Tommy Hilfiger is reclining in a deep sofa in a private room at Claridges Hotel in London trying to weigh up which is his preferred Hilfiger pin-up: Is it Paris Hilton, the poster girl of Hollywood’s brat pack, or Lauren Bush, the archetypal all-American girl?

“You can never control who wears our clothes,” says the immaculately dressed fashion entrepreneur. “But we feel that with our European-influenced approach, the sophisticated and higher level of quality and fashion somehow reaches the type of people who represent the brand very well.”

A decade ago, Mr Hilfiger may have given a very different answer. Back then, the label he launched in 1984 had turned into a mega-brand on the back of celebrity endorsements from edgier stars such as Snoop Dogg, the gangster rapper.

But its success as the favourite and most fashionable label with America’s youth was short-lived.

By the early noughties, through a mix of changing tastes and competition from newer brands such as Abercrombie & Fitch, the business was struggling. Profits fell from $123m in 2001 to $85m in 2005.

The solution was radical: Hilfiger, which had a far more chic image outside of its home market, was taken private in a management buy-out by its European team, led by Fred Gehring, now chief executive, and backed by Apax Partners. The headquarters were moved from New York to Amsterdam and Mr Hilfiger, who remained creative director, dropped streetwear for classic chic.

The positioning of Europe became the positioning for the rest of the world. “Fred started Tommy Hilfiger in Europe 12 years ago, and he positioned the brand on a much higher level,” explains Mr Hilfiger. “He put clothes only into very sophisticated, better specialist stores.”

Turning round an all-American brand from the vantage point of Amsterdam is a novel – and high-risk – idea. But Mr Hilfiger, kitted out in a pristine pin-striped suit, complete with brown suede desert boots, says he had little choice but to turn to the European team.

“Decisions were being made that were not necessarily the best for the business, and it was very frustrating,” he says, looking back. “Tommy Hilfiger was struggling, it was public and decisions were made to do certain things that were not healthy for the business.”

He is about to go on but is cut short by Mr Gehring. “I don’t think you should go into that,” he says.

Mr Gehring says he has “redefined” America over the past three years. “We have shrunk the business and traded it up. We have a position now where there is a significant level of demand and a much lower level of supply.”

The fashion label has signed an exclusive wholesale deal with Macy’s to stock Tommy Hilfiger Sportswear. This is the classic casual line – navy wool jersey dresses paired with riding-style burgundy boots – that Mr Hilfiger showed on the catwalk at the Lincoln Center in New York. It is aimed at 25- to 45-year-old Americans, who have a household income of at least $75,000.

Street wear is over, with the old US “baggy jeans” collection replaced with Europe’s Hilfiger Denim. This line is targeted at 18- to 24-year-olds and competes with the likes of Diesel, Replay and G Star.

It is an “unusual” rebranding exercise, says Robert Burke, founder of Robert Burke Associates, the New York luxury consulting firm. “It is always more difficult to trade up than trade down in any brand. I think that Tommy Hilfiger and his team are repositioning in Europe first because they have a better chance trying that in Europe,” he says.

The next stage is to introduce Tommy Hilfiger stores into the US. Of 550 shops around the world, only six are based in the US. In November, the company plans to open a flagship on Fifth Avenue in New York for conservative, affluent urbanites. It will open up to 10 stores a year for “several years”.

“Our own brand is positioned in a different way [now],” says Mr Hilfiger. “Ten years ago it was positioned with a lot of red, white and blue and a lot of logos and you would look at these street kids wearing the clothes as billboards.”

Now Tommy Hilfiger – as modelled by Ms Bush – represents something very different. “The brand had been known for its streetwear and now it is not as much on people’s radar, which is probably a good thing when they go about repositioning,” says Mr Burke.