CEO (Vorstandsvorsitzender), TOM TAILOR Group (TOM TAILOR Holding SE)
Tom Tailor CEO Gernot Lenz
Many mid-sized fashion brands have struggled in Germany in recent years due to the intense competition from vertical retailers ...
About Gernot Lenz
Gernot Lenz, CEO of Tom Tailor, has discussed the company's sustainability transformation. In a May 2023 interview at the University of St. Gallen, he stated that the fashion industry is "one of the most polluting industries in the world" and described Tom Tailor's sustainability efforts as a "360° strategy" covering the full value chain. He said the company increased the share of its articles made from more sustainable materials from 34% to 83% in 2022, exceeding its 80% target, and that all of its factories are audited, including unannounced audits. Lenz emphasized that sustainability "needs to have top management priority" and be embedded in the overall company strategy. In a July 2022 podcast, Lenz said Tom Tailor had "a very clear growth plan" and had achieved growth in the first quarter despite market uncertainty. He also noted that price increases had been "very present" in recent months, but viewed this as an opportunity for Tom Tailor, stating that the company can offer "a super attractive price-performance ratio" as premium brands become more expensive. Lenz added that the company had driven sustainability forward, updated its branding and visual language, and maintained close relationships with retail partners.
Transcript (35 segments)
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Interviewer0:06
Today's guest is Tom Tailor CEO Gernot Lenz, who has worked at s.Oliver, Tommy Hilfiger, and many other fashion brands. He knows the market and why Tom Tailor is doing well. Also, the new Gartner Magic Quadrant for e-commerce software is out, with Spryker among the top. We've linked it for free download. But first, hear what Gernot has to say.
Gernot, welcome to the Kassenzone podcast. Long planned, long awaited. Today we're talking about the fashion industry again. You're responsible for Tom Tailor, but first you need to explain who you are and what you do at Tom Tailor.
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Gernot Lenz1:26
My name is Gernot Lenz, 47 years old, and I've been CEO of Tom Tailor for almost three years now. I've been in the fashion industry since 2007, starting at Tommy Hilfiger in Amsterdam. I've spent 15 years in fashion, including 10 years at Tommy Hilfiger and Calvin Klein, experiencing the entire value chain. Now I'm happy in Hamburg at Tom Tailor.
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Interviewer2:14
If you had to describe the fashion industry, a lot has changed in recent years. Where does Tom Tailor fit in between Tommy Hilfiger, Esprit, s.Oliver, Zara, H&M? How should we evaluate that?
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Gernot Lenz2:35
Tom Tailor has 60 years of history. Regarding positioning, there is luxury, then premium where I worked at Tommy Hilfiger and Calvin Klein, then the mainstream where Tom Tailor is, along with Esprit, s.Oliver, Bestseller, etc. They are in a similar price range but cheaper than premium and usually not global. Below that are vertical retailers like Zara and H&M, which created fast fashion because they can react faster to trends.
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Interviewer6:02
Where would you place the new players from Asia like Shein? They look like fast fashion but with cheap materials. Is that an extension downward in the market?
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Gernot Lenz6:48
I would place them under fast fashion because they are very trend-oriented but with low quality. Below fast fashion is the discount area, traditionally from stationary retail. But Shein comes from digital and social media, using influencers to create reach. It's a kind of discount adapted to modern times.
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Interviewer8:39
Okay, so we've roughly categorized by price points. But fashion is also a matter of taste. Now there's another dimension: the sales channels. A brand like Tom Tailor is strong in wholesale, not so much in own stores. Then online platforms like Zalando come on top. How has that changed the rhythm? You used to have seasonal collections, now it's faster.
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Gernot Lenz10:25
Actually, the collection process hasn't changed massively. Even before, at Peek & Cloppenburg, they updated assortments monthly. The big change is in how you address customers and create relevance. That's a completely different world today than 15 years ago.
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Interviewer11:59
Let's stay on the marketplace logic. I just came from a call about Amazon. Their marketplace revenue is growing, and they've shown that you can only be profitable with a marketplace model because inventory is hard to plan and expensive. So they sell ad space and logistics services. This logic has been adopted by fashion platforms like Zalando. They want only the fast movers and leave the rest to you. You keep the pricing power but take the risk. How do you see that?
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Gernot Lenz12:46
Yes, it's part of the market and you can't avoid it. I prefer the classic wholesale model, but we are hybrid with most partners. The marketplace model is more challenging for brands, not just because of inventory but also costs. If you're a brand without the power of the platform, you have different unit costs. We need to ensure we can manage it profitably. For example, shipping a €15 T-shirt via marketplace might not make sense.
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Interviewer14:46
I understand. You mentioned unit costs. Can you give us some numbers? Revenue, number of stores, so that listeners who don't read TextilWirtschaft every day can get an idea.
