VF REPORT DETAILS DRIVE TO REALIGN
Byline: Thomas J. Ryan
NEW YORK — VF Corp.’s just-released annual report spells out dollar by dollar the firm’s massive restructuring effort.
The program — first announced in October — will result in the layoff of 7,800 employees, or about 11.6 percent of its work force, the report points out. The apparel giant, based in Wyomissing, Pa., had about 67,000 employees worldwide as of Dec. 30.
The restructuring, which VF is calling a response to changes in consumer buying habits and the increasingly competitive retail environment, is expected to save about $80 million a year. VF said a significant portion of these savings is expected to be reinvested in advertising and other actions to support its brands.
As reported, a $155.9 million charge to cover these initiatives was taken in the fourth quarter, resulting in a loss of $35.6 million in the period. The charge pushed down VF’s 1995 earnings by 42.7 percent to $157.3 million, or $2.41. Sales in the year nudged up 1.8 percent to $5.06 billion.
Of the restructuring provision, $46.9 million went for severance and related benefits for employees in manufacturing and headquarters locations throughout North America and Europe, according to the annual report. The remaining charges covered plant closings, production downtime, inventory markdowns and other cost-cutting initiatives. As of Dec. 30, the report says, 1,969 employees had been terminated, with $6.7 million of the termination benefits paid. Most of the remaining employees included in the cost reduction initiatives are located at manufacturing facilities and will work through the plant closing transition periods that are to end early this year. At that time, the remaining cash payments to employees of $40.2 million will be paid.
Of the remaining $109 million of special provisions, $49.1 million required the outlay of cash, including lease and other contract terminations. The noncash charges of $59.9 million represent asset write-offs for closed manufacturing facilities and business and inventory realignments.
In its letter to shareholders in the report, VF said the restructuring addresses long-term fundamental changes in the industry. The focus of the program is on expanding off-shore manufacturing, reducing administrative expenses and increasing investments in brand marketing.
According to the report, VF is stepping up its efforts to source raw materials and labor on a more global scale. The firm expects to increase the percentage of domestic products it manufactures offshore to approximately 35 percent over the next two years from 20 percent currently, the report noted.
The company said the cost savings associated with greater off-shore production, coupled with reduced administrative expenses, will enable VF “to build more value” into its products.
“Clearly, getting more for less is what today’s customers are looking for,” the report says.
The company also said it plans to increase its investment in consumer research, product development and brand marketing at double-digit rates at several divisions, including Lee and Vanity Fair Mills.
VF also highlighted initiatives for each group in its letter. In jeanswear, VF noted that Lee is introducing Lee Riveted, a premium fabrics and finishings line, complemented by denim casualwear. Lee is also testing an in-store kiosk, called Lee FitFinder, which uses an interactive touch-screen to determine sizes and styles for different body types. Wrangler will be upgrading its state-of-the-art replenishment system for its American Hero, Rustler, Timber Creek and Rugged Wear brands.
Vanity Fair Mills is going through a streamlining while expanding offshore production to reduce costs and improve its competitive position. The lingerie business has combined product development groups of Vanity Fair, Vassarette and its private label division into a single unit. The company expects new body-shaping products to continue to drive growth in the lingerie industry this year.
In decorated knitwear, the company said it has “redoubled” efforts to address changing fashion trends and “overall turmoil” in the licensed apparel market. The company is working with customers to best customize assortments by store and region.
— Fairchild News Service