since about 10 years Central and South America, a license in all the way back to 1989 with a company called American Sportswear who only do Tommy Hilfiger. They do it very successfully from Panama. They do it all over the area. But as I said, Brazil is relatively speaking the least developed there.
150 franchise stores, some of them operated by the licensee and all showing double digit growth year to date. And if we then look at the roll up altogether, again, I showed this before, this is not the Tommy Hilfiger North American business, 1,400,000,000 with an 11.5 percent operating margin. We add to that the Tommy Hilfiger International business, the sum of Europe, Asia, including Japan and the licensing income, dollars 1,800,000,000 with operating margins of just under 13%. Basically, you're rolling up to this total of $3,100,000,000 shown to you before with just under 12.5 percent operating margins. Now that's the story of the business of today and these are the numbers the underlying stories about the organization how we go about it.
Obviously, the most important asset we have is our brand. And I wanted to introduce to you Manny Chirico, who's going oh, sorry.
We're going to take it's going to take a little bit to say 5 minutes set this up, but also the guys have done such a great job staying on schedule, right on schedule. You could fear
it out. You could fear it
out. You could fear it out. So let's take 5 minutes and then we'll come back everybody and we'll wrap up then with the brand, Tommy Hilfiger growth and then the PVH growth really puts some more flesh on that.
Hi. I think we're going to begin again. If we could ask you to take your seats, please. Thank
you.
Hopefully, you have a little bit of a cookie high to get you through the last part of the afternoon. I'd like to share with you and elaborate a little bit more on the power of the brand and what's been happening from a brand point of view with Tommy around the world. It's been actually a really exciting time over the past 2 years because we've undergone a fairly significant evolution of our brand on really a global scale. This has probably been visible to many of you primarily through the advertising and through our enhanced marketing efforts and our eclectic fictitious Hilfiger family, which you've seen in all of the presentations and hopefully around you in the world. But it's also something that's touched every part of our company and I want to share that in more detail with you today.
But the results are that today Tommy Hilfiger is more premium, aspirational and importantly very relevant to global consumers than we have ever been before. As Fred spoke to early on in the presentation, particularly because of the complex history of the brand in the U. S. And the different development stages of the brand around the world, it's become increasingly important for us to sharpen our focus. And that's really what we've done over the last 2 to 3 years is to really be even more focused on this singular differentiating point of view.
Someone's BlackBerry near the microphone. Thanks. And Classic American Cool, as you've heard many times today, is really our defining point of view with a preppy spin and with a preppy twist. And this is something that informs every single thing that we do. Today, Tommy Hilfiger is one of the world's most recognized premium designer lifestyle brands.
This is a snapshot from one of our most recent brand awareness studies and you can see here a lot of the markets that were touched upon today, really high numbers in terms of total brand awareness and still great potential in a lot of countries, particularly in the Asia region for the future. But our focus has not been only on brand awareness, but equally on brand positioning. And the great news is that consumers are very much responding to the way that the brand is being positioned to them today. After seeing the advertising, we see across a range of very broad and different markets that the impressions of Tommy Hilfiger as a brand are significantly improved prior to seeing the advertising. They were strong before, but they're even stronger thereafter, scoring even higher on values such as cool, fun, useful, fashionable, aspirational, things that are true values for both the brand and also for the industry in general.
And we've done a study actually across 12 different countries. I'm going to share with you just 4, in particular today to test the appeal of our advertising versus the core competitive set. And what's amazing and I think very notable is that the brand appeal and the advertising appeal is consistently strong and consistently outperforms the competitors in all of these very different markets. So these are the findings for the U. S.
Among men and women, but you can see also in Italy as another representative European market, Germany and even China that consistently we far outperformed the competition in terms of the brand appeal and the advertising impact. So that's very hard to do in today's kind of global world and the differences globally, but it does show us that this point of view and our proposition is really appealing to a very broad consumer base. There's been a significant increase in the brand's marketing investments in the past few years. Last holiday, 11, hopefully you saw a lot around New York, the TV campaign that we ran. And we've also run national TV in a full multimedia platform against this holiday campaign.
And I just want to refresh your memory with it to bring a little hopefully optimistic cheer for the holiday that's to come ahead of us.
Happy holidays from our house to yours.
So we wanted to share that with you again today and show the following results on the campaign. Compared to the norm responses to other industry television campaigns, we outperformed again the competition in terms of appeal and brand perception and making people think even differently about the brand. And this is across a range of the countries where we did run the television campaign. What was also quite notable about this campaign is that there was a lot of viral and industry pickup on it as well. There was actually a viral video that was done, a spoof by NYU students who did their own take on it.
And it just indicates the increasing relevance of the brand and particularly in the U. S. Where as you've heard earlier, we went through a period of kind of a challenging history. There really is a lot of momentum around the brand and interest among a young audience and continued curiosity. We won't play it again for you here, but you can go on YouTube and watch it.
And notably, it's not just consumers that are responding, it's also the trade and the industry. This is a fantastic article that ran an Adweek comparing an iconic Chrysler ad actually from the 60s to the current Hilfiger campaign. And what it really calls upon are the aspirational inclusive aspects of the brand that consumers respond to and that we feel is an important point of difference, particularly in the fashion industry. And while all of these things have really spoken from a consumer standpoint, what's also important of course is whether the media is really picking up on this clear proposition. And what we can see from a range of headlines across a broad variety of media landscapes in the last 2 to 3 years is that this brand proposition is really resonating through everything that we do.
And somehow the word prep, although the nuances differ by country, seem to really be picked up in different languages around the world. It's one of the words that you cannot actually translate into another language. Prep is prep, no matter what country that you're in. And this ownership of this point of view is something that we really communicate across all aspects of the brand. So beyond advertising, it's the experience that you have in stores, on the digital campaigns that we run, on product collaborations, runway shows, different product ranges such as fragrance, we've been extremely consistent in making sure that we can own this at every level of the brand experience.
And when we do launch a specific marketing program to consumers, it's what we call a 3 60 degree philosophy. We really make sure to touch every single touch point that a consumer might engage with the brand. It's so important in today's day and age to have a multidimensional brand experience and that's the philosophy of how we approach every program big or small. I want to show you just a brief clip of a program that we did about a year ago called Prep World, which was another moment to really further define the brand's meaning to consumers. But it's a great example of how we approach programs and what's to come in the year ahead.
The planet of prep has descended around the world.
We're celebrating the pop up shop.
So don't ask me to divulge how we got the pop up shop next to the Duomo in Milan, because I'm not at liberty to say. But it's a great example of how we continue to really take our American heritage and our roots and make that relevant and appealing for consumers worldwide. Because as mentioned many times today, given the history of the brand, having this consistency now on a global scale for how we position and present ourselves is of utmost importance. That said, local relevancy is really very important aspect tactically of how we reach out to our consumers. You can see this in how our business has developed the matrix approach that both Daniel and Oliver spoke about and we do really factor this in from a marketing point of view.
Even the example of Global Prep and this is a digital program that we ran around the world shows that while there's a global appeal and a global style, there is room for local interpretation and local adaptation. And we always believe that's critical to make sure that we're relevant to a local consumer on a very personal level. Across everything that we do, we have a couple of core objectives that we keep at the forefront to ensure we're really delivering maximum impact. Be unique, I think I've already illustrated pretty significantly what a tremendous valuable tool we have in terms of the Hilfiger campaign and the appeal that that has in differentiating us from other members of the competitive set. But at the same time, we can have this great tool, but if we're not visible, then it's all for naught.
So really focusing on enhancing our visibility has been a major effort of ours in the past years. This is just a snapshot of the fall campaign that's rolling out now globally and you can see how it looks in a variety of outdoor as well as other media hitting markets now. And we're very fortunate to have had a significant increase in the global marketing investment, particularly the jump as you can see from 2010 onwards. And it's really helped to cement the positioning that we've talked about greatly this morning. On an average basis, this gives you the visibility that our advertising campaigns can have on a global basis.