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Gernot Lenz15:09
Sure. Last year we had revenue of €500 million, but that was a Corona year with stores closed for half a year. Despite that, we achieved a good result with an EBITA margin of just over 10%. In 2022, we've been spared lockdowns so far, but we have other challenges. We'll end up with revenue well above €600 million and maintain profitability. Regarding channels, we are still over 40% wholesale, about 35% retail, and around 23% online. Online includes our own shop, marketplace business, and wholesale with online partners.
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Interviewer17:01
So 40% wholesale is stationary? And how do you see the future? We've had the e-commerce hype, but there's still a high share of fashion bought offline. Do you think in 20-30 years it will still be 50% offline?
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Gernot Lenz17:55
The strict separation no longer exists. Even wholesale revenue doesn't all happen in-store because every retailer now has digital channels. We're seeing a renaissance of retail in the first six months, maybe some online fatigue. But I believe the shift from offline to online will continue, but not to 70% online. Channels will merge more. Already, almost everyone who buys offline was digitally inspired. In the future, technologies will further blur the lines.
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Interviewer20:48
Let's stay on store performance. You have concrete data. I've heard that in spring (April, May, June) people were happy to return to stores, but by end of June it weakened. Do you see a decline in stores?
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Gernot Lenz21:41
It wasn't a boom year. We started difficultly with Omicron in February, then the war started at the end of February, which had a strong negative effect on footfall in March and April. Then after Easter, we had extremely good months for everyone I spoke to. But June was already a bit more difficult, though still better than March/April. July has been okay, not great, not at 2019 levels. The sale hype seems to have diminished. It's hard to draw conclusions; we'll see how the second half goes and how consumer sentiment is affected.
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Interviewer24:04
Okay, let's leave the channels behind. Let's talk about the 10% EBITA margin on €500 million. That's impressive compared to others like Esprit, s.Oliver, Bestseller. You seem to be a top performer. What did you do? Why is Tom Tailor so much better than the often troubled mid-price segment?
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Gernot Lenz24:53
Tom Tailor's business model has proven successful over the years. The negative perception came from the Bonita acquisition in 2012-2013, which didn't perform as expected. That put the group in a negative light, and we had challenges during Corona, including two insolvencies in the group, but never for Tom Tailor itself. After separation, we restructured, cut costs, and invested heavily in strategy. We focused on product, sustainability, rebranding (updated logo, visual language), and strengthened relationships with trade partners. Product is king, and we've optimized collections and efficiency.
We have been working on finding solutions and navigating the crisis in a solution-oriented manner. We have done this well, as confirmed by a recent industry event where we were recognized for our brand performance over the last twelve months. These results came from business-driven decisions, and especially in the early phase, we streamlined the organization to be agile and powerful again, which we are currently doing. Let's also stay briefly on the topic of brand virtualization.
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Interviewer29:47
Now you say: a modern logo and more focus on a good collection. Is that a central driver? Is it scalable? You probably have at least two collection updates per year. Can you reliably deliver at a high level that appeals to customers so that they say Tom Tailor is a bit more modern and fresher? Can that be achieved sustainably with a logo update and better collection selection?
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Gernot Lenz30:27
The art in our industry, not just for us, is to consistently create the best collection and bring it to partners first to get orders, and then to convince end customers to choose Tom Tailor over competitors. We are on a journey; sell-through numbers show good development, but we are not yet a brand with such strong recognition that someone 300 meters away would immediately identify a billboard as Tom Tailor. That is our aspiration—to create recognition and tell our story. At the end, product is decisive; if the clothes don't fit or feel good, you won't buy again. We also want to reach customers emotionally through social media activities. I am very satisfied with the direction we are taking.
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Interviewer32:15
At the end, it's the numbers that matter. I ask myself about the collection topic: previously you could poach someone with a better feel. But today, the super-fast fashion players succeed because they quickly recognize what's in demand, like a silver shoe, and produce and push it through all channels for a couple of weeks. You are still in a rhythm where you have to decide today what will be relevant next year. How do you stay close to trends? Can you adopt something from the fast fashion industry?
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Gernot Lenz33:08
We are not high fashion; we are a casual brand in the mainstream segment. If you look at the streets, not everyone is wearing super-fast fashion. Many people want security and to look good without being too bold. Our casual line appeals to them because we incorporate modern aspects in colors and inputs from fashion shows from more progressive brands. If we ever completely miss a trend, we have the ability to react short-term. But from my ten years at Tommy Hilfiger, the same rhythm applies—only a small part of the business is truly fast fashion.
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Interviewer35:00
Back to your statement about out-of-home billboards. I follow the story of Abercrombie & Fitch; there are brands that have a strong appeal, but the art is to stay consistent long-term. Now you explained how you reach customers. Has the advertising economy changed massively? I just compared Amazon, Facebook, Google ad spends. What has changed for you? Is out-of-home still relevant, or do you use fixed Tom Tailor influencers on Instagram to reach the target group?
