Headquartered in Denver Colorado (appropriate for its outdoor and action sports brands), the VF culture, formed during the 80s, endures as a quiet, under the radar relaxed group of leaders and team players. They live the VF lifestyle and wear its brands attire. However, this casual culture should not be interpreted as relaxed. They are fierce competitors, but they just don’t waste any energy bragging about it. They eschew “breast-beating” to the press for keeping their collective heads down, focused on growth.
And grow it has. Today, VF is a worldwide behemoth — indeed the largest apparel company in the world with $10.5 billion in revenues across 13 major brands focused on apparel, footwear and accessories/equipment in three business segments including outdoor, active and workwear. Active represents 49 percent of total revenues with brands such as Vans, Kipling, JanSport, and Eastpak; and outdoor is 44 percent of the business driven by The North Face and Timberland. It’s estimated that VF Corp owns a 55 percent share of the backpack market. The workwear segment has the notable brand Dickies.
For the nine-month period from April through December 2019, the company revenue was up 5.4 percent with significant improvements in net income. Then Covid-19 hit the apparel and accessories segment hard, delivering a tough quarter for VF Corp for January through March 2020 with revenue down almost 11 percent. With a large portion of stores closed for a period of time across the globe, net profits eroded considerably.
VF’s tagline sums it up perfectly, “Purpose led. Performance driven.”
However, a strong performance prior to the pandemic has allowed VF to weather the storm and the company delivered a growth in revenue for year-ending March 2020 of 2.2 percent. Direct-to-consumer business continued to grow revenues by 10 percent, representing 41 percent VF total revenues. Digital growth has enabled VF to continue operations when stores were closed driving a whopping 44 percent growth coming from Q2 (July-September 2020).
The VFC Secret to Success
What makes the company tick is consistency in performance, compared to the norm in the apparel manufacturing industry. Gross margin is over 55 percent compared to industry that is under 50 percent. Management’s ability to effectively run the company results in a return on assets of over 3.0, again outpacing the apparel sector.
What makes Wall Street and shareholders warm and fuzzy about the company is VF’s constant evaluation of the brand portfolio — divesting businesses that do not align with the core strengths of the company and continuous acquisitions of companies that move the brand forward. The new tagline sums it up perfectly, “Purpose led. Performance driven.” A swift and sharp focus is what keeps the strong financial performance consistent, even during these difficult times. Today, when the Street is asked who VF is, the answer without hesitation would be something like a fantastic, well-run company…maybe the best.
The Great Recession and Pandemic: No Big Deal
VF sailed through the Great Recession with only a minor hiccup. And, then it took off again on its pre-recession trajectory.
Then, like the rest of the industry, they ran into a wall called Covid-19. However, even while VF’s sales fell 47.5 percent in their fiscal first quarter, (falling to $1.1 billion from $2.1 billion), CEO Steve Rendle said in a WWD interview, “VF is built for this moment.” Please pause while I comment on that bold statement. Many might view his statement as a bit of hubris. But I know Steve Rendle and the VF culture and there is not a hubris bone in the body. So, I can assure you that his statement was an honest (likely understated) fact.
Yes, the numbers were horribly in line with the rest of the industry. Losses ended June 27 were $285.6 million, down from earnings of $49.2 million a year earlier. Vans’ sales declined 52 percent while The North Face fell 45 percent, Timberland was down 43 percent and the work-oriented Dickies fell by 16 percent. On a positive note, their online sales increased by 78 percent. Their business in recovering Mainland China increased five percent.
However, Rendle went on to say how VF is built for this moment,” which is what gives us continued confidence and optimism. Our financial and operational rigor, the affinity consumers have for our iconic brands, and the progress we’ve made in recent years with our digital transformation have us well-positioned to not only manage the complexities of the current environment, but to drive long-term growth. As we continue through our fiscal year, we’ll build on the strengths we’re already seeing in the core elements of our strategy, including maintaining our strong cash and liquidity position and further accelerating our digital business worldwide, especially in China.”
Speaking of which, VF ended the quarter with $2.1 billion in cash and equivalents on its balance sheet, a huge increase from last year’s $561 million. The financial language for describing this position is that VF has a “fortress balance sheet.” And, with their ongoing acquisition strategy, they will be alert for “good deals” during this economic crisis.
How Do They Keep Doing It?
VF is one of The Robin Report’s 2020 Retail Radicals. There are three VF powerful competitive assets and advantages coming out of the 1980s, which powered their incredible growth and continuing through the pandemic.
Its culture’s obsessive focus on consumers and the development of processes for identifying them (for each and every one of its now 13+ brands);
It understands consumers and their desires, down to a “gnat’s eyelash,” and responds to when, where, how, and how often their consumers wish to connect with their brands.
This consumer-obsessed focus also drives an intense innovation culture, which has accelerated over the years and resulted in the opening of three innovation centers across the U.S. in 2013, staffed with teams of scientists, engineers, technical designers and key talent who combine proprietary insights with consumer needs, a deep understanding of technology and new materials.
VF’s competitive assets reflect personalization before the rest of the industry knew what that word meant, and even before the tech-enablers of AI and data analytics became widely used. Having embedded this principle into their culture those many years ago even without current technologies, gave them a jump start over the competition as they entered the 21st Century.
- VF’s business model is a decentralized portfolio of their 13 major brands. Each brand has the autonomy needed to run its own front end of the business, maintaining the brand’s DNA and indelible connection with its consumers. Each brand also manages all of its innovation, product development and marketing. The back end shared functions, such as finance, research, sourcing, and all of the supply chain functions, are centralized and operated corporately, thus creating cost and productivity synergies.