So this looks at impressions for spring 2012. Most of our activity is focused on print, on outdoor and increasingly more and more online. Editorial exposure is obviously another really important tool for us and having real credibility from for consumers and seeing us in the context of the fashion arena, is essential for us. And we've seen tremendous growth in this area and tremendous increased increase in exposure for our wide range of product offerings. And not just in print and in fashion and lifestyle magazines, but also online.
It's an increasingly important area where blogger commentary and online websites have a tremendous impact on consumers' impressions of the brand and it's been a major focus for us to make sure that we're really present in this arena as well. And also extremely important is obviously the visibility for our designer and the spokesperson and the visionary for our company, Mr. Tommy Hilfiger. And he is very, very willing to be at the forefront of efforts that we do on a global basis. He's often traveling around the world for important brand events or store openings or fashion shows, and has tremendous appeal and brings tremendous visibility through news media, entertainment programming and a whole range of outlets.
So this is just an example of a lot of programs that he's appeared on in the last year and it has a tremendous importance to the designer positioning of the brand. We've had a lot of growth in the past year as well in the whole social media space. So these are just a few statistics that you can see from Facebook to Twitter, Instagram and Tumblr. We're trying to be extremely active and at the forefront of participation on any of the new platforms as they begin to have traction. And on a global basis in general across all of these areas, we invest approximately $175,000,000 in all of our efforts to really stay relevant with the consumer.
Being engaging is another increasingly important part of what we do. It's no longer as we know a monologue from brand to consumer, but it's really a dialogue and creating that engagement. In the last year, our fan book base has doubled actually and we're reaching almost 5,000,000 in terms of our followers. And what's also important is not just how we communicate with our fan base, but how our influencers and our brand ambassadors communicate with our followers on behalf of the brand. Here's just a little tweet from our friend Jessica Alba, who attended our store opening in Amotisando this past spring.
And we post very frequently across all of these different platforms for really high level engagement. And we see that we outperform from an industry point of view on engagement on a lot of our sites. And also posting in several different languages is extremely important for us and we've seen that this makes a big difference in terms of following. So to date, with all of our fan book pages, we post in 7 different languages. In addition, aspiration is of course extremely important as a premium brand.
We do occupy a really unique position in terms of being both aspirational and accessible to the consumer. But there are certain initiatives that really speak to this aspiration that we continue to invest in and put a tremendous amount of effort behind. The runway collections and the runway shows which take place here in New York continue to solidify our designer position and they really do create a halo effect our entire brand. I'd like to just play for you a very short snippet from the last spring 13 collections.
She's comfy. She's casual. She's chic. She's relaxed. She's red, white, and blue.
So this collection in particular had really fantastic responses from key editors. And what it reflects is the increasing support and interest that we see season over season from influencers and industry leaders, key editors globally in what the brand is doing at this higher level of offering and in terms of just generally the brand's position in American culture and American fashion. So it continues to be a very important effort. And we also see a great increase in the editorial exposure. So the actual exposure of these collections in fashion editorials, both from a quality and a quantity point of view, is increasing season over season and is a great tool for the brand.
Another milestone that occurred this year was the honor of Tommy being bestowed by the CFDA, the Council of American Fashion Designers as the recipient of the Jeffrey Bean Lifestyle Achievement Award. It was a fantastic, both personal and professional honor for Tommy himself and also for the company. So I'd like to just share with you a brief outtake of the speech that was given by Anna Wintour, who presented this award to Tommy on the
night of the event.
Ladies and gentlemen, Anna Wintour.
Good evening. I'm thrilled to be presenting Tommy Hilfiger with his CFDA Lifetime Achievement Award. In your determination to succeed, Tommy, you not only represent the best of American fashion, but the best of American values. It was a very inspiring moment, both for the company and of course, for Tommy that evening because we believe that what she says is so true. The values that I think you see that the brand represents in our marketing are very much the values of the company as well and the way that we operate and we're really proud to continue to roll that out to consumers worldwide.
From a global standpoint, flagship expansion and our flagship stores are obviously a fantastic way to present the brand in its ultimate form to consumers and we're well on our way to having flagship locations in most of the capital cities around the world. These are locations in most of the capital cities around the world. These are just a few images of some of the new or more recent ones that we've opened in recent years. And coming up, as Gary mentioned, we have an exciting new flagship location opening in spring in Los Angeles, which is really an important step to enhance our overall brand visibility in this market. And these stores, as you'll see this evening at Fifth Avenue, really do reflect this evolved inspired brand position that I've spoken at length about today.
Lastly, in terms of our tactical marketing efforts, we always strive for innovation. The Prep Roll program we believe was a great way of displaying how we like to really approach things differently and break the mold and be more pioneering than possibly what you do see in the competitive set. And guerilla marketing efforts are actually an important part of our mix. As the brand grows bigger, we believe it's very important that we still connect with consumers in a local way, in a personal way to make sure that we feel very relevant and dynamic and top of mind. So long term, while of course, we believe we've made a tremendous amount of progress in the last 2 years in really solidifying and presenting a very consistent global image of the brand in different countries around the world despite varying development states, we really want to continue to make sure that we own this very distinct, but elevated brand position in a highly relevant way, both locally and globally, and to create a great amount of impact, which we've been able to do, thanks to the increase in marketing investment and that we hope to continue that for the future.
Thank you very much.
I'm humbled and grateful for this Geoffrey Beane Lifetime Achievement Award, and it seems like a lifetime, a long journey, a journey with many great people helping me along the way. This is a wonderful moment in my life, but I have so much more to do. Stay tuned. Thank you very much and good night.
Okay. So for me the opportunity then to conclude and wrap it up. The next 5 years basically going regionally slightly repetitive. So I would say to the main point, Europe as again I repeat we refer to it as the machine. I mean I think we have a unique organization in Europe with the divisions in the countries and obviously the incredible powerful marketing organization to support it that I feel that we are both well positioned to weather whatever storms that might come by and at the same time really optimize the opportunities commercially that come our way with respect to the brand for the long term both in new product groups tailored accessories, womenswear.
Even in the existing divisions there are product groups within for instance menswear that are in some countries underdeveloped. There are all kinds of pockets that individually might not be so compelling in the aggregate actually represent big numbers. Clearly, underpenetrated markets very important as long as they are economically viable. High growth markets clearly come our way and have a strong pull to the brand. Retail rollout into various formats, full price, denim stores, accessory stores, women's only stores and yes, lots of formats to go really and of course outlet stores.
We only have, as you've noticed, in a country like the Greater German area 25 outlet stores on 175 full price stores. So the balance is very healthy, but certainly there is an opportunity to grow that a little bit further. E commerce with 50 percent CAGR over the last 3 years is on fire, dollars 50,000,000 today already very, very profitable and there too is a big opportunity for growth. So we feel that in a tough environment the growth story is compelling and we feel quite strong about it. If we go to North America, it's a growth story as well in the meantime as you've seen from the last 3 years after all this complicated history.
But there is a combination to that that we still also are busy elevating the brand all the time. One of the conversations just had over coffee is true. If you look at the North American business, there is a quite strong business really with all the international clientele. You can imagine with the power that the brand now has around the world when these people compete in United States, they buy Tommy Hilfiger fanatically whether it is in our anchor stores in the major cities New York, Miami and soon Los Angeles in the mega outlet stores that have a big international clientele as well. And so basically this brand strength around the world comes with these international tourists, whether it is from Europe, depending on the strength of the Europe, obviously, Asia, but also very significantly South America, a company in the United States and approach the brand with no resistance.