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Gernot Lenz36:07
As I mentioned earlier, marketing has massively changed. Previously we discussed print, TV, out-of-home campaigns. Now the majority of our marketing budget is spent in the digital world. Out-of-home is currently not a topic for us. Digital allows much better measurement. We have brand campaigns, often with influencers on Instagram, that aim to bring Tom Tailor back onto the radar, especially with younger customers. We also run performance marketing to drive transactions. We can measure this well, both on our own channels and with online partners. But of course, I can't say exactly how an Instagram campaign with a specific influencer leads to a purchase in a Peek & Cloppenburg store.
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Interviewer36:43
You mentioned the big platforms. They want you to use not only their advertising platforms (retail media) but also their logistics, e-commerce systems, and customer service. Their own retail business is under margin pressure, so they want to secure your ad spend. How do you handle that? Do you see it as an opportunity or a long-term threat to become dependent?
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Gernot Lenz37:16
You have to be where the customer is. Many of our current and potential customers are on these platforms, so it makes sense to do targeted marketing there, both from a performance and a branding perspective. The decisive factor is that the investment pays off. In the last twelve months, we ran several campaigns with platforms and received detailed evaluations of their effectiveness compared to benchmarks and measurable in sales. Marketing and consumer interaction on shopping platforms is important, as is social media. Regarding other services like logistics, it's always a matter of business case and efficiency. If you have multiple warehouses to serve many platforms, the risk of excess inventory increases. So we evaluate case by case and ensure we don't become completely dependent.
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Interviewer42:39
In preparing for this podcast, I thought about how you view the topic of inflation. In the recession discussion, some argue people buy fewer clothes because they need to spend on basic goods. But from an entrepreneurial perspective, you could try to win over customers from premium segments who now might buy Tom Tailor. You could also run aggressive campaigns, like jackets that look good at home to save on heating. Is that a chance for you?
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Gernot Lenz44:02
The jacket idea is actually relevant to our brand and we could create a fun story around it. Regarding inflation: our industry has seen massive cost increases in raw materials, logistics, and energy. The strong dollar also raised purchasing costs. This has led to price increases across the whole industry, including premium brands. That is a chance for us because we offer a very attractive price-performance ratio. We have worked hard to create relevance and emotional appeal. I see it as an opportunity that someone who previously shopped premium might now buy a Tom Tailor jacket that is significantly cheaper but also looks great and offers the same function.
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Interviewer46:58
The fashion market in Germany is huge, around €60 billion. Do you have a plan to grow from €500 million to, say, €1-2 billion? That would let you leverage fixed costs, and you could also build direct-to-consumer and smaller collections for specific social channels. What is your plan?
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Gernot Lenz47:22
We have a growth plan. We are already in budget discussions for next year. We just had our first quarter orders for next year and have achieved growth despite market uncertainty. So yes to growth. The billion is not far off. Last year we had €500 million (pandemic-affected), this year we will be clearly above €600 million, and next year we target strongly towards €700 million or more. So the billion is a definite first target, but not as an end in itself—it must come with corresponding profitability. We have a long-term responsibility for the brand. Tom Tailor has 60 years of continuity. We are growing, have exciting topics, are active on all channels, especially digital. We also need talents; we are based in Hamburg, a great city. We are looking for talents in almost all areas.
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Interviewer49:50
So far so good. Finally, are there any classic brand aspects that aren't overused? I feel sustainability is a common topic, but is it still an area where a mid-market brand can stand out? Or is it something else, like regional production or social responsibility?
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Gernot Lenz50:38
I am convinced that if you can't credibly demonstrate sustainability with results, you won't exist in a few years. The pressure from partners and customers has become massive. I started dealing with the topic in 2009; my mother was with Greenpeace, so I was indirectly exposed to environmental issues as a child. In 2009 I realized how dirty the fashion industry is. At Tommy Hilfiger I put sustainability on the agenda early, and when I started at Tom Tailor, it was one of the first topics to address. We have a basis and have developed massively in the past two and a half years. We published our first sustainability report, being transparent about what we have achieved and what lies ahead. It won't be the reason someone chooses Tom Tailor, but without it, a brand will have no right to exist in the future. The large platforms also put pressure on us to develop quickly. It is the only right way.
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Interviewer53:59
To summarize Tom Tailor: there is no single truth but a mix of good partnership with wholesale, stable planning, and consistency in brand and collection management, allowing growth towards a billion while making a profit. That's not a given today. It's cool that a mid-market fashion brand can achieve that. Thank you for your time. It's been almost an hour. I'll visit a Tom Tailor store soon. Next week we'll talk about the wood industry.