At its Investor Day meeting in September, VF told investors it’s expecting to return $10 billion to shareholders through dividends and share repurchases and sees revenue growing at between 7 percent to 8 percent on a compounded annual growth rate (CAGR).
How will VF get there? It’ll get a much-needed assist from two core brand contributors to its bottom line: Vans and The North Face.
Doug Palladini, global brand president for Vans, which is expected to grow at a 12 percent to 13 percent CAGR to $6 billion in 2024, said the skate-inspired footwear brand is tracking ahead the original target to reach $3.3 billion in 2021. Vans achieved that goal last year, two years ahead of schedule. Palladini said the brand would hit the target for 2017’s five-year plan of $5 billion by 2023 in fiscal year 2022, prompting the new $6 billion bullseye.
Vans is hitting its targets because it is staying true to its purpose of being the “global icon for creative expression for youth culture. We believe at Vans that our purpose drives our performance,” Palladini said.
The youth-culture brand is also “very clear about who we are and who we are not,” he added. On that note, skateboarding is central to Vans and what it stands for, even if the category “is not the biggest addressable market.”
Remaining true to the category gives the brand “our path to authenticity, [providing] a meaningful point of differentiation [and] credibility in other worlds that we play,” Palladini said. Vans events align closely with the music scene and pop culture, areas where the brand can forge a deep connection with the consumer by fostering creative expression.
Palladini said the brand has a long runway, given the “white space” that’s ahead of it. ComfyCush, a new outsole technology that offers comfortable wearing over longer periods of time, will find its way into more footwear silhouettes.
Apparel is also an area where Vans can see more growth ahead. Currently tracking at $1 billion in sales, Palladini said the category is a “must-win” for the brand, which in turn will help it gain a greater foothold as head-to-toe brand. Hoodies, chinos, and outerwear are resonating well with its customer base.
Another area for growth is the direct-to-consumer market, which drives about 50 percent of its global revenue. Vans will follow the VF Distort Asia goal by focusing on being relevant to local consumers and growing consumer activations in the market, both through local platforms such as Tmall and WeChat and in physical stores.
Palladini said Vans’ store count in Asia Pacific and China is “small” compared with competitors, referring to the region as a “must-win” for the brand, and adding that “we will get there.”
“There’s a big pent-up demand for Chinese youth culture to express themselves and we want them to do that on our platform,” Palladini said.
And even with the talk about needing to expand overseas, Palladini said there’s still room to grow in the U.S., where it’s projecting 11 percent to 12 percent growth.
“Vans has implemented a successful product segmentation strategy in the wholesale channel, enabling it to be relevant in both aspirational stores as well as value chains,” Dana Telsey of Telsey Advisory Group said. Going forward, she added, Vans will mirror the segmentation strategy in its own stores, across boutiques, brand showcase stores such as at Herald Square in Manhattan, luxury at The Vault and at mall-based stores and outlets.
The North Face
The North Face is still in repositioning mode as it continues to strengthen the core elements of the brand. And so far the efforts seem to be paying off.
The outdoor brand is expected to grow at a pace of 8 percent to 9 percent CAGR, hitting $4 billion in volume in fiscal year 2024. That’s up from its 2017 guidance of a 6 percent to 8 percent CAGR through 2021. The brand plays in a $135 million market that has the potential to grow to $500 million. Through the repositioning, The North Face is operating in the consumer active outdoor segments of mountain sports, mountain lifestyle and urban exploration/streetwear, holding market share of 6 percent, 4 percent and 1 percent, respectively.
Arne Arens, global brand president for The North Face, said the brand is “elevating our game on product design and innovation. We are becoming more inclusive and authentic via marketing and tone of voice.”
The double-down on innovation means reconfiguring the brand’s entire product line, while making sure there’s a clear link back to its DNA and heritage. The management team has also worked on removing excess inventory from the marketplace and becoming more diligent around segmentation. The brand has also focused on unauthorized distribution in varying channels and in elevating its own DTC portfolio online and in stores.
Arens said the positioning of the brand has pivoted “from an outdoor brand to an exploration brand,” one that now invites more consumers to the brand but also allows it to “stay rooted in our DNA and who we are as a brand.”
But he also said “exploration” has a wide berth in terms of who the consumer can be, whether it’s someone venturing out for a hike or on some other exploration in art, music or travel. That means the brand is targeting consumers who have a “mindset of exploration, [a] discovery of what’s on the horizon for themselves,” he said.
Sustainability is also a key ingredient these days, with most of its products slated to be made from recycled materials a few years down the road, Arens said.
That said, performance platforms such as hiking, skateboarding and running will build on the brand’s legacy, and new innovations such as FutureLight will allow it to expand in other categories, such as outerwear, around breathability, lightweight fabrics and waterproof technologies.
The fabric was launched at the top end of its product range and will “cascade down” to other commercial lines during 2020, Arens said.
The North Face is looking at what it calls 365 Relevancy, a program to diversify its product range so it is less reliant on outerwear and can grow during the spring and summer seasons. Arens said he has a new team in place working on sportswear design, and the brand is also exploring an expansion of its focus on footwear to include trail running and light hiking so that it is less dependent on outdoor training.
Another area for growth is raising awareness among women. “Today, 35 percent of our total [revenue] is women’s. We can easily grow that to 40 percent,” Arens said.
The North Face launched a new concept store in Soho, whose format can be scaled across the U.S. in the months to come. And while the brand can “lean into our international side of the business,” Arens said there’s still growth opportunity in the U.S. and in the DTC market, though wholesale is still accounts for 54 percent of total business.
Arens believes there’s an opportunity for “outsized growth in the lifestyle category and also 5 [percent] to 6 percent growth in mountain sports.”