When we come to the domestic American customer, we feel that there is a big progress that is being made. But the pain so to say from the past is really resident there in the domestic consumer. And it's domestic consumer that we need to do more work on to win over which is where the specialty retail concept is so super important for the United States. And I feel that we're making a lot of progress, especially supported by the stepped up level of marketing over the last couple of years and the clarity of the brand back to its roots that I feel that hopefully in the near future we can reach a tipping point and truly win over this domestic consumer that today from time to time is still a little bit value driven and it's something that we need to change over time. So raising AURs, elevating the brand, accelerating the process together with Macy's be it our own wholesale business or the business from our licensees, clearly tommy.com here as well.
And generally speaking, the retail stores through our company stores. Company stores obviously are super profitable, super successful business that actually in my personal opinion, I'm quite convinced are really brand enhancing. The stores look second to none. And every time I go into one of these centers, I feel proud that our brand sitting next to all the other power brands that are out there really looks the best and generally speaking performs the best. We go to Asia.
Obviously, there is the Japan story that we're working on. I would not present that to you as a growth story short term. I think in the medium to longer future, it's another story, but we first need to get to turn the corner there. I feel confident that we'll do that, but we need a little bit of time for it. China and India are firing on all cylinders.
And at some stage in the future, obviously, since these are JVs, have an opportunity to either buy out the minority stakeholder or bring them in house one way or the other. So there's opportunities right there. When we go to South America, that's the same story that really is on our table in Brazil. Brazil is a big story. It's not the only story, because everybody talks about the Brazilian economy, because obviously it's such a single big item, but there is many other economies that are in South America that have somewhat similar dynamics and are also representing very, very compelling growth stories.
Those are under license with our partner in Panama, but they are heavily investing in the business. We just issued a new license to them on the base that we trust them strongly to maximize the opportunity for the brand. So overall South America big opportunity. And as it relates to Asia as well as South
America, I want to repeat a lot of initiatives are in place to
proactively drive the supply chain, dedicated initiatives are in place to proactively drive the supply chain, dedicated product, dedicated sourcing, dedicated sizing and all that will obviously in the future pay off. When we roll that all up in the aggregate, this is where we were today or are today with at retail value to €5,600,000,000 Europe at 2.5%. We see a growth outlook of about 7% to 9% over the next years through 2016 North America, a little bit more controlled between 5% 7% Asia in general 15% to 20%, where Japan we're holding a 2.2% to 3%. I think short term we take it down then we start taking it up in the aggregate over the 5 years that's probably a fair assumption 2% to 3%. And in Mexico, South America again mid single digit mid single double digit mid double digit.
Okay. So in the aggregate that means 8% to 10%. We look at the dynamic regionally. Obviously, the growth accelerates a little stronger in Asia and South America. So basically, where they today together represent 20% of global retail sales that will grow to about 25%, taking a little bit of the United States and of Europe as a percentage of the total, which means that total we feel can go at retail value 5% to 6% to 8.5%, which again is in the aggregate of 8% to 10% CAGR.
In other words, more or less a $3,000,000,000 growth opportunity that we feel comfortable with presenting to you. In reported business, where today we report $3,100,000,000 Obviously, now we go back to our own wholesale licensing royalty income, etcetera. This is expected to grow to $4,000,000,000 with the operating margin going from 11.5% to over 14%, hopefully 14.5%. And that kind of like completes the story Tommy Hilfiger we have to present to you here today in New York rather than Dusseldorf. And with that, I give it back to Manny.
Thank you.
Okay. Before we take some questions, I just want to wrap it wrap this up. We talked about the guidance from this morning where we are. We're looking in a year where we're really looking at only top line growth, principally driven by the currency issues around the world of 1% to 2%. We're looking for earnings per share growth that is in excess of 15%, 17% to 18% this year.
Really seeing some excellent performance, seeing our operating margins continue to improve. Again, talking about the kind of growth we saw over the last 3 years, top line growth of 35% driven by the Tommy acquisition. Bottom line growth driven by the performance of Calvin and Tommy in particular, has really took the business forward. We're looking for this year somewhere in the neighborhood of $6.35 a share from an earnings point of view. Again, looking at it long term, 16% top line growth, 23% growth on the earnings per share line over a 10 year period, pretty consistently performing.
The only blip on the screen, the financial crisis in 2,008 and 2,009. Again, we've talked about some of the growth and some of the targets we've really set up. We are really focused on productive growth. We're going to I'm going to talk to you in a second about some of the operating margin improvements that we see. Strategically continuing to invest in Calvin and Tommy, investing in the brands, investing in the product, but also investing in our platforms, in bringing businesses back in house.
We've taken back key license categories, key geographic regions around the world where we felt we could build them and add them on to our platform in a more profitable and appropriate way. Throughout this process, again, we continue to focus on the fact that we are generating significant cash flow. The businesses on just by their nature are inherently cash flow positive. Our retail and our wholesale models turn their net assets significantly between 4x and 5.5x. The licensing model just by its nature is a cash machine.
So the businesses we took on in excess of $3,000,000,000 of debt associated with the Tommy acquisition when we did it, and we've been able to pay down a significant portion of that as we've gone forward. So clearly, the ability to lever appropriate strategic acquisition opportunities and then to delever the balance sheet appropriately as we go forward because of the nature of the business. And I think in our industry, in particular, we use our balance sheet as an asset. Particular, we use our balance sheet as an asset. We use it as a strategic asset.
We think about how we employ our capital. We don't view ourselves as a bank. You will find us sitting with minimal debt and $1,000,000,000 of cash on our books. We're not Apple. And we don't think that that's the way that we should be operating.
We've been very clear, I think, about what our key objectives for the use of our cash is. If you are thinking of a company that is a high dividend payer, mature company, you shouldn't be investing here. We've been very clear. We are about growing these brands, investing behind these brands strategically and looking for strategic acquisitions as we've gone forward. It's not about increasing our dividend.
It's not about stock buybacks, although we're not opposed to that if we can't find the right acquisition targets in a given year. So it's about growing our platforms around the world geographically, the operating platform, and it's about growing our brands and potentially layering on a third stool in the future to the Calvin and Tommy strength that we have today as a business. I think each of the individual groups that presented Calvin, Tommy and our Heritage business laid this out very strongly. But what we're really talking about here is when you look at us combined, that we can grow the top line of this business absent an acquisition in the neighborhood of 6% to 8%. 6% to 8% should drive operating earnings improvement of 13% to 15%, which should drive earnings per share growth of 15% to 17 as we look out.
We've chosen to target 15% growth as we've laid this out, but it's clearly the way we look at the business and how we think about it. And you see each of the pieces. I think everybody laid this out pretty well. But again, it's compound annual growth rate of about 7% during this period of time. We'll drive operating margin improvement, leveraging of the SG and A, continued improvement on the gross margin line.
If you think about it, just to put it into perspective, this year, we will be in excess of 12% operating margins and looking at each of the businesses. We're looking to layer on about 200 basis points of operating margin improvement in the 4 year period. More than half of that will just be driven by mix. The fact that Calvin and Tommy are growing at top line 6% to 8%, while heritage is growing at 1% to 2% to 3%. Just that mix dynamic in and of itself will be a positive factor in the overall build of the mix of the businesses and the operating margin improvement.
Secondarily, the heritage businesses just getting back to over a 10 year period, these businesses with the exception of last year have operated between 9% 11% operating margin businesses. We understand what went wrong last year, and we're well on our way to getting back to that 10%. That should be something that in the next 2 years comes back to us. There's nothing easy in this business, but they should naturally come back to us given the strength of the dress shirt platform, given the strength of the wholesale sportswear platforms should really come back to us quickly. If there is a piece of this business that doesn't turn the way it should, this is clearly businesses that we view from a strategic from a cash flow point of view, not a strategic point of view.
