VF, Gap, Abercrombie & Fitch: Three Major Strategy Shifts, Only One Homerun

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What does it take to turn around an iconic brand that started with humble beginnings? Creating a new vision may not be the best road to take and reinvigorating a brand may not be enough. The traditional checklist is outdated: cutting costs to profitability and relying solely on operational efficiency to drive performance. While new leadership can create a new vision, who’s the right fit? Join Robin and Shelley as they deconstruct three iconic brands operating with bold new strategies. Competition is fierce, product is king, and consumer affinity is key. Who will be the winners and losers in the retail game?

Caroline has more than 30 years of experience in the fashion apparel sector, including she was CEO of Donna Karan, uh, International. Also, what I like about her background, he has an investment background as Manning Director at Closed Loop Partners. where she led a fashion practice. So that’s probably a good move, but we’ll see.

We’ll see how it plays out. Retail Unwrapped is a weekly podcast hosted by Robin Lewis and Shelley Kohan from The Robin Report. Each episode dives into the latest trends and developments in the retail industry. Join them as they discuss interesting topics and interview industry leaders, keeping you in the loop with everything retail.

Hi, everybody, and thanks for joining our weekly podcast. I’m Robin Lewis, founder and CEO of The Robin Report, and along with my podcast partner, Shelley Kohan, welcome you to what will be a very lively discussion and maybe even a bit of a debate  on the recent and not so recent decisions. Made, uh, in 3 iconic brands  that have been been embedded in the apparel ecosystem for many, many decades  and the results of those decisions when we’re talking about  the F Corporation,  the gap  and a and F, you know, Shelley, I’ve written ad nauseum about all 3 of these and, and, uh, I urge our audience to go to the robinreport.com site  and really read those articles.

Because it will give you,  I think, a very in depth dive into their strategic missteps. Um,  and it’s really a big learning exercise for, I think, for everybody in the industry. So stay tuned, because Shelley and I,  I agree big time that, um,  one of these is a home run  and on the other two  that we may have differing views.

Anyway, so today. We’re going to start off by  making the key points. That drove them to where they are today.  And that’s both the good and bad, and I will start with my alma mater. The VF Corporation  during the 1980s. I was there for that decade. A very conservative, uh, under the radar culture,  uh, the word debt  was not in their vocabulary.

I mean, they ran the place like a bank.  Anyways, I’ve said the brands were Lee Jeans, Vanity Fair, Inman Apparel, uh, then the acquisition of Wrangler Jeans, along with that  Janssen, Jansport, and others.  Uh, and the leadership succession  was from within VF.  So, the C suites of all those brands were all apparel and retail experience,  and this is a major point that we’ll talk about throughout this.

Then, with the acquisitions of North Face, Vans,  Timberland, and whoops, Supreme,  the hot streetwear brand that young consumers love. Would wait in line for hours  for this.  Oh, my God, Robin. I can’t even tell you. Supreme was so hot. I remember the 1st store in Soho and my kids were younger. And 1 of my kids was majorly into skateboarding.

I remember I had to buy this special skateboard from, uh, Santa Cruz, California. But, uh, anyway, I took them down to the store on Lafayette Street down in Soho and the wait was two and a half to three hours just to get into a less than 800 square foot store. It was a tiny store. Anyway.  And this is really interesting, Robin, not to go down a rabbit hole here, but remember Supreme didn’t have normal store hours.

They weren’t open, you know, Saturday through Sunday, 10 to seven. They actually,  and chose what days they open and what hours they open. Like seriously, it back then wasn’t even your traditional retail store. And they had this. cult following who just loved it. Supreme had this thick, thick culture, the huge cult following, which by the way, after VF Corp acquired them, just dropped off, like dropped off a cliff.

Done and dusted.  Recently. Yeah, go ahead.  Oh, good. I was just gonna say they just I don’t know if you know this, but last February, they opened this huge 8500 square foot flagship store on Sunset Strip  in California. I remember that location is a great location. That’s where the tower records used to be.

Back in my Cali days, I remember going by and seeing tower records there, but, you know, remember that the brain is actually now it’s losing money and the revenue is still sitting like at 100. 523Million,  which is down 7 percent from the previous year. So in 2022, they had, they were supposed to be. Heading upward, so the company had projected Supreme should have been doing 600 million 2 years ago, and they’re just, they’re just not there.