- VF has developed processes for seamlessly integrating every activity in the value chain and how these activities are relevant to the desires and expectations of each and every consumer. Essentially, VF’s brands have a never-ending value chain, seamlessly integrating both online and off. It’s a virtuous cycle, starting with the consumer by understanding their personal desires and expectations, and determining what, when, where, how and how often they desire engagement. This virtuous cycle only pauses at the point of sale, gaining more of that consumer’s information, and then it triggers the cycle to start all over again.
Imagine how forward thinking they were to figure out how to do this before digitalization and all of the technology enablers of today. They operated on a higher platform as they entered the tech era. Many experts believe that VF has one of the most efficient and effective supply chains in the industry, across all of their brands. And VF was one of the first movers in hiring a CTO in the 1980s.
A History of Growth
These are the assets that, in my opinion, both propelled its growth and provided CEO Mackey McDonald (during the 90s), CEO Eric Wiseman (during the 2000s), and now with current CEO, Steve Rendle, the platform to fundamentally transform the VF Corporation. The company went from a 12-brand apparel wholesale business in the 1980s, with revenues of about $2.7 billion (and manufacturing domestically in its own plants) to a $10.5 billion lifestyle brand management business that markets its brands through select retail distribution, including its own stores around the world and online sites. It also outsources its manufacturing globally.
And speaking of its brands’ powerful connection with their consumers, 41 percent of their total revenues are from DTC distribution (online and from their branded specialty stores). These assets are the underpinnings, the foundation of the biggest, and in my opinion, the best apparel company in the world. It is also why they will continue to raise their own bar.
According to Matt Laukaitis, Global General Manager, Consumer Industries, SAP — and partner of TRR Retail Radicals Awards — “VF Corp continues to deliver, even during the complexities of the current environment. Their obsessive focus on the wants and needs of their customers, and their ability to deliver above and beyond at all points along the value chain has created lasting customer loyalty across all of their iconic brands. Their dedication to deliver for their customers, employees, and the community is a great example of an authentic brand that lives ‘customer first’ across all its brands. SAP is proud to celebrate VF Corp being honored as a Retail Radical.”
Community, Planet, Diversity, Inclusion, Equality, Human Rights
Today, enlightened commerce understands that “doing good” for its employees, customers, communities and the planet is an imperative to be successful for one reason. Simply, consumers demand it. And VF has led these movements and is making environmental and social responsibility commitments through the Made for Change initiative.
In 2020, the commitment to community was further demonstrated with the purpose-driven mantra by making significant contributions to the global pandemic crisis including $7 million in COVID-19 relief efforts, $3 million in Vans and JanSport product donations to frontline workers, three million Dickies isolation gowns and over 250,000 Vans canvas face coverings.
VF has made bold commitments in creating actionable programs and initiatives around supporting communities, advocating for human rights, focusing on worker-wellbeing, driving environmental efforts on circular economy and climate change. VF maintains its leadership position in driving change through programs like the recently announced Science Based Targets to reduce greenhouse gas emissions and was the first apparel and footwear company to announce a green bond; financially backed commitments made to reduce environmental impacts and advance sustainability efforts.
Impact of Covid-19
During the second quarter, VF returned approximately $186 million of cash to shareholders through dividends. “Our year to date results have surpassed our internal expectations across all brands, driven by Digital and China, two of our key growth pillars,” said Steve Rendle, VF’s Chairman, President, and CEO. “We are beginning to see signs of stabilization and strength across all aspects of our business, supporting our decision to raise the dividend and provide a financial outlook for the balance of the year. Although uncertainties remain, investments in our digital transformation are resulting in near-term momentum and improved capabilities to emerge in an even stronger position.”
The health crisis accelerated change and innovation at VF. The Corporation was recently named one of America’s most JUST companies by Forbes and JUST Capital recognizing companies that do right by all their stakeholders — workers, customers, communities, the environment, and shareholders — as defined by the American public. VF Corporation, The VF Foundation, and the VF family of brands have donated more than $10.3 million in funds, products, and services worldwide to stem urgent medical needs and help those struggling to cope in the face of the Coronavirus pandemic. From backpacks to boots, coats to socks to gloves, VF’s brands have donated more than $3.2 million in products to help healthcare workers, food banks and those in need.
In April, VF Corp announced its commitment to a people-first approach that prioritizes the health and well-being of their employees as well as the financial integrity of the company. For example, VF utilizes robots in a pilot program launched in August to heighten a safe work environment for associates while increasing productivity. The bots help support associates by increasing social distancing in response to Covid-19. With health and safety more critical than ever and productivity up 63 percent, VF is planning to bring bots to DCs throughout the globe. Gamification has also entered the VF distribution center as easy-to-use machines, LocusBots, have accelerated warehouse productivity. “We needed a solution to increase associate productivity, ergonomics, and social distancing. VF also stepped up its initiatives for diversity and inclusion.
Radical Actions Get Radical Results
VFC is a role model for anticipating and responding to the needs of its constituents, internally with employees and externally with clients and customers. Steve Rendle leads a team of Retail Radicals that have made a real difference in the retail industry and are on the trajectory to make radicalism the norm. VF’s story and record are credible and incredible. And it’s another major reason why the VF Corporation is one of The Robin Report’s 2020 Retail Radicals.