And clearly, if those businesses aren't performing, we've demonstrated the ability to exit those businesses either through sale or through just liquidation and focus on the businesses that are earning the appropriate return as we go forward. The two drivers of this of our business, our company are going to be the 2 top brands, Calvin and Tommy. We talked about this, the cash that's being generated by the businesses over from 2011 to 2016, we should generate $2,000,000,000 of free cash flow. That means from 2013 to '16 as we get come out of this year, it will be about $1,400,000,000 to $1,500,000,000 of free cash flow that can be invested either back in the businesses or returned to our shareholders, depending on the opportunities as they present themselves. And I think we feel very highly confident that we have the assets to, at a minimum, grow this our earnings per share at a 15% growth rate for the 5 years as we look out.
We'll continue to look for acquisition ideas. We've been very thoughtful about it. We do it when it feels right. We'll continue to invest behind the Tommy and Calvin brands through those strategic investments and acquisitions. And none of that is really factored into this kind of growth that we're talking about.
And again, this is what it would look like. This is driving the EBIT margins from this year. We were projecting 12.1 percent EBIT margins to about 14.1 percent and then earnings per share overall that would get us someplace north of $11 a share. And I think that's self explanatory. Again, the significant deleveraging, we've done this now twice.
We took we did the Calvin acquisition. At the time of the acquisition, we had a leverage that was well over 4 times, took on significant debt, brought in private equity at the time, combination in a 3 year period, paying down all of the debt, getting the investment back to our private equity partner at the time. They made a fantastic return and we returned ourselves to being the company we are today. We did exactly the same thing in 2,000 and 9. The leverage was about 3.6 times, 3.7 times.
By the end of this year, that should be very close to or below 2 times leverage, clearly in a very strong financial position to do additional acquisitions. And as I said, generating $1,500,000,000 of free cash flow between 2013 to 2016 going forward puts us in a strong position. This is getting a little we're going to grind here for a second, but it's come up a number of times. And I just thought it was worth talking about it. So I don't want this to become a financial or accounting lesson in any way.
But just to take a back, it's come up. When we did the Tommy acquisition, all of a sudden, somebody woke up and decided return on invested capital was a key dynamic of it. I don't know how to do acquisitions unless you're sitting on 1,000,000,000 of dollars of cash. But if I don't know how to do acquisitions, use your balance sheet as a tool, take on appropriate levels of debt capital and equity capital and not slow in the short term your return on invested capital. It's just the math.
You're going to spend $3,000,000,000 on a brand, spend $3,000,000,000 on a brand like Tommy Hilfiger. You're going to create a significant amount of goodwill that in the short term, you can't possibly earn the returns you're earning pre deal. But if you have a built out financial model that generates a substantial amount of cash, you should be able to deleverage that capital in a relatively short period of time. And this is what this graph is really trying to show and what's happened post acquisition and what should happen as we go forward through 2016. And even in a deal where there was some substantial amount of equity issued with the Tommy deal, we continue to earn and grow our return on equity as we move forward for our shareholder base.
But again, I think it's just the math. There is no way to do that. But clearly, if we were to do another $3,000,000,000 acquisition of Brand X in a year or 2 and we structured in a similar way with 20% to 25% of equity and 70% of debt, it would have the same initial results where you would slow your return on invested capital and then grow your return on invested capital as you pay that debt off and deliver against the earnings that you've promised to the market. So this is the way it was planned. It's been better than we thought.
It's the returns have come back quicker. But it's the reality of investing behind a growth company uses acquisitions as a key part of their growth and their strategic plan as they go forward. So I just wanted to share that. I'd be happy to discuss this with anyone offline or whatever, but I just think it was important to at least demonstrate what's going on for the last 3 or 4 years and how we see it continuing to improve in the future. Again, I'm always asked a question about the use of free cash flow.
I think I've said this at numerous conferences. The 2 key brands will continue to invest behind, continuing to look to accelerate their growth, continuing to look in the developing world and in growth markets that we really can continue to grow. We will continue to look for strategic acquisitions that fit into our portfolio, take advantage of our operating platform here in North America and in Europe and hopefully help us continue to develop the operating platform that we're putting together in Asia as we look down. We'll be using and is continuing to use our balance sheet as an asset. And I think in order to do that and get the best return when we do make an acquisition in the future is to continue to pay down our existing debt as we go forward.
We will always look at the way we use our cash from a capital deployment between stock dividends versus pay down debt. And as we get below this two times, I think it will become more balanced as we go forward. We've clearly levered up to do the acquisition. We're at a point by the end of this fiscal year where we'll be delevered. And I think then when we look at taking the $300,000,000 to $400,000,000 of free cash flow that we'll be generating next year, Absent an acquisition, we clearly will be looking at a combination of debt pay down and some level of stock buyback as we go forward.
So I think we try to balance that. We think about it. We want to take we think would be the best return for our shareholders as we think about that and go forward. And with that, if we could turn the lights up a little bit, I'd open it up for any questions that you have. And I'll ask the management team if they have any questions.
If there's anything directly, we'll get the management teams involved as well. Yes, sir? I was wondering if you
could go through what happened Could
you only because it's also being webcast. I'm sorry. That's all right. I was wondering if you could go through what has happened in the jeans business, Calvin? Sure.
When you say the jeans business, I guess, the Tommy Hilfiger denim business in general has been continuing to grow in the mid single digit range both in Europe and internationally. But I'm sure you're talking about the Calvin Klein business, so I'll focus on that. That business is operated by Wanaco. It's been I think Wanaco has spoken about it directly, so I'm not speaking out of school. They've talked about that they've been disappointed from a product execution point of view, particularly in North America and in Europe.
I think the product does look better in Asia and I think and in Brazil. It's a higher it's much higher priced product there. And I think there's been a focus there. But I think the product category has been disappointing in North America and it's been disappointing and it's disappointing the consumer. I think they've put in place a number of initiatives to bring that back, made some strategic hiring decisions and brought some real talent into the business.
I think you'll start in North America to start to see some improvement in that first half of next year, but not to really see any real improvement in the European business until we get to the second half or spring twenty fourteen, just given where the focus has been and the turnaround that they're really dealing with. I think jeans as a category is a challenge category, particularly in this market. Even if you look at some of our businesses where our jeans business might be slightly negative, we're more than making it up on the men's sportswear side. So when you're running as a licensor and you're the jeans category in North America, I think the jeans category in general is probably down 4% to 6% as a category, you don't have the benefit of then talking about that your Chino business is up 13% like we see in the men's Tommy business here out at great length. And it's a category that has disappointed us where the brand just has a heritage there and has a consumer connection there that it should be much more of an annuity, especially in North America.
And I think it's really been a product design issue more than anything else.
Manny over here. Robbie O'Neill, Merrill Lynch.
Hey, Robbie. Hey, Robbie.
Hey, Merrill Lynch. Hey. Two questions. The first one, and I know I've been
out at great length and it's a category that has disappointed us where the brand just has a heritage there and has a consumer connection there that it should be much more of an annuity, especially in North America.
Kind of hounding you guys on this. Can you help us understand this compounding of the AUR in Tommy Hilfiger? So I think you said 8% now on 7% last year, something like that. It's going on in the outlet stores. I guess it's going on in the wholesale business in North America and maybe some commentary on how much of the growth in Europe was or was not AUR driven, but you're not the only Tommy Hilfiger is not the only brand that's seeing that.
And I think a lot of us are trying to get our arms around how much of your forward growth and you gave us in these projections assume that you will be able to compound your AURs in the high single digit range?
In I'll talk to North America. I'll ask Fred in a minute to talk about Europe on it, which I think is less significant than it's here. Look, we've been dealing with 2011, first half of twenty twelve with high product cost inflation. So everyone raised AURs. And if you I think what the strategy here both with Calvin and Tommy on the collection side of the business both wholesale and in retail, the strategy was to put more into the product so that we can get more for the product and it was built into the plan.