Well, that’s a great example  of a huge corporation, FIIAF Corporation,  buying a  very hot,  you know, scaling rapidly brand that young people love, and they’ll stand for hours, as you pointed out.  And with this conservative culture moving in, all of a sudden, you’ve got, uh,  chief financial officers who have, you know, they’re answering the wall street, so forth and so on.

And all of a sudden, Supreme.  Uh, go from hot to not, and I’ve written a lot about brands that  are hot and then not  the syndrome of that.  So, yeah, a big public company buys a niche brand, then they become ubiquitous,  which just makes them flame out.  Anyway, the big, the big picture here on VF Corporation is that as their acquisitions spree, Lifted corporate revenue, which it did,  uh, to close to  15Billion dollars, debt became an issue.

And particularly as Vans and Supreme went from hot to cold,  and since Vans accounted for,  I think it’s 30 percent of the total revenue, Shelley, I think  that was a number and  the decline in their business  really was a big wake up call. So Shelley, long story short,  time for new leadership. And here’s the major point, in my opinion,  the entry of Bracken Darrell,  who’s two major accomplishments in his  past career.

One is CEO of Logitech,  and prior to that, CEO of the Old Spice,  the Old Spice brand, if you can remember that.  So What’s missing here?  Daryl has no apparel experience.  So, other moves by VF in May of this year, VF Corporation named  Sun Cho, president of the Vans brand.  She was formerly at Lululemon. And I have to say, I think this was a smart move  and Paul Vogel, previously of Spotify, was appointed to, um, the CFO role.

*Transcript by Descript*

Well, we’ll watch this move, Shelley, um, as VF begins to sell some of its brands.  And in June, we have a corporation named Carolyn Brown,  global brand president of the North Face.  And what’s your thought on that show  on that move?

Here’s here’s the good news Robin on that.  Caroline has more than 30 years experience in the fashion apparel sector, including she was CEO of Donna Karen, uh, international. Also, what I like about her background, he has an investment background as manning director at closed loop partners. Where she led a fashion practice.

Oh, so that’s probably a good move, but we’ll see. We’ll see how it plays out. So how is North face doing in VF’s  latest earnings report? North face reported a 5 percent decline, which the company attributed to us wholesale weaknesses.  So Brown has a big challenge. If she hits the ground.  Well, let me,  well, first, let me just go back to, I agree with you on Sun Cho for Vans.

I think they need help, massive help. And she’s a proud person, which I believe she can really help turn around the business. So yes, smart move.  But also Robin, you’re right. The wholesale business for VF Corp was down 20%. And Vans is 54% of the total business. Oh, okay. I said, I said a third. No, it’s more than half.

Unbelievable. Well, yeah, for the, uh, the wholesale business. Yeah. So direct to consumer was down 5%.  The other point for VF Corp is the Americas is down 22% and that’s 47% of the business.  So, when we, you kind of look at, they just came out with Q4. Remember, the F Corp is on a different financial calendar.

They’re not on a traditional retail one. So they just came out in March with Q4.  The company was down 13%.  Vans is in big trouble. They were down 27 percent in Q4,  Timberland and Dickies was down like 14, 15%. And yes, you already stated North Face was down 5%,  which is the best of the worst, right?

So North Face and Vans combined is about 61 percent of the total business. So you can fix these two. Yeah. If you can fix these two brands. It would really make a tremendous impact and probably settle off all the other ones. Anyway, go ahead.  No, absolutely. I mean, if you look at so, that was Q4. if you look at the whole year, the fiscal year for, uh, the F4, they were down 10%.

With a negative return on assets of 8. 3, a negative. And when I, when I look at all the financials, uh, one number that just jumps off the page is there, you know, operating expense or SGNA is like at 47 percent of sales, which to me seems high for a wholesale slash DTC player.  So their strategy, VF Corp has said their strategy moving forward is fix the Americas.

Yes, so they need to do that. Turn around vans. Yes, they need to do that. Reducing their costs and paying down debt.  Also rebuilding.  Yeah, and rebuilding the leadership team. So I don’t know. VF Corp is kind of in a mess right now. And in my opinion, they really need to get those financials under control.  And you kind of hinted to this, but they did say in the earnings call that they, you know, selling off some brands may be a direction they go, although they didn’t give us any specifics.

