VF Corp. is reshaping itself again — this time to be more consumer- and retail-focused to drive total shareholder return.
That was the key point at the company’s investor day presentation from chief executive officer Steve Rendle.
According to Rendle, retail will be a key strategy of the company going forward and is expected over the next five years to comprise 35 percent of the company’s total sales, up from the current 28 percent.
The plan is to open fewer stores, but to also “sharpen the focus” of the current fleet. Rendle said the company will “begin to test and look at new formats in a much more agile way,” from looking at where to open stores to making sure they are structured in a way that attracts consumers and keeps them engaged in the customer experience.
Prior to the presentation, VF outlined some initiatives for its 2021 strategic growth plan, the first one under new ceo Rendle. The plan projects revenue growth from 2017 to 2021 at a five-year compounded annual rate of between 4 and 6 percent. That growth will be fueled by VF’s key brands — Vans, The North Face and Timberland — as well as its growing international business and direct-to-consumer platform. Over the next five years, the company expects to generate more than $9 billion of cash from operations and return $8 billion to shareholders through dividends and share repurchases.
According to Rendle, the ultimate goal is total shareholder return targeting the top quartile, in the range of up 13 percent to up 15 percent.
“This plan is about organic growth, not including mergers and acquisitions. M&A is still a top priority, but what it means is that when we do an M&A, it will be accretive to these numbers,” Rendle emphasized. He also said any business that is acquired has to meet VF’s growth and margin objectives, as well as have the ability to generate a strong stream of cash flow.
Rendle spoke about a company that historically has reshaped itself as it looks at the consumer landscape and where VF needs to be to compete. This time, VF plans to “bring product production much closer” to where consumer consumption is located, coupled with the creation of products and brand experiences that also deliver shareholder returns.
He spoke about the company’s “deep understanding of our consumer.” According to Rendle, the company has a deep knowledge of “who they are, what they wear, how they wear it and why they wear our products,” adding that VF knows these “consumers as people. They have specific wants and needs.”
He spoke of new data points showing an overlap of the consumer profile within each of its consumer brands. As examples, he noted that 45 percent of Vans consumers also purchased a North Face product, while 35 percent of Timberland consumers were also buying Wrangler.
Although the company is anchored by its outdoors, action sports and jeans businesses, Rendle said VF saw an opportunity in the work service industry and formed a group that targets the work sector through the strengths of its Red Kap and Bulwark FR teams with components from its Timberland and Wrangler businesses. “This will put VF in a position to be one of the most advantaged and positive owners in the work segment,” Rendle said.
The ceo said the company plans to use data analytics to better inform on how and what merchandise to design, as well as how to incorporate the products better into the wholesale channel. He also said consumer insights over the last five years coupled with data analytics will help VF go beyond CRM to CLM, which Rendle described as “customer loyalty management that measures loyalty defined by affection for and engagement with the brand.”
As for overseas growth, the ceo said the company will “continue to distort our investment toward Asia,” specifically in China where he described growth as being “tenfold over the last 10 years. It is our most profitable region.”
VF expects growth in China to continue, in no small part due to the country’s hosting of the 2020 Winter Olympic Games. Rendle noted the expected 300 million new consumers who will enter China’s middle class, a group that is “perfect” for VF to speak to as they become inspired to become “winter sports fanatics.”
As for the firm’s two top brands, the ceo said: “There are no better brands than North Face and Vans as [consumers] come into those sports [that] we know so well to enjoy and be protected in the outdoor environments.”
The ceo spoke of improvements to the supply chain processes, such as coordinating the brand demand chain with the supply chain to modify and streamline the products that are offered, as well as deliver the right amount of quantity that is shipped to stores.
In conclusion, Rendle told investors that 2017 and 2018 would be the period for reshaping the company, with the tail end of 2019 being when the company will begin to see benefits from the new strategy. The expectation is that 2019 to 2021 would be the “acceleration” period for growth.
VF projected its earnings per share growth rate at up 10 percent to up 12 percent over the next five years, a “low, double-digit growth rate” Rendle described as consistent and sustainable. He added that the projection refers only to organic growth, and that accretion from any acquisition would “exceed these numbers.”