And on the collection pad throughout America, I think all of us to varying degrees, but Tommy and Calvin in particular have been able to compound those sales increases on the collection side. So what we've seen in 2011, we saw AURs in Calvin up high single digits and a similar number with Tommy. That trend has continued into the first half of this year. I'd say Calvin was up about 3% to 4%, where Tommy continued to be up higher, maybe 7% to 8%. Also in North America, I think you have to remember with the Tommy brand, the investments in the brand, I think, are also starting to pay some significant dividends.
So when you look at where the if you go back to 2,008, 2009, where the average AURs were not where they needed to be, we've clearly moved them from mid-20s to high-30s here for men's and women's sportswear, and with a goal to bring them to somewhere in the low-40s over the next 2 years. So I think that answers the first part of the question. As far as the future growth, I think we're not looking for outsized AUR growth going forward. Of course, the product is going the other way. I think what we've clearly seen in the collection area is there's no need to have reduced product, particularly with those two brands, given the investments that we're seeing across the board with the exception of jeans.
When I talk to all our licensing partners in Calvin, AURs are up consistently for spring and AURs are being planned flat to up 1% to 2% for fall holiday. And as we go into spring next year, are being planned flattish for spring of next year. And I think that's consistent to where we are thinking about the business. We've had this growth. I think in the collection area, we're looking to hold that as we go forward.
Not much to add. Just to say that the difference as I explained earlier is the positioning issue. I mean in Europe it's been nationally really it's been consistently where it's been. So there is no AUR increases reflective of a raising of positioning. It's purely there is some AUR increases that everything to do with the cost increases both raw material as well as currency related because we buy in Europe a lot of dollars.
Obviously, the dollar is strengthened. And so there is a little bit of an increase in AURs, but it's not reflective of anything different than what the market does in general. And obviously, in the United States, it's a little different because we are besides dealing with these cost increases, also every year trying to elevate the brand a little further. So I think to that respect, you may see that a little bit going forward, but not anything other than that.
I think the other thing is if we get credit for is managing inventories. Some of it you're a bit of a hostage to what's happening in the overall industry. So even if your inventories are under control, but if that retail inventory is losing, especially in the States, you're going to see pressure on that. So we've come through the 1st 6 months of this year, 7 months of this year now. We've come through it with inventories being in good shape.
I would say last year's 3rd Q4 that wasn't the case. We've all heard the stories, warm winter, whatever you want to talk it, whatever those issues were, as we came through the last 4 months of last year, October, November, December and January fiscal year, Clearly, there was a tremendous amount of promotions going on. We'll be up against that, but in much better inventory position and just a different momentum today going on in the business than what was going on this time last year. This time last year, business had softened and we weren't seeing the kind of sell throughs that we were hoping for. And I think the whole industry held on for 3 or 4 weeks hoping to keep the higher AURs and drive it, got into the 2nd week of November and it was a bit of a bloodbath.
I remember walking down Fifth Avenue Thanksgiving weekend in my sport jacket with my family going down and at the same time looking at signs on Fifth Avenue that were 50% 60 percent off signs. And I think that's what was happening at retail here. And I think that put tremendous pressure last year on AURs. The issue
we're walking on Fifth Avenue where Tommy used instead of a medicine.
No, no, no, no. Across the board back to school season. So that usually bodes well for the holiday season. We'll see how it all plays out.
Great. Thank you. And can I ask just a quick heritage question? The question is just on the eyes on shops in JCPenney. Polo went in there with American Living and did big investment in in store shops at Penney.
It didn't work out too great for them. Can you sort of help us think about why it would be different for IZOD versus what American Living did with Polo?
Well, I think there's a couple of things. I think American it was nice and that it was product that was made by Polo and everybody in this room and maybe in the industry knew it was Ralph Lauren, but the American consumer had no idea what American Living was, whether it was good looking product or bad looking product. I walked in that store, American Living, dollars 32 knit shirt in J. C. Penney, old or new, that's a price point that made no sense to that consumer and I don't think was going to execute and clearly did not and created other issues.
I guess the difference is Izod is a national brand with great consumer recognition that we're presenting in a very positive light. Now look, it's 6 weeks of business and we feel great about how we look and we feel great about how it's performed. On a sales per square footage basis, we are running ahead of what the original sales plan was, which was put together 4 or 5 months ago when this whole thing started. So we didn't contemplate that store traffic was going to be down somewhere in the teens, that comps were going to be down. I don't know what they are now, but through the Q2, they were down 20 plus percent.
So it didn't contemplate any of that. But even with that going on, and I don't believe based on comments being made by JCPenney that business has dramatically improved in the Q3 for the store overall, in that environment, with that with all that going against us, our business is hitting plan, slightly ahead of plan and 50% to 60%, depending on what data you look at, ahead of where we were. So we feel good about it where it is. But by no means are we taking vows. It's over.
Everything is fine. I think the whole JCPenney story has got to be needs to be worked out and understood. They're doing a huge transformation. I think they have some of it right and some of it they need to go back and tweak. I think they have to look at their promotional agenda and their value message to consumer, particularly not in the shop concepts, which I think are analogous to in a environment, where they're you walk into Macy's, Polo, Calvin, Tommy, they're not on sale.
They're full price regular stores that the consumer comes in and buys. I think IZOD is JCPenney's, Tommy Hilfiger or Calvin Klein. But what for me, what's missing at JCPenney needs to be focused on is what are they doing in the classification department. That always was the strength of the store as usually the classification department? That always was the strength of the store.
That's usually driven by foot traffic. And what's the value message there? Because usually, goods like dress shirts, underwear and socks, so that's usually in the United States, that's usually driven with some sales message and some value message. It doesn't have to be $50 off, but it needs to be spoken to the consumer in a way that when she or he is going out to buy 3 pairs of white socks, they do it usually when there's a value going on. And if it's just the regular price, the business will seek a level and we could service that and do that.
But that's a component of business that they really need to work on. I think they're focused on it. I think you'll start to see some changes maybe in Q4 and Q1 of next year. But that's an area where I think the store still needs to be focused on. The shops, I think, have executed exceedingly well.
And I think I'm prejudiced, but I think the Asai shop looks like far the best.
Great. Thanks, Manny.
Yes, sir. Hope we got back there. We'll come over here.
Manny, two questions. In the presentation on Tommy, you talked about Mexico
as a licensee, which I
think you said was roughly $400,000,000
Is there an opportunity?
The $400,000,000 is the aggregate of all of South America.
Okay. But I thought you said Mexico is the great majority of that?
No. It's actually the reverse. Mexico is a smaller business and Central and South America from Panama is the bigger business. I want to say off the top of my head it's probably $150,000,000 to 250,000,000
Okay. Thanks for the clarification. But I guess my question is when you think about the prioritization of bringing in licensees that are expiring, how would you prioritize for Tommy? And then the second question is for Manny. Manny, what are the upper bounds on financial leverage regarding the balance sheet?
Do you want to do license? No,
it's okay. I mean, on the licensees, I mean, all the I mean, there's licensees, there's distributors in some of our countries in Europe, there's franchisees and clusters of stores. I mean there's all kinds of parties around the world that work with the brand under a certain status of an agreement that from time to time offer themselves as an opportunity for us to buy. We always evaluate them. We evaluate them opportunistically.
So if we feel comfortable that we can do better with that business than the party currently does then we would probably try to do it. We're also aware of the fact that it's not always on paper that it looks good and then in reality it is turning out that good. There are obviously also opportunity costs. You can only do so many things at the same time. So we have had license agreements or franchise agreement or distribution agreement come to a term and we've chosen to renew them rather than to take them in house.