Um, and I think focusing on Vans and North Face seems like something that would make sense to me since it’s such a large part of the business. And there’s also some synergies around running similar business models, although they may have different customer bases, the models quite similar. So if they turn around Vans and North Face and sell off some distractor businesses, I think they have a chance as long as they don’t start acquiring more companies until they are more financially sound.

What do you think?  Yeah, I’ll tell you Shelley, and by the way, what’s missing here? Like I said, the CEO Bracken Darrell does not have apparel experience. So it’s a no go for me. Maybe Vans can get a turnaround,  but not enough I don’t think to save VF Corp. They need something more drastic, which leads me to our next icon, the gap.

Oh, my God. Oh, you know, how many decades have they been struggling to turn that business around?  Um, you know, when the iconic Mickey Drexler in the early 2000s,  after his brilliant leadership, really over 3 decades, uh, growing the gap brand  with New York speed and launching Old Navy and Banana Republic, I think the percentage increase over those years was something like 2, 600%.

Rages, you know, uh, here now listen to this. He does a, let’s call it a speed check  and he sees a gap on every corner  and realize all of a sudden that ubiquity is the enemy of cool, right?  I mean, young people want what they’re buying to be scarce and something special for them. Anyway. As he realizes that he does step down,  but not without,  you know, great adulation for what he had created.

And to this day, you know, Shelley  Mickey revered.  So what does a gap do as business starts to the tank  for the last 2 decades? They go through. One Hail Mary CEO after another, one from Pepsi Cola,  second, a CEO of a Canadian drugstore chain,  third, a former  BCG consultant.  And with that,  enter the new CEO,  August 2023, Richard Dixon, who came from Mattel.

And yes, give him a nod, notably, he revived Barbie doll.  Now,  there has been so much hype about the gap.  Thanks. Turn around. So  we can pontificate if it is a really, if it’s really hype or the start of a great rebound  of one of America’s most iconic brands. So, Shelley, what are the financials around this?

Well, I mean, first of all, Gap is literally an iconic brand for the U. S. founded by Donald and Doris Fisher back in 1969 and is a U. S. based company. Um, and they were one of the top three apparel brains in America, but have dropped down as of 2022 to number six. So they’re trying to make moves to reclaim their top status.

So let’s start with all the quote unquote hype. It’s always fun to start with the hype. So 2024 Q1 results, net sales were up 3 percent compared to last year. However, note that last year sales are down  3%, and a year before that on a decline of 6%. So when we look back historically,  they’re still under 3 percent where they were in 2022.

And keep in mind, Robin apparel prices are a lot higher. So there’s definitely a gap in, you know, where they are today. No pun intended, but, um, they, they ended physical 2023 down 11%.  Oh, so maybe the hype is that they came out of 2023 down 11 percent and in Q1, they see an increase of 3%. But I say, don’t let the numbers fool you.

Well, they won’t.  Well, they won’t fool you, but  in Q1 now, here’s some interesting things from Q1. First of all, online sales increased 5 percent compared to last year. And get this number. This is such a crazy number, Robin. So online represented 38 percent of total net sales,  38%. So they’re really going after online sales.

In addition, they’re actually, they’re doing really good on social commerce, which I believe is a driver of those online sales.  So,  when we look at, you know, what are they doing with physical retail, they closed, uh, 93 company operated stores. 81 percent were in North America. And that was in 2020. Also,  and in North America, just as a side note.

Uh,  stores that closed were in Old Navy, Gap, and Banana Republic. They didn’t really close, they closed a few of the athletic stores, but they also closed 96 franchise stores. So, of the 189 stores that were closed, half were franchise stores, but the other half of the store is more positive, which is they opened  352 stores.

So, they opened more than what they closed. But you can tell with the store openings, what they’re really focused on. Number one, they open franchise businesses. That was 83 percent of that 352 stores were franchise stores. So they’re going after a franchise business and they’re also focusing on old Navy and athleta.

So for physical retail to kind of sum it up, they’re right. Sizing the gap and banana Republic. And they’re growing athletic and maintaining old Navy.  So strategy moving forward online and physical, we just covered the other things that they had mentioned is. Uh, maintaining financial operational rigor, strengthening the operational platforms, but I got to be honest with you, Robin.

Every U. S. brand, actually every global brand, are focused on both these factors, you know, financial and operational rigor, and strengthening the operational platform. It’s not a criticism, it’s just a point. You know, coming out of the pandemic, it’s lean and mean, and we’re seeing this in inventory holdings.

