By  on December 15, 2005

NEW YORK — VF Corp. is adding direct retailing to consumers as a key element in its growth strategy.

The Greensboro, N.C.-based manufacturing giant is in the second year of a five-year reorganization campaign that hinges on achieving growth through the acquisition of lifestyle brands. However, during an analysts' meeting in New York on Wednesday, management added a new growth "plank" to its strategy, announcing plans to open more than 400 company-owned stores over the next four years.

"We have over 500 retail outlets," said Mackey McDonald, the 22-year VF veteran who has held the title of chief executive officer for the last decade. "A lot of people don't realize the depth of our retail exposure today and we're continuing to build."

The company owns 525 stores — 305 standard retail operations and 220 outlet stores. According to management, these stores accounted for 13 percent of sales in 2005. Management now has its sights set on more than doubling the number of standard stores to 649 and increasing the number of outlets to 279 for a total of 928 stores by 2009. The increased store count is expected to account for 18 percent of sales.

Eric Wiseman, executive vice president of global brands, said the decision to commit to retail as a core growth strategy provides growth opportunities across all its businesses regardless of size.

"We're interested in retail primarily to showcase each brand and its lifestyle," said Wiseman.

The move also provides an opportunity for VF to continue growing its mature brands, which management refers to as its heritage businesses — such as Lee, Wrangler and Vanity Fair — that have made the company the $6 billion sales giant it is today. Company-owned stores in the heritage businesses accounted for a paltry 1 percent of sales in 2005. For lifestyle businesses, such as Vans and The North Face, company-owned stores accounted for 20 percent of volume.

The bulk of the retail expansion will be focused on international markets, where sales have steadily increased over the last three years. International sales are expected to account for 23 percent of total sales in 2005 compared with 19.8 percent of total sales in 2002. Not surprisingly, Europe accounts for 82 percent of the international sales pie. Management is therefore turning its attentions to Latin America, Mexico, Asia and Eastern Europe, which accounted for a combined 13 percent of international sales.Wiseman also believes better retail expertise will help VF in its dealings with its largest customers, such as Federated Department Stores.

"It will help us be better brand managers because it lets us have direct dialogue with the consumers," said Wiseman.

Retail tests are already under way, according to Wiseman, who acknowledged he was not a retailer and that the company had growing pains to confront.

The North Face seems to be providing much of the blueprint for success that management is looking to replicate across its brands. Wiseman noted the brand opened its first mall-based North Face store several months ago and has shown immediate signs of success.

"The North Face has an extremely rigorous new product development process," said Stephen Dull, vice president of strategy. "We want to make sure all our businesses are exposed to that."

Mike Egeck, president of the outdoor coalition, said North Face products are sold in less than 3,000 of the 18,000 stores in the U.S. that carry sports-related apparel. Despite this, the brand has achieved 15 percent comparable-store gains and is expected to expand to 4,000 doors over the next five years. Egeck said he expects The North Face to break the $1 billion sales mark by 2010.

The additional store goals notably leave out any acquisitions the firm might make. The company has added eight brands since 2000, according to Wiseman. The last acquisition came when the company bought Reef Holdings in March.

"We were a company that was very focused on category businesses, particularly denim and intimate apparel," said McDonald. "We still feel they are great businesses to be in, but we feel a lot of growth available in the apparel industry is in lifestyle brands."

VF remains dominated by its heritage brands, which accounted for 65 percent of its business in 2005. Management is committed to swinging the pendulum in favor of the lifestyle brands, and is looking to have them account for 55 to 60 percent of business by 2010.

"We're actively transforming our whole portfolio into a more growth-oriented portfolio," said McDonald.

Management affirmed its sales guidance for the fourth quarter, expecting to report a gain of 2 percent. For 2006, management is forecasting sales growth of between 4 and 5 percent, putting it in the $6.7 billion sales range.

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