Clearly, the economics of taking these businesses in house are always compelling. But once the deal is done, you got to operate it. And the operating of businesses in, yes, exotic markets is not always a given that it's up for us to do well. So I can't really tell you, nor would I obviously exactly which ones we would prioritize the highest as partners involved obviously as well. And we want to be diligent about that.
But I think it's fair to say that over the next 5 years there certainly will be some of those that come up and we will take.
I think on the leverage question, it's like a baseball ask me the baseball scores without the team names. Tell me what I'm buying and I'll tell you how much I'm willing to go into debt for. But I think in general terms, I think we as a benchmark, we would use 4 times as a general area. And could we stretch for something there and we'd be more conservative on certain other things. Yes, sir?
Could you try and give us some explanation? Yesterday, I guess, we heard European unemployment across the board is about 11.5%. I think you said retail sales are off too. And you keep reporting obviously far better numbers. Where is that money coming from?
Are people
You better ask them. All I
know is it keeps coming in, so I keep counting it.
We have a secret.
Okay. Can we hear that?
No. Obviously, the economic environment, I mean, look there are far smarter people who have sensible things to say about that than I would. Again, 80% of our business is in the healthier areas of Europe. Having said that, those 2 are under pressure. But it is a fair point to say that I've seen and I've seen it in 2,009 in the crisis where business obviously was switched off overnight.
And we found that there's a general lack of appetite for risk that runs through the industry both in retailers as well as consumers, which means that a lot of the smaller people heard more than the leading brands. I think a lot of our retailers choose to do more business with a brand like Tommy Hilfiger and some others, because they know it's a proven supply chain supply line. It's good for the delivery. It always performs. Maybe some season a little bit better, some season a little bit worse, but it's not like a hit or miss.
There's no risk that the delivery won't come. So as a general lack of appetite for risk works in favor of the leading brands. And in those countries, you've seen this from Oliver's presentation, we're obviously a major leading brand with major partnership with our retailers. And these tough economic times, I mean, they don't help us boom our business, but they do help us take market share. And what we saw in 2009 after things eased up and business started to recover to normal, we really accelerated big time from the market share that we've taken.
Now obviously, the comp store sales that we see at retail in our stores year to date in Europe at double digit plus which is quite amazing. In fairness, it's a mixture of full price and outlet. And outlet is doing relatively speaking better than full price, but full price does comp positively as well in the high single digits. I think it's just a reflection of the strength of the brand in the moment. I think the investments that have been made in the brand in the last couple of years, not only monetarily speaking with the amounts of money we spend on marketing, but also with the actual substance of marketing in terms of the clarity of the message, the hill figures, the positioning, the attractiveness of the product, the fact that all our stores have been brought in line with this message.
All that I think is paying off at the point of retail right now. Clearly, if this continues to get worse and worse and worse, I can't guarantee you that we'll continue to be able to come positively. But for the time being, I think it's those are very solid numbers that come from other brands and it's just us taking market share.
Omar? Yes. Thanks. Maybe just
a quick follow-up Fred.
Can you talk about how you view the competitive environment in Europe? Operationally, it's more challenging than the U. S. In every different countries, different languages, different department store formats and department store operators and a lot of local brands as opposed to kind of pan European scaled competitive brands where here in the U. S.
You've got more of a nationalized retail structure, national competitors. As you think about Tommy's opportunity in the U. S. And maybe also in reverse the opportunity for the CDK Bridge business in Europe, put the competitive environment in context and help us understand how you think about it one market versus the other?
You have a couple of hours? I mean that's a complicated question obviously. Again as Daniel explained, there's a very big difference between the European market and the American market. But actually you can bring it down to 2 simple words. It's fragmentation versus concentration.
And the fragmentation of Europe makes it very costly. Thousands of customers, 17 showrooms a season takes 2 months, whereas in New York, it takes 4 days basically. And multiple sample lines, it's just a really, really slow moving situation to really get into. So it's not a market that people can enter quickly, easily and with big momentum. You really need take your time to build, to expand, to professionalize, to develop your relationships and then let time be on your side.
I mean, dollars 1,500,000,000 in 15 years is massive and we certainly didn't think about 15 years ago we would do that. But at the same time, in America, there are examples of people who have grown to $1,500,000,000 much quicker just because once you have a formula the ability to roll it out is available to you because of the concentration of the marketplace. So in Europe that doesn't exist. I think we've done it as fast as you can without cutting corners. And the competitive environment means that there is really no pan European competitors.
Actually the only pan European competitors to a degree tend to be non European companies, because my philosophy anyway is that all the European brands are almost inherently a little bit stuck in the area of Europe where they are originally born and developed. So a German brand is typically very strong in Germany. The countries around Germany go to Holland or Swiss, Switzerland, Scandinavia, but rarely conquer Italy or Spain. And similarly, a Spanish brand tends to be very strong in Spain, France, Italy and Israeli really strong in Germany. So by being European in a funny way, it limits your ability to be pan European.
And the neutral brands, typically the Americans, have a better chance to have that neutrality and really conquer all of Europe almost in an unbiased manner. Because for us, we sit in Europe, we sit in Amsterdam, which is obviously a domestic market of irrelevant, because too small. So for us, the entire European marketplace is domestic. And when we talk about exports, we talk about Eastern Europe or the Middle East, whereas when you go into typical European companies, export means the other country. And so I think our ability to not be jaded in one area of Europe is a strength for us and a weakness for many others.
Now for the Americans to really conquer Europe on a pan European basis means deal with the fragmentation. And I think that it doesn't always come naturally to American management approach to welcome fragmentation. It's just not natural. It's seen as a cumbersome pain in the neck really. And I think therefore there could be more Americans than Europeans successful and the fact that they're not necessarily are that way is because they don't always welcome and embrace that European specific requirement.
So it's I don't know if I answered your question, but it's like it's a fascinating situation. Once you're in the market, you're really solidly in, but it's not too easy to get into. Whereas I think in America, you can go up very quickly and you can go down very quickly as well. That rarely happens in the European market. It's just more growth you'll more like stable.
Hi. Maryann Casper from Wells Fargo. Quickly to talk back about acquisitions. You talked about it in the presentation. But if you could maybe describe who your ideal candidate could be?
And then elaborate on what you've been seeing in the market as you look at targets and kind of how where our price is and what are the quality of the brands you're seeing?
Sure. I guess, look, I think the another global lifestyle brand, I mean, look, we talk about Tommy, we talk about Calvin, a brand that's not for sale. There always seems to be a dialogue that we talk about, which we think is a great brand that has even greater potential. It is something like a DKNY. If LVMH ever decided it wasn't in their strategic.
We think it's a great brand. We do dress shirts and neckwear for them. We understand the brand. We think we would have the given our resources, given our strategic partnerships, given our operating platforms, we could grow that brand further than maybe it's done now just given the markets that we're active in. So just to give you a sense of what a typical brand might be or what we would think of.
Now I don't think that there is that many out there when you start thinking. And we are so fortunate to have, you decide what the number is, 2 of 5 or 7 of what I would describe as true design and global lifestyle brands that really have a position globally in markets around the world. So those are so what's out there? Right now there's a lot a fair amount of accessory companies for sale at big multiples. And there is stuff that's out there for sale.
And we haven't seen anything that has been has really got us overly excited at this point in time. I don't think valuations are crazy except on the accessory side. And I don't think and I think the debt markets and the financing markets couldn't be better. So if you could find something, Jesus would be a great time to do something. But right now, we're still looking.
Yes. I'm sorry. Kate, how are you? Hold on. How do you feel?
Yes.
Thank you. I was just kind of on the same question within with acquisitions. The question more is what can you take in house? You're very excited about the tailored business with Calvin I'm sorry, Tommy and what you've done with Calvin. But are there any other bigger product opportunities?