We’re seeing this in gross margins, and we’re seeing this in operating expenses, which by the way, the gap decreased their operating expenses by two percentage points in Q1 of this year.  So Richard, Richard says his goal is to quote unquote, reset the company strategy with an aspiration to become a high performing house of a conic American brain.

Good word salad. Good word salad  from Richard.  I know where you’re going to go with this, Rob, so give me one second. I just have to throw this in here, because I know you’re going to go here anyway. But before his time at Mattel, Richard worked as President Chief Exec Officer of the Jones Group, which is a portfolio of premium apparel footwear accessory brands.

He did that for about four years.  Okay, Shelley,  what’s missing here? I still stick to what I’ve said all along. No significant apparel, retail experience. Okay.  Uh, yes. He, he was the new CEO, um, uh,  of the, you know, Jones  brand.  And he had, but it was a very brief, uh, stint as a president. Um.  By the way, which was fairly eventful.

However, he recently took credit for the resurgence of, as I mentioned before, the Barbie doll at Mattel, and as a new CEO of the Gap,  there has been some buzz that he has made some moves that look like the beginning of a turnaround.  So, Shelley, I think you have some commentary about that.  Yeah, I mean, I just want to kind of briefly talk about this idea where they’re going to, you know, reinvigorate the brands.

So let’s just kind of go through the brands. So Old Navy, it’s the largest brand in the entire portfolio. And the goal is to reassert its authority as the number two apparel brand in the U. S. And listen, Richard, he’s a marketing whiz, and I think he’ll be able to bring Old Navy back into their quirky beginnings and recapture the market.

Gap.  The Gap’s kind of plan is to champion self expression and drive cultural conversations. This is from their, you know, strategy moving forward. I believe the focus on social media and S commerce may actually help this effort, especially with the growth of online business.  Banana Republic  premium lifestyle space.

I’m just not sure this is working. I don’t know if anyone sees it as a premium lifestyle. So, I think he quickly, didn’t he very quickly take all the furniture out of Banana Republic?  Oh, okay. The woman in charge prior to Dixon  had a big experience in  furniture, the furniture industry. And so  she starting to bring furniture into banana Republic.

I mean, what business are they in?  I don’t know. They have to get the apparel. Right. You know, before you go adding these ancillary businesses, and you got to, like, focus on your core.  Offering and athletic is interesting. So they. Well, they want to reset it back to its performance roots.  And they claim there’s been some missteps in executing product marketing and experience.

I mean,  that’s, that’s the whole business product marketing and experience. So, here’s what I think on Athleta. So, competition in this space is heating up. So, they actually need to go beyond resetting  it back to its roots. They have to really develop a new product strategy. They’re going to have to compete with the likes of Targets All in Motion, which is phenomenal and has done exceedingly well.

Lululemon, which continues to take more and more market share if that’s even possible. And up and conners like Diori. So Diori is incredible.  Yeah. They’re speed, speed boating. Right into that category anyway,  so Shelley,  I’m sorry to rain on your parade about some of your green shoots sprouting up.  But if you don’t have a chief chief merchant at the helm,  the apparel ecosystem, and particularly at the helm of apparel brands in decline,  a turnaround won’t happen.

But the company, in my opinion, will continue.  I know we’re going to talk in a few minutes about a turnaround. That will confirm my point,  and that’s under the brilliant leadership of CEO Fran Horowitz, who, in fact, has had decades of experience in apparel retail and most of it at Bloomingdale’s, I believe.

Well, you know, to your point, Robin, regarding the gap, no one’s Mickey, except, well, of course, Mickey. So,  and he, by the way, he spoke at FIT’s commencement. A couple weeks ago. Oh, really? Oh, yeah, that’s right. Yeah.  Yeah, so that was kind of cool But here’s what I see in terms of the challenges of the GATT moving forward Competition, e com, next gen, and branding.

I’m telling you that competition with specialty is really heating up huge Walmart, Amazon, Costco, the top three retailers going after You know apparel in a major way  Ecom. There are five top Ecom stores in the U. S. apparel market. Walmart and Shein are number one and number two. Gap is number three. Those three represent 22 percent of the online business for the apparel market.

