VF Corporation held a meeting on Sept. 25 with investors and analysts in Beaver Creek, Colorado, to provide an update to the company's strategic growth plan. It used the opportunity to introduce a new corporate logo for the first time in 21 years, accompanied by a telling new tagline: “Purpose led and Performance driven.”
It also updated its strategic plan for the next five years, noting that it has been doing better than expected. VF's previous five-year, was launched in 2017.
The management said at the meeting that the past two-and-a-half years represented one of the most transformative periods in VF's 120-year history, and that the group is now more consumer-minded and retail-centric than before.
Besides investing heavily in these two areas, VF has three other objectives: driving and optimizing the remaining brand portfolio, making greater investments in Asia and elevating direct sales channels, with a priority on the digital front.
In addition, the management released its financial outlook for the next five years. It expects revenues through fiscal 2024 to grow at a compounded annual growth rate (CAGR) of between 7 percent and 8 percent, fueled by VF's four largest brands – Vans, The North Face, Timberland and Dickies – which make up 90 percent of sales now that the jeans business has been spun off.
Two-thirds of revenues are projected to come in 2024 from Vans and The North Face, with shares of 40 percent and 25 percent, respectively. That means Vans could become a $6 billion-plus brand by 2024, after growing by 11-12 percent a year in the U.S., by 9 to 10 percent in EMEA and by 19 to 20 percent in Asia-Pacific.
The proportion of digital DTC sales is expected to grow by five percentage points to 42 percent at Vans, while wholesale is seen contracting by seven percentage points to 40 percent of sales. VF is applying a wholesale strategy to the development of Vans stores, from the highest boutique category down to the outlet.
In terms of product, the management says that the brand is transitioning from a footwear that has apparel to a footwear and apparel brand. Apparel now generates annual sales of about $1 billion for the brand, out of a total of $3.7 billion, and a 20 to 25 percent ratio looks like a healthy mix.
The North Face is on course to climb from $2.6 billion to $4 billion a year by 2024, growing at an annual rate of 8 to 9 percent, with increases of 7-8 percent in the U.S. and EMEA, and 13-14 percent in Asia-Pacific. While the digital channel is set to jump to 19 percent of TNF's revenues by growing at annual rates of 19-20 percent, the wholesale channel is likely to contract by seven percentage points to 52 percent, growing at an annual pace of 5-6 percent. Brick-and-mortar should stay flat in the revenue mix after an increase of 3-4 percent in the store count.
VF believes that the brand is changing from an outdoor brand to an “exploration brand” in consumers' eyes, and it plans to increase the relevance of its spring/summer offerings through an expansion in sportswear as well as athleisure and performance footwear. It has appointed new teams in these categories, both in design and the supply chain.
The urban exploration segment of TNF's product portfolio is expected to expand to 23 percent of sales, after growing by 14 to 15 percent annually. The mountain sports segment will remain the biggest, but it will contract to an estimated 45 percent of sales. Mountain lifestyle should grow by 9 to 10 percent, aiming for a share of 32 percent in the mix.
VF said it can double the share of footwear in TNF's total sales, currently at 7 percent, thanks to the introduction of a new footwear platform, for spring 2021. It also plans to expand its share with female consumers from 35 to 40 percent with new women's designs, new marketing campaigns and a restructured distribution network for boutiques and department stores.
Among the other brands in VF's portfolio, Icebreaker grew in the past year by 12 percent to an estimated level of $175 million, with 45 percent of the revenues in EMEA and wholesale at 67 percent of the total turnover. The group sees the brand rising at an annual rate of 12 to 13 percent a year through 2024.
The international and DTC operations of its four major brands are expected to contribute disproportionally to the overall growth of the group, to the tune of 8 to 9 percent a year for international and 13 to 14 percent for DTC in that time frame.
VF is projecting a drop in the wholesale component of the overall channel mix from 62 percent to 51 percent by 2024, while digital DTC is set to double to 20 percent of sales and physical DTC should rise by one percentage point to 29 percent. It plans to open 50 more stores by then, mostly under the Vans and TNF brands. It will also work more with Amazon and the Chinese internet platforms.
By region, the group forecasts a growth of 11 to 12 percent for the U.S., 5 to 6 percent for the rest of the Americas, 9 to 10 percent for EMEA, and 19 to 20 percent for Asia-Pacific.
With the focus on the development of higher-margin operations, the gross margin is expected to grow by two percentage points, exceeding 55.5 percent in fiscal 2024, while the operating margin is forecast to reach more than 15.0 percent.
Regarding the ongoing trade tensions between the U.S. and China, the management said that China is currently the source of 17 percent of its products and of 7 percent of those that are U.S.-bound. The company is taking action to reduce that to 4 percent within one year. The group sources 25 percent of its products from Vietnam and 11 percent from Cambodia.