Kontoor Brands executives are trying to reinvent the wheel, or the blue jean brand, as they move ahead as a fledgling standalone company after spinning off from VF Corp. last May.
But first they have to weather the coronavirus storm, particularly in China, where COVID-19 originated. Kontoor still faces the challenge of ensuring its supply chain remains fluid, an obstacle mitigates by its outsize reliance on the Western Hemisphere for manufacturing.
“As you all know, we were scheduled to launch the Wrangler brand in China this spring,” Scott Baxter, president and CEO, said to analysts on a conference call last week. “Given the current environment, we believe the proven course of action is to delay the launch for a short period until fall of this year, when we can more effectively optimize our go-to market strategies, our interactive consumer engagement and better leverage our demand creation spent. While the team is extremely excited to get going and we are ready, this is the best decision for the brand and most importantly our employee’s safety.”
Baxter said the company remains optimistic about the long-term growth potential of the China market for the Wrangler and Lee brands and “we will execute against our strategies to most effectively capture the opportunities.”
While COVID-19 has caused uncertainty in global markets, the strategic initiatives Kontoor is implementing and its “best-in-class supply chain and robust cash flow generation provide us with distinct competitive advantage,” Baxter noted.
“We realized that from a demand perspective the potential impacts are no longer just confined to the China region and we have factored the global impact within our first quarter color, but most is derived from our commercial business in China,” Baxter said. “I do want to note that prior to the emergence of coronavirus, we were seeing really solid trends in our China business. In fact, during January, our China comps were up a solid double digits year-over-year. And while we expect some impacts to near-term results, we are confident that we will regain momentum as conditions normalize.”
Baxter said the company hasn’t seen any material issues within its supply chain or sourcing due mainly to the company’s own Western Hemisphere production.
As for turning around the company after a 2019 that saw revenue decrease 8 percent to $2.55 billion and net income declined 63 percent to $96.65 million, executives have a plan.
This includes “winning with the winning retailers, including our largest customers, many of which are well-positioned in their respective channels of distribution,” Baxter said, while improving “quality of sales actions” and “diversifying our existing revenue base as we improve growth across category, channel and geographic factors.”
“Make no mistake, our brands are underdistributed both within the U.S. and internationally, a distinct competitive difference to many in our pure set,” he said. “We have meaningful and exciting expanded points of distribution that will begin in earnest in the second half of 2020 and you will be hearing more about these programs over the next few months.”
Also “really critical” to margin expansion is that the company’s brands “remain highly under-indexed and underdistributed within D2C, digital and international, he said.
“Growth of these higher margin businesses will generate the capital that allows us to more meaningfully invest back into revenue enhancing areas like new product development, design and innovation, and demand creation, building a productive virtuous cycle over time,” Baxter said.
Tom Waldron, global brand president at Wrangler, said under new design leadership, Wrangler is building on the women’s category with enhanced design and innovation in bottoms and tops. This includes the T-shirt category as a “significant opportunity,” Waldron said, “and we are in the early days of developing the platform.”
“Our ATG line is another example of how we are making natural extensions for the Wrangler of brand,” he said. “We have outdoor DNA and we are developing more performance-based outerwear that augments our core…The early results for ATG are really encouraging and we can’t wait to see how the line evolves in 2020 and beyond.”
Chris Waldeck, Lee’s global brand president, cited the unit’s body optics technology platform as a perfect example of category extension, Waldeck said last fall, Lee was able to bring this innovation suite starting with shape allusions to the mass channel in the U.S. and now has programs in place to build on body optics platform in more premium channels.
“Our next-generation stretch technology called MVP has been one of the most successful new innovation platforms this year, enabling the brand to play at elevated price points,” he said. “And earlier this year we launched Lee’s global sustainability platform, “For A World That Works,” at the international fashion fair in Copenhagen, Denmark. We’ve been thrilled with the reaction from the sustainability community, our retail partners, and most importantly our consumers. When we think about channel expansion, while very early days, the impact of the first ever global head of design is having on product is showing through.”