Think Tommy Hilfiger and you'll probably visualise baggy pants, a lot of red, white and blue, and clothes with logos as big the Ritz. But if you look very carefully, you might just witness a quiet revolution taking place chez Hilfiger. The American designer known the world over for dressing hip-hop stars such as Puff Daddy and L'il Kim, has just produced a sportswear range for autumn/winter full of natty little skirts and trim blouses for the girls, and flat-fronted pants and button-down tartan shirts for the boys.

It's a collection which blends perfectly with the new elegance of catwalk fashion, but it's a quantum leap from the logo-centric shirts and jeans which created the Tommy Hilfiger name in the 1990s.

Few dedicated followers of fashion will be surprised that Hilfiger's look has evolved, or that he appears to be chasing a very different market to the one that signed up for his earlier relaxed sportswear. While Hilfiger's company is still one of the biggest players in the fashion business, its share price fell by two-thirds between August 1999 and January this year, wiping a cool £1.5 billion off its market value. Store closures were announced, including the recently-opened London flagship, and Hilfiger's widely reported interest in buying Calvin Klein didn't come to fruition.

Something had to change, and early signs, like Hilfiger hiring the ultra-hip, Irish-born, New York-based designer Daryl Kerrigan as creative consultant for women's wear, seemed to suggest that Hilfiger wanted to start shooting for the hip end of the market, a suggestion which this season's collection (described by the designer as "nouveau preppy") confirms. Although coolness is notoriously a tricky thing to pull off, Hilfiger might just manage it, given that he has already done it once before, albeit in slightly more serendipitous fashion.

From small beginnings (20 pairs of bell bottoms and $150) in his home town of Elmira in New York, Hilfiger first owned a string of stores called People's Place, before moving into fashion design. After taking Manhattan with a too-cocky-to-be-true billboard in Times Square, in which he put his initials alongside such American heroes as Ralph Lauren and Calvin Klein, Hilfiger hit the big time by virtue of a very unusual, symbiotic relationship between two very different types of consumers.

"In the late 1980s/early 1990s, my clothes were adopted by the music stars of that time - the rappers," remembers Hilfiger. "They took the preppy style on board, but exaggerated it by blowing up the logo and wearing their chinos two sizes bigger . . . Snoop Doggy Dog appeared on Saturday Night Live wearing an oversized sweater of mine, again helping create a cult following for my label. I was even mentioned in some of the rappers' songs, which is a great honour for me."

Rather than alienating the white, middle-class kids, for whom the clothes were originally intended, the fact that Hilfiger's clothes were now the uniform of black urban males - mentioned in hip-hop hymns to drive-by shootings and gun-hustling - made them somehow edgy.

The rise and rise of Hilfiger's sportswear has been analysed extensively, with critics either heralding it as a triumph of smart branding or condemning it as a very cynical use of street cool, which prompted kids to buy clothes they could ill afford. Either way, Hilfiger can claim to be one of the first people to spot the growing importance of branding as a tool for expansion, a trend which was to dominate fashion for much of the 1990s.

"For me, brand identity is more important than branding," he insists when asked about its importance in the growth of the label.

Perhaps that is because branding has turned out to be a bit of a double-edged sword, as the unlikely love affair between Wasp America and the hip-hop kids proved. Tommy Hilfiger branding soon became ubiquitous, with the red, white and blue logo plastered on everything from jeans to sleepwear and socks, and that elusive coolness faded. Combined with the rise of new labels with black urban males at the helm - such as Puff Daddy's best-selling Sean Jones line - it's easy to understand why the company's stock prices began to suffer. Hilfiger himself says philosophically: "It was a look that was very much of its time - we have all moved on from that now and both music and my style has evolved."

Now, with his new collection which will be accompanied by a slick new campaign, shot by uber-photographer Mario Testino, Hilfiger is determinedly moving on, although he is anxious to emphasise the continuity.

"Urban casual-wear always influences each generation but each generation gives it a different look, from the rap stars of the late 1980s, to music and sports stars in the 1990s, to the hip crowd in this new century. I'm continually inspired by the look of a particular generation as well as, hopefully, inspiring it."

From initial sightings, the autumn/winter collection for both men and women looks as though it could be a winner. Business wear, particularly in the US, is undergoing a mini-crisis, as offices allow increasingly casual dressing and a whole new generation of workers, who grew up in the sweats and jeans of college, find it very difficult to know what to wear. Hilfiger's concept of "nouveau preppy", which he defines as "classic US tailoring with a twist: Ivy League-inspired clothing that is at once timeless and modern, approachable and versatile", might well fill that gap nicely.

Blazers for women come in corduroy, and have hints of a denim jacket about their styling. Bomber jackets for men come in leather, and chinos are made up in stretch twill, making them recognisably casual, but just a little bit smarter. "I've reinvented some pieces of classic American sportswear . . . blending traditional styles with youthful treatments and accents" is how Hilfiger describes the collection. Tartan runs across both the men's and women's collection, which allows Hilfiger to deploy both campus chic and an English edginess, which should prove popular with the Anglophile Americans as well as a European market.

"Essentially Tommy Hilfiger has always been about casual US sportswear, but the fact that this look has been adopted for career wear is great news for us. Our collections offer tailoring as well, and I think the suit will always remain an essential part of a guy's wardrobe," says Hilfiger. These are clothes for kids that have finally agreed to grow up a little, and although they're unlikely to woo back the hip-hop crowd, Hilfiger can be optimistic that the just plain hip will hop on board.