Setting a new course for a $6 billion apparel behemoth is a bit like turning a battleship, but that’s what Greensboro, N.C.-based VF Corp. has managed to accomplish in the past few years.
The company, previously best known for denim and innerwear brands Lee, Wrangler, Vanity Fair and Vassarette, has turned into a nimble player in the action sports, outdoor and lifestyle sportswear arenas via a string of acquisitions. Since 2000, VF has corralled The North Face, Eastpak, Nautica, John Varvatos, Vans, Kipling, Napapijri and Reef into its fold.
The rationale? “We are all drinking change from the fire hose. We made pro-active choices to deal with the change coming at us and transformed our brand portfolio, accelerating growth at our company by becoming relevant to new consumers,” explained Eric Wiseman, who in May was promoted to VF’s executive vice president, global brands, with responsibility for managing the company’s expanding basket of blue-chip labels.
VF began charting its ambitious new course following a bout of corporate soul-searching. “The journey began a few years ago when we asked ourselves, ‘Are we relevant to our consumers, with our retail partners and through our brands?'” said Wiseman. “Hard questions — particularly hard when the answer was no, we weren’t. We had to do something different.”
Wiseman outlined both internal and external forces instigating shifts in VF’s growth strategies. One of the most obvious internal factors was the flat revenue numbers posted by VF from 1999 to 2003, during which time sales stayed relatively even at $5.2 billion. “We worked amazingly hard, grew a lot of businesses, grew some new categories, made some acquisitions and divested some companies. But we got to the end of five years of working 60- to 70-hour weeks and we were right where we started. Not good enough,” said Wiseman.
On top of that, VF management was facing issues familiar to many in the apparel industry: plant closings, production moving off shore and the need to invest in new technology platforms.
Externally, there were other factors facing the company, including fundamental shifts in the global supply chain, the explosion of private brands with national reach and the ongoing consolidation of stores and the growth of retail giants like Wal-Mart, Federated Department Stores, J.C. Penney and Sears/Kmart. “The powerful megaretailers are must-win partners for all of us,” explained Wiseman. “They need to win, and we need to win within them.”
Additionally, the rapid growth of mono-brand stores like Abercrombie & Fitch, American Eagle Outfitters and H&M has siphoned off the loyalty of younger shoppers. “I have two daughters, 21 and 18, and the department store model does not speak to them, nor do most of our brands. Both of those things need to get fixed,” said Wiseman.
Taking all these challenges into account, VF embarked on a five-point plan to engender fundamental change at the company and rally the organization. First up? Building vigorous global lifestyle brands in the outdoor and sportswear markets, two areas ripe for growth. “We like those spaces because you can create deep emotional connections with consumers in them,” explained Wiseman.
Through its recent acquisitions, VF is more than halfway to its goal of building outdoor and sportswear into a $3 billion business. “Looking forward, that will be about 37 percent of VF sales, matching our jeanswear business,” said Wiseman.
In 2003, jeanswear contributed 53 percent of company sales, intimates 16 percent, imagewear 14 percent, outdoor 12 percent and sportswear 5 percent. Looking forward, Wiseman expects jeanswear to make up 36 percent, intimates 15 percent, imagewear 12 percent, outdoor 24 percent and sportswear 13 percent.
In the last two years alone, VF closed five deals and added $1.1 billion in sales, evenly split between outdoor (Reef at $75 million in sales, Vans at $340 million, Kipling at $69 million and Napapijri at $78 million) and sportswear (Nautica at $550 million).
Wiseman outlined a number of recent triumphs in the outdoor arena: Jansport is the number-one backpack brand in the world; Eastpak is the most popular pack brand in Europe; The North Face has doubled sales in the past five years; Napapijri will open its first store in New York’s SoHo next March; Kipling has opened three mall-based stores in the U.S. in the past three months; Vans is the top skateboard brand in the world, and Reef is the top surf footwear brand in the world.
Overall, VF’s outdoor coalition sales have grown to $1.4 billion in 2005 from just $169 million in 1999. “We’ve compounded growth at 42 percent over that period,” pointed out Wiseman. “Thirty percent of that is from acquisitions. But very importantly, the businesses that we bought have together grown at 12 percent compounded annually over that period.”