It looks like there are some country opportunities, but on the product side.
Not much on the product side. I mean, if we look in Europe, tailored was the main licensee. I mean, we did over the years take some in house. I mean about 5 years ago I want to say we took our footwear licensee in house in Europe. At that time it did about €40,000,000 in sales and it's well over €100,000,000 now.
We've been a very successful acquisition. A very successful acquisition. We expect to be able to do something of that nature with Taylored. But then it comes down to watches, eyewear, fragrance, those licensees that obviously we can't do justice to. There is a super exciting socks licensee, but I don't necessarily that would move the needle.
And so then it comes to regions. And again product in Europe when it's apparel or accessory related is kind of like easy to get our head around. Regions are a little harder because again what does it take to do business in a certain part of the world? Are we able to understand it culturally? Is it a retail business?
Is it a wholesale business? Do we understand that business? What currency does it happen in? I mean there's so many different dimensions. So I really would be reluctant to say that there is a high likelihood that next I mean Brazil is a very substantial opportunity that we're actively discussing to try to form a joint venture to take the Brazil business semi in house.
Why a joint venture? Because we don't necessarily feel comfortable to do it 100% ourselves. So we prefer to marry up with a local important value adding entity that knows the business, knows the industry, knows the retail developers, knows the stuff that we don't and then we contribute our know how of the brand. And we go about it market by market. I think Brazil is the one that is like pretty imminent and others hopefully can follow in the next couple of years.
I would just add is I agree with everything that's in there. And then the JVs we have entered into India, China, I think within the next we're almost announcing the deal, right? And then the Brazil in the The next few months announcing something in Brazil for Tommy. But those key markets, our hope would be that 2 to 4 years from now, we would have the confidence given our platform in Asia coupled with what's been developed in country. Each of those arrangements have been set up that there's a buyout mechanism there and it's there.
So it wouldn't be a surprise to our partners that we'd be looking to at some point take at least a minority majority position if not a total position in it at that point. So I think that's 36 months out as I think we've chosen a joint venture path to develop the business, really get it to a certain level before we decided to take it on ourselves. And at the same time, trying to build a developing platform in Asia so that we can we have confidence that
we can take it on and have the expertise to do it.
Yes, sir?
Just talk a little bit about the Tommy operating margin targets for 2016. What's embedded in those assumptions? Is it just their mix shift or are there improvements in
I think the biggest mix shift is retail. Retail is growing faster than wholesale in every geographic region. It's not we're not talking about anything revolutionary, but we're just talking about going direct, having control over the stores, the consumer selling space. We've been very successful with it. I think in Europe, we say we're seventy-thirty and it wouldn't surprise us in 3 years that we're 65-thirty 5 and in 5 years that we might be 60-forty whatever that.
I think it'd be those kind of percentage points or 2 a year as we continue to open, I think Daniel talked about 25 to 35 stores in retail. We bring back some distributors and franchisees that are there that have retail stores. I think that's what you'll see us do when we can usually when we bring those in house, we can add value to them as we go forward. So I think that thought process is embedded there. And if you do hit your sales targets of, let's say, let's pick the midpoint 9%, as much as we're investing behind the business, we better get SG and A leverage.
Otherwise, we're doing something wrong. So we've demonstrated the ability to do that, grow our as we're growing at 8%, 9%, growing SG and A at 3% to 4%, that's usually good for 30 or 40 basis points a year. And all we're talking about, so not looking for anything that dramatic in the growth on an annual basis. We're looking for 40 to 50 basis points a year.
Hey, John Kernan from Cowen. A little bit of a follow-up to that question. So you mentioned 4 90 retail stores in Europe. I think 60% of them are franchisees. What do you think the right number of total doors for Europe is?
And then what's the mix between that franchisee and actually owned doors?
It's again, because of the European nature and the fragmentation, the difference between markets, it's very hard to give one blanket answer on that. The number of doors is the aggregate of what we have today. It depends a little bit whether we continue to expand exactly the same formats that we have opened so far or whether we introduce new formats. New formats can be added in the same city that we already have existing formats. Obviously, we can't duplicate the same format in one city.
However, Germany has a significant concentration of retail stores now with still adequate growth, but there are other markets around Europe whether it's in Scandinavia, France, U. K, even the Benelux where we have a lot of white space of stores that can still be opened in existing formats as well as new formats. Outlet stores are still a very low number versus the total number of stores. I think probably 50 or 60 outlet stores or 500 full price stores. So there's only 10% of the total presence.
So I think it's difficult to say on a pan European basis, this is the way it goes. It's really country by country, economic dependent on the economy and where we feel comfortable to open stores. Owned operators versus franchise is always an interesting question. Obviously, typically, we end up operating ourselves those stores for sure that the franchisee couldn't operate on the terms buying from us where we make some money and then he doesn't. So typically the A1 cities, the major cities, the anchor stores, the bigger stores are the ones we operate ourselves.
Then we go to the, let's say, B cities or B locations in A cities. And there we often end up normally when we franchise it's because the franchisee that normally when we franchise it's because the franchisee comes up with a location that we otherwise wouldn't be able to come up with. You also should know that the franchising situation in Europe kind of like historically developed as follows. You have many, many, many cities in Europe where there is an important retail business going on that tends to be an independent retailer who has been there for many, many years sometimes several generations with a multi brand store. That multi brand store is a customer of Tommy Hilfiger, does good business with Tommy Hilfiger.
Typically, that retailer has tried somewhere along the way to maybe open that same format in the next town and successfully and then the 3rd town. And by the time he's in the 4th town, he starts to realize his lifestyle has changed and he has racing around these towns all the time, nobody wants. So he comes to the conclusion that for him to expand is not by taking his multi brand concept bring it to other cities, but to take mono brand concepts bringing into his city. And so very often the franchisee has 5 or 10 different franchise stores with 5 or 10 different brands in his town. And when we have hundreds of franchise stores, it's not with 4 or 5 franchisees.
It's what I want to say 100, but there's definitely maybe the ratio of franchisee store to franchisee partner is probably 2 or 3 to 1. And so it's quite fragmented also. And for us to take the position of doing those also. And for us to take the position of doing those stores ourselves really depends on the occupancy cost and that's where they typically win over us. Now when there is a cluster of franchisees, 5 stores, 10 stores, 15 stores, that is where it becomes possible for us at some point to buy out the franchisee, which is something that we do actively.
And I think in the future, we will see the ratio franchising versus owned operated go a little bit more in own operated not from us opening stores, but from us taking over franchisees.
Hi. Diana Cassel, Liszard. I want to shift the conversation quickly back to Calvin Klein. Just first on Brazil, you mentioned the 5 year target and making it a $1,000,000,000 opportunity. Currently, it's really just a Wernaco business there.
Which categories do you plan to bring there? Is it going to be direct or through other licensees? Secondly, opening up potentially accessory stores, will that also be a direct business or will that again be licensees product? And then finally, with Calvin Klein, Manny historically you've talked about acquisitions as either a major brand or potentially bringing in one of your major licensees. Today, you've really just honed in on a major brand.
Would bringing in a major licensee still be of strategic interest?
Let me look backwards. Yes.
If it's
the right licensee, right situation, right price, we can make it work. It's clearly something that we talk about, strategic investments and strategic acquisitions as we go forward. I think let me take the accessory stores, the accessory stores accessories are a growing category for Calvin Worldwide. I think what we were talking about were accessory stores in North America. We think that there could be 50 of those.
That has to be proven that we will have 3 by the end of the year. The first two are running well ahead of what we would have expectations. I think that's driven by 2 things. Accessories are just a great category. I think it's also a brand building category.