And then you have, right, snipping at the heels, Amazon and Macy’s.  I think the third challenge they’re going to have is connecting to next gen. So Generation Z and alphas. They just They’re just not shopping at the Gap. Maybe Old Navy, and that’s where I think Old Navy can do a turnaround, but I don’t know.

Gap,  not, not happening. And, and branding is an issue for them, especially for like Gap and Banana Republic. There are too many basics and too much sameness in that, in those two brands.  Excuse me, you know, Shelley, as I’ve said a million times  in today’s overstore, over branded marketplace with new brands entering the market every day of the week,  you know, in the old days, the consumer might give a failing brand,  give them time to get back up.

But this is ad  nauseum today. The consumer says. Bye bye,  because they could cross the street or tap. The button on their computer  and select a new brand among the thousands of new brands popping up every day. So you really have to either be differentiated, which the gap once was, um, because in this day and age with.

All of the oversaturation in the marketplace, consumers have too, you know, too many options.  And again, speaking of needing apparel experience, leadership, as I mentioned, a  real turnaround is underway  with Fran Orwitz at the helm, you know, and now she’s, of course, you know, one of the hottest pot brands,  and that’s A& F, And Shelley, what do you have to share on this rare and truly phenomenal turnaround?

By the way, it was over three decades of apparel experience.  Well, actually, Fran Horwood started her retail career in high school.  Really? I did not know that. Okay. Yes. Seriously. Yeah. I mean, I started when I graduated high school. She started while she was in high school. And  here’s a fun fact, Robin. I know you’re going to love this.

She attributes her great leadership skills to. Frank Doroff and Michael Gould over at 13 years. Yeah, Mike, Mike Gould, um, introduced me to her. So yeah, I knew she was there under Mike and Frank. Go ahead. Oh my gosh. And when you look at her background, it’s full of retail apparel. She had buying positions at Bergdorf Goodman, she worked at Bonwit Teller, she worked at Saks Fifth Avenue, she served nine months as president of Ann Taylor Law, and she had many roles at Express, and of course her merchandising roles over at Bloomingdale’s.

And keep in mind, Robin, Abercrombie Fitch is more than iconic, it has been around since  1892. Yeah, I keep forgetting that. Yeah, so Fran says her number one lesson that she learned about leadership is patience and timing.  And that’s what we’re seeing in this turnaround. She didn’t just walk in and change everything all at once.

She really paced the timing, which is work. So let me share some of the crazy numbers with you. Q1, 2024 sales are up 22%. Wow. 22 percent gross margin sitting at 66. 4%.  That’s just crazy. And that’s, that’s compared to last year at 61%. Profit margins were up 300 percent return on assets was 3. 9 compared to last year’s. 

And Q1 is coming off of the full year sales, just over 4 billion. They were up 16%. 16 percent last year operating margin was, I think it was like 11. 3%, which is the highest it’s been in 15 years.  And just a little fun fact here, their America’s business is up 18%. So while VF is struggling in America’s.

Yep, you know, Abercrombie and Fitch is killing it. So they actually had to, um, increase their full year outlook because business is so good. So now they plan to end this year, 10 percent up with net sales and an operating margin of 14%.  So need I say more slam dunk? Yeah, I, I think we said home run and you and I both agree that Fran Horowitz is the real deal.

I mean, come on, she’s got a turnaround strategy and it seems to be working.  Yeah. And before we end our podcast, I just want to reference our podcast about succession planning. We mentioned how well Pepsi churns out these great leaders, and Lisa Amlani  was with us, and she made the point that the most successful retail C suite executives come from the sales floor because they understand the connection of product to consumer.

And this is Fran Horowitz.  Amen, Shelley. Spot on.  So, next week, our podcast, we’re going to have Ronit Elavi, the CMO of Nexite,  a company that specializes in connected retail through a continuous stream of  real time data. So you’re not going to want to miss this one. Next site’s going to help us understand how companies can use real time data to drive customer engagement and overall performance.

It’s going to be great, Shelley. So anyway, I want to thank everybody once again  for joining us today. And, um, if any of you have a topic you would like Shelley and I to cover in one of our podcasts,  shoot me an email robin at the robin report. com.  And thanks again.  Retail Unwrapped is a weekly podcast hosted by Robin Lewis and Shelley Kohan from The Robin Report.

Each episode dives into the latest trends and developments in the retail industry. Join them as they discuss interesting topics and interview industry leaders.  Keeping you in the loop with everything retail.

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