In sportswear, VF’s sales have advanced to $620 million in 2005 from $248 million in 2003. Nautica sales have grown about 8 percent in over-the-counter sales this fall, and operating margin has jumped to more than 15 percent, compared with 2 to 3 percent prior to VF’s acquisition. “Our sportswear portfolio is less well developed today because we started about three years after we started outdoor,” said Wiseman. “But we could not be happier with the progress our team is making. We’ve put the fundamentals in place and built a platform. We had to take a lot of unprofitable businesses out of Nautica and that depressed our revenue growth, but certainly enhanced our profitability.”
Wiseman encouraged investment in sustained, meaningful market research and continual product innovation. “Keep the pipeline full, something that we didn’t used to do — we were too conservative,” he explained. “Just pound new product and innovation through the organization and fail small and fast. Try everything you can think of. We think we know what’s going to work, but we don’t really until we get it out there.”
One example of innovation Wiseman singled out is a feature on the Vans Web site offering shoppers the ability to design their own shoes. “It’s not a big business — about $6 million — but it’s so important that those kids are creating their own identity with the brand.”
Despite its heft and the inevitable corporate culture that comes along with its size, VF has aimed to preserve the identities of its recent acquisitions. For example, while there would be cost benefits to integrating the offices of Vans, based in L.A., and Reef, based in San Diego, VF has kept them separate. “They’re different companies and they have their own heartbeat and soul,” explained Wiseman. “We have to make the [cost] trade-off, because the payback for that is more growth and a better business.”
That respect for the personalities of its various companies extends to their employees, as well. “For example, in North Carolina, when I go through the parking lot to get to work, there are a lot of people smoking — it’s just a thing in North Carolina. When you go out to Vans, they are smoking also — but I don’t think it’s the same tobacco,” said Wiseman, to laughter. “But we don’t force them to smoke Marlboros.”
The second prong of VF’s five-point growth plan is changing the way it does business with key retail partners.
VF has created teams to spearhead the business relationship with specific retailers across all its brands and products, starting with Wal-Mart and Kohl’s. Previously, each VF company had separate sales teams dealing with retailers, with separate sales goals for each brand. Under the new framework, VF has company-wide goals with the retailer, and each brand’s sales team reports up to the customer team leader.
What’s more, VF has installed research teams in Bentonville, Ark., to study Wal-Mart’s overall apparel needs and ways VF can exploit those opportunities over the long term.
Apart from growing business with key retail partners, Wiseman added that VF is also committed to building more of its own stores. “One of the best-kept secrets about VF is that we have 537 company-owned stores that do over $800 million in revenue,” he noted. “That will grow much more dramatically than our overall growth rate. In lifestyle brands like Vans, The North Face and Nautica, we want to continue to present the brand in ways we control.”
VF’s third focus is boosting its international presence — a necessity, given the limited growth rate of the domestic apparel market. “Today, the North American market is 82 percent of our business and international is only 18 percent,” noted Wiseman. “We’re going to get that figure up to 25. We’re growing the company at about 8 percent a year, so we’ve got to have midteen-digit growth internationally to make that happen.”
Already there are 130 Nautica shops in China and VF is selling $80 Lee jeans there. In Western Europe, where VF has a $1 billion business, the company recently opened a new Vanity Fair lingerie store in Spain, the first European Nautica store in Antwerp, Belgium, and a North Face shop in Stockholm.
The fourth aspect of VF’s new strategy was an internal reorganization, aimed at cost-cutting that would free resources for growth initiatives. The company targeted $100 million in cost savings from cross-coalition projects involving product procurement, distribution, inventory management and information technology.
The final piece of VF’s five-point plan was a focus on leadership development and recruiting new people who could implement the company’s far-reaching goals — including outside consultants. “We had to recognize that while we had a pretty clear direction of what we wanted to do, we didn’t have the skills and people to become what we wanted. We didn’t have a corporate strategy office, so we built one. We didn’t have a corporate M&A [mergers and acquisitions] team; we built one. We were just at the beginning stages of e-commerce and, from a human resources standpoint, we didn’t have a mechanism in place to develop the people we needed.”
The importance of having the right people on board for these types of companywide evolutions is crucial, added Wiseman. “It all comes down to people,” he noted. “You have to ask yourself the hard question: Are each of my people in the best job for them to make the biggest contribution? It may require painful and difficult transitions, but make them. It’s worth it, and everybody wins in the end.”