Our partner, our licensee G3 has done a phenomenal job with the accessory business in department stores. It will end this year with $70,000,000 in sales there in department stores at a very good price point. And these we're talking about leather bags. So the assortment is such that we can go in, buy from our licensee, create our own product and really service that store appropriately as we look at it. So it could be a very exciting concept for us.
Sales per square foot in excess of $600 of sales per square foot. Relatively small stores, we're talking about 2,500 to 3,000 square foot stores, so just to keep things in some level of perspective. The last piece was Brazil. Look, Brazil today is basically a jeans business. Even the underwear business today, when Monaco talks about it, it's only about 15% of the business.
So it's principally a denim business. Clearly, there's an opportunity. Given the model we have today, which is Brazil is a licensed region, we would probably do it with the structure we have today, we would do it licensing. So clearly, but it's sportswear, men's and women's casual, refined, tailored, there's significant demand for it. Footwear just getting involved there.
The accessory the fragrance business is a significant business there already. So the brand is very well known. It connects with the lifestyle in Brazil very well. The DNA of the brand that what's the word I'm looking for sex, that's the word, I think really plays well in that part of the world. So I think it's just a very brand appropriate categories for us to really expand upon.
Great. Thanks. It's Aaron Murphy from Piper Jaffray.
Just take a second. The plan is to leave here around 4. So we'll take 2 more questions after this and then we'll wrap it up.
Great. Thank you for taking my question. So just wanted to circle back on just the overall European landscape. I mean what's been still a very challenging Southern European region, you guys have still performed well. I guess, what's embedded in your guidance for the balance of this year?
And if you think longer term of just the retail climate there, I mean, are you looking for improvement in the next 3 to 6 months? Or in but if not what type of metrics are you monitoring on a broader macro basis in those regions?
Italy and Spain we're talking about basically. Obviously very different markets. Spain in more dire straits really for now than Italy. But Spain for us very strongly linked to cutting less which is a major powerhouse. Their business in my opinion is obviously is going down, but I'm surprised how little it goes down.
And I think there is therefore a bloodbath of lesser players that are not able to like stay alive. And it's the same story as I said before. I think in these environments, the biggest tend to get bigger and the middle is where the difficulties mostly take place. So what we do is we are very tightly in alignment with Alcorpini and Les, work very closely with them to manage the brand through this cycle, be responsive to the needs, step up the service levels, the newness of product on the floor. Obviously, we're cautious with pricing also there.
There's a reality that people are not able to necessarily spend what we would like to charge. That isn't to say that we are lowering our price level. We're just trying to be cautious not to raise it. We do some classification initiatives that are main floor focused where we try to cater to some of this more top price driven clientele without jeopardizing the brand. So you try to really partner up to try to work your way through this.
And the beauty is that in Spain, we are one of the number one brands in El Corte Ingles and therefore, we're important to each other. And so far, we're succeeding to come through it well. I mean, our business obviously is down in Spain too, but it's down less than the competition. I mean, it's maybe predictable to say that, but it's the actual reality that we take market share. Italy is the opposite.
It's almost all independents. So it's like 1,000 of independent mom and pop stores. It's harder to like have the critical mass of a relationship to manage there. So it's a bit more abstract. We have no other way than to try to be conservative about the business there.
It's not just the business who do we sell to, but it's equally business who can pay. And that typically is anyway a challenge in Southern Europe versus Northern Europe. Typically in Northern Europe, people take the benefit of a discount on payment within 10 days, whereas in Southern Europe, it typically are payment plans, postdated checks, all kinds of like creative solutions to like pay from the cash flow that comes out of the store. And in good times, we live with that and we try to be a bit more aggressive about it. And in bad times, we turn very conservative and become a little bit of a pain in the neck in being able to like supply clients that don't maybe have the money to pay.
So how do we then measure it in projecting? Again, it's only 20% ultimately of our total business in Europe. So we're planning very cautiously and maybe too cautiously. It's like a little bit it's hard to do. It's like a bit crystal ball.
The macroeconomic developments concern us. And every time we look at our business, we're a little bit relieved. And I can only explain it by what I said earlier is that I think as a strong brand, we have a little bit of the benefit of taking business away from the smaller retailers and the smaller brands. And that's all I can say. Of course, the bigger the business, the easier it is to plan out.
And these fragmented business like in Italy are kind of like a little bit like wait and see what happens.
David, I'm going to wrap up after this. Okay. Thank
you. David Glick from Buckingham. A question for Fred. You described Europe as a very fragmented and complex market. And it just made me wonder, how scalable is that platform really?
And does it just add to the complexity of managing the business? And now you have a challenge in front of you of adding CK Bridge, which may be step 1 in scaling the business. I was wondering if you can kind of put that challenge in the context of that very complicated matrix you put up before and how you would layer on that business and potentially other businesses in Europe down the road?
Yes. Well, it's fair to say that we have 15 years behind us as a mono brand business. So anything we layer on top will imply a challenge. But obviously the infrastructure we have in every way both the commercial infrastructure with our offices, market knowledge that we have, customer relationships that we have everywhere. And then centrally, the ability to like manage the product development cycle, vendor base, bringing the product in logistical cycle, the entire machine as I call it, does blend itself very well for leveraging a second brand.
Having said that, we are we've been very wary about the concept of a second brand and with that for the company to become multi brand and therefore there's like clear brand association and focus being in jeopardy. But the The dynamics The dynamics of the brand are so totally opposite that it's not possible to cannibalize really. I think there's a lot of organizational structure that can be leveraged very well without risking it becoming too much of a soup, let's say. We make it very Chinese wall really in the organization. But ultimately, top down, we think that the leverage return can be quite huge.
Now that isn't to say that we go in with the bridge collection and just because it's our organization that brings it to the market, it's going to fly. I mean the proposition has to be really, really right for the European market. So we're working very closely with Tom's team right now to find a way to marry the brand perspective with the commercial requirements of the market, the way we do it with Tommy Hilfiger every day of the week. And so I think we're in good shape to try to put it in a market in a way that's really going to resonate with the retailers, but the proof needs to be there. Ultimately, the consumer has to buy it.
And when it does, then the scalability thereof after launch, I don't think anybody should expect the world in volume terms of a launch. It should be like a strategic launch that is in the right places that's manageable, so we can react and respond and adjust as needed. But once we got it, then I think the infrastructure we have around Europe can make it much grow much faster than we could ever in Tommy, just because we have that history behind us and the organization is there. So I think more than any other brand to do it with Calvin Klein Bridge has huge additional advantages for us in the fact that it's the I mean, you look at the research from Tom that he
likes to show all the time
I see it is where without where without necessarily much of a business in Europe other than jeans and underwear in some markets the brand awareness is big and at Tommy Hilfiger makes me totally crazy, but okay. And this time we can then finally go with that brand and do it justice. So I think I'm optimistic.
Okay. So first of all, thank you for coming. I know it's a big time commitment. I hope you found it informative. We tried to make it data rich and to make it interesting and I hope we accomplished it on both sides.
So I have to just thank my team on both sides of the water. The Tommy Group that came across and really took brought Germany to New York. I think they did a fantastic job and brought Europe. Our goal was to really highlight the Tommy brand and its dominant position in the market. I think this did it really justice.
Obviously, if you would see it in person, it just blows you away. When you're traveling, please call us. We'll try to set up we could always set up maybe a store visit with some of our teams to give you a chance to really see the strength of the brand around especially throughout Europe. We'd love to set that up. And I'm sure Daniel and his team have done it before, and we'd be happy to do it again.
To the team in the U. S, thank you as well. Everybody did a great job. Dana did an amazing job putting this whole presentation together. And my assistant, Tiffany, with the logistics, thank her.
So, okay, the bus is taking us to the store, cocktails in the store, you can shop in the store. I think there's a discount in the store, right, Gary?
No. This is America, sorry.
The buses The buses are downstairs. Dinner is at Del Frisco's at 6:30.