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Kontoor Relies on Demand Creation Strategies to Accelerate Growth by 2022

Kontoor Brands’ recently implemented growth strategies are proving to be successful. During a Q3 earnings call with investors on Thursday, the company reported a 12 percent increase in revenue from 2020 and a 2 percent increase from 2019, totaling $652 million—much of which was driven by initiatives that were put into place in recent years.

Kontoor Brands’ president and CEO Scott Baxter pointed to strategies like demand creation for its Wrangler and Lee labels that have used compelling partnerships to expand their reach. On the Lee side, the Lee Originals campaign launched in October featured a diverse group of influencers ranging from athletes to activists. The following month, the brand dropped a collaboration with Pendleton Woolen Mills with jeans incorporating some of the last remaining American selvedge denim from Cone Denim’s White Oak Mill, which closed in 2017.

Wrangler’s winning partnerships included the Billabong collaboration in July, which the brand said generated 1.7 million videos uploaded by TikTok users who responded to a social media challenge it initiated. The brand also announced an upcoming collaboration with the Paramount show “Yellowstone,” which it developed after the show’s cast members were filmed wearing Wrangler denim—a strategy that has proven successful. Previously, it pursued a collaboration with The Cartoon Network’s “Rick and Morty” after the show made a reference to a “NX-5 Planet Remover” laser that destroyed everything on the planet except for jeans made by Wrangler, revealing an organic opportunity for consumer engagement. Wrangler also teased an upcoming collaboration with R&B Grammy-winning musician Leon bridges.

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“We are doing things with both the Wrangler and Lee brands that we’ve simply never done before,” said Baxter.

Though the company is confident that these strategies will pull in more consumers, they will also require significant spend. Kontoor Brands’ executive vice president and chief financial officer Rustin Welton estimated that its full-year demand creation spend in 2021 will be up approximately 40 percent versus 2020, increasing approximately 100 basis points as a percentage of revenue, and up approximately 20 percent versus 2019.

“As we have discussed and as seen in the third quarter, we believe these strategic investments will continue to unlock our catalyzing growth strategy and support expected demand in the fourth quarter and accelerating topline into 2022,” Welton said.

Wrangler’s 75th anniversary next year is also expected to draw significant demand, as the brand will celebrate year-long with strategic campaigns intended to engage consumers.

The global denim boom is likely to support Kontoor Brands through its fiscal goals. According to retail analytics platform StyleSage, now is the time for brands to double down on their denim investments and price their items accordingly. The firm’s data showed that discounting peaked in summer 2020 and has slowed since the early days of the pandemic. Overall, jeans were less likely to be marked down than other apparel categories at department stores. In fact, some brands, such as Levi’s, found success with increased prices in Q2.

And while Kontoor Brands will always remain true to its heritage denim offerings, Baxter said the new cycle poses a plethora of more casual opportunities.

“It’s much more than a denim cycle—this is a casualization of what’s happening around the world,” he said. “It’s really exciting to see denim [flourish], but what we’ve done with T-shirts, Wrangler All-Terrain Gear and the outdoor category [is meaningful].”

In Q2, the company committed to diversifying its offerings through strategic product extensions, focusing on increasingly popular categories like outdoor, workwear and T-shirts—categories that Baxter said present nearly $150 billion in total addressable markets.

The U.S. market saw a revenue increase of 8 percent from last year, while European revenue increased 19 percent and China increased 22 percent—the latter of which can be attributed to the company’s enhanced focus on the market. While Baxter said the Lee brand is “uniquely connected with the Chinese culture” after two decades of business in China, the Wrangler brand is still getting its footing. At the end of 2020 Wrangler formed a digital partnership with Alibaba Group’s Tmall e-commerce site, China’s leading B2C e-commerce platform.

“Wrangler is just getting started in China with significant white space ahead, affording us the opportunity to grow in the most productive manner to fuel this growth across core channels, categories and geographies,” he said.

Kontoor will shift its sights to more demand creation strategies in China to further engage that demographic.

While the company reminded investors that it’s not immune to the effects of the Covid-19 pandemic and the subsequent inflation, it pointed to its resilient supply chain that’s set up to weather the disruption.

Last week, Kontoor announced an expansion to its water-saving manufacturing program, Indigood, to include an Indigood Facility Certification. Textile manufacturing facilities using 90 percent less freshwater than conventional fabric production may qualify for full certification. With this initiative, Kontoor is encouraging textile mills across the globe to adopt water-saving technologies. The company has not yet disclosed to Rivet how it will certify the claims received.

Welton said these investments, and the way they’re received, make the company confident in its ability to achieve its fiscal goals.

“Assuming current conditions, our best-in-class supply chain, combined with increasing permission to price and elevated AURs, as well as expected ongoing benefits from structurally accreted mix shifts, we anticipate 2022 full-year gross margins to be at or above 2021 levels,” he said.