Vf Who?

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Just the $9.5 billion largest and most diversified apparel company on earth.

\"TheHave you ever tried to skateboard down Mt. Everest in Vans sneakers? Don’t.Or, did you ever try to hike across the Sahara desert with The North Face mountain climbing gear? Ha! Ha! And when did you last try to “hang ten” wearing Timberland hiking boots? You know, I could imagine some Malibu-surfing “stoner” trying that. How about competing in the jumping event in the Hampton Classic hunter/jumper horse Show wearing Wrangler jeans or drinking Champagne at New York’s International Debutante Ball in Lee Jeans? They’d throw you out.

“VF Who?”

These are just five of “who” VF is. Just five of their 30-plus brands, which happen to be contributing $1 billion each to VF’s $9.5 billion coffers. That translates to about 50% of their business.

Then, of course, you could be equally ridiculous on a safari across the Serengeti wearing a Nautica sailing jacket, or taming a bull in a “rodeo ride-off” wearing a pair of 7 For All Mankind jeans. Okay, enough. I just wanted to get your attention.

But, hey, with these brands and the whole lineup of VF’s other brands (see chart 1), who knows about, or needs a VF? No wonder VF is often flying stealth, under the radar of most consumers. But, there is a very important group of people who totally know about the VF Corporation: our friends on Wall Street and investors worldwide. And VF has sure been keeping them very happy.


This global behemoth’s headquarters is tucked away in leafy Greensboro, North Carolina, where all the corporate executives kind of informally “hang,” attired in however many of those over-30 (including sub-brands) lifestyle brands that can be worn day-in and day-out. 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 (except for The Robin Report), for keeping their collective heads down, focused on growth.

And grow it has, roughly doubling its business in seven years, sailing through the Great Recession with only a minor hiccup in 2009. And in 2011 it surged past its 2010 record of about $7.7 billion to reach $9.5 billion, making it the largest and most diversified apparel company in the world. Not only has it been significantly growing top-line, it’s been highly profitable as well, which, of course has made shareholders warm and fuzzy about the company (See chart 2).


And VF continues performing well even amid the economy’s sluggish first six months of 2012, with a robust 8% increase in organic revenues (excluding Timberland, which was acquired in September 2011) – or a meteoric 24% increase if you include Timberland. First-half revenue increased to $4.7 billion from $3.8 billion in the same period last year. Despite widespread economic reports suggesting another six months of continued slow macro-economic growth, VF currently expects full-year revenue growth of 15%, to $10.9 billion, with Timberland contributing about $1 billion of the growth.

In fact, during my interview with CEO Eric Wiseman for this article, I asked him if the slowdowns elsewhere in the world would be enough for him to revise his lofty projections downward for the rest of the year. His response: “It’s true that economies are slowing down everywhere. But I’m super impressed with the work our team is doing in Europe. For the first half, we had a 14% organic growth rate. So we’re not apologizing for a slowdown in our European growth rate in this environment at all! In Asia, we think we’re going to grow about 20% full year, although that’s a slowdown from our growth rate of the last few years when we were up in the mid-30s. We put a lot of thought into anticipating the slowdown as we did our plans for the year, and we’re tracking on those plans.” And he sees a lot of what they call “white spaces” (opportunities) for even greater growth going forward (read more in the Q&A).

VF distributes its brands through all retail channels, (upscale to specialty to mass and discount), as well as through its own branded retail stores and Websites. Today 34% of its business comes from international distribution.

However, while descriptions like the “largest” and “most diversified on earth,” and quantified by the “gorilla-like” $9.5 billion in revenues, may be extremely impressive and noteworthy, and does measure VF’s premier competitive position, they are kind of meaningless without an understanding of their business model, its components, its culture and the strategic evolution driving its current dominant position and its goals for the future.

What Business Are They In?

Remember famed Harvard Professor Ted Levitt’s thesis on “marketing myopia,” in which he refers to companies that stifle growth by too narrowly defining the businesses they are in? One overused example: if a buggy whip manufacturer in 1910 had defined its business as the \”transportation business,\” they might have been able to make the creative leap necessary to move into the automobile business when technological change demanded it.


Not to be a victim of such myopia, when I asked Eric how he would describe VF’s business today, his answer: “That is a really interesting question. I would describe us as a dynamic and innovative growth company, that’s the best environment to work in, in our industry. And the reason I say that is because a couple of years ago, Fortune magazine and Aon Hewitt, the global human resources consulting business, conducted a survey to rank North American Top Companies for Leaders. All the typical names you’d expect were on the list; GE, Intel, P&G, McDonald’s. And out of the blue, we were in the top 25. We were like ‘Wow! How’d that happen?’ We were 22nd, and last year, we moved up to 17th. There is no other apparel company mentioned anywhere on these lists. To be 17th in the Americas is a confirmation of all of the investments we make around rich talent development here; we invest millions and millions and millions of dollars into developing our people every year, and giving them the experiences they are going to need to achieve their personal and professional potential. It certainly has paid off, because our people are delivering like crazy.”

Then I asked how he imagined describing the business 10 years from now. His answer: “The same.” So, not only did he not too narrowly define VF’s business, (à la Ted Levitt’s thesis), Wiseman’s definition might indeed be broad enough to embrace every industry, product, or service under the sun.

Just think about his description. It contains three incredibly powerful tenets, which have driven the company to its current premier position and can certainly drive a doubling of its size in 10 years, as Wiseman projected:

  1. A “dynamic” VF, (active, energetic, self-motivated, forceful)
  2. An “innovative growth company” (I think that speaks for itself)
  3. “The best environment to work in, in our industry” (sustains its culture and breeds visionary leaders)

Down to Earth…The Here and Now

Within this description exists the “here and now” world of what VF does on a day-to-day basis, which also provides the rather lofty platform for their vision.

According to VF’s annual report, “VF Corporation is a global leader in branded lifestyle apparel, footwear and related products, and has a stated vision of ‘building leading lifestyle brands that excite consumers around the world.’” And, from the “there and then” of its early roots when VF owned its manufacturing plants, all in the U.S.; and when its brands were category-specific wholesale brands (Lee Jeans and Vanity Fair Intimates), the leap to the “here and now” was enormous. While its culture did not change, its strategic DNA essentially got a transplant. Its over 30 lifestyle brands are now sourced around the world with VF owning a mere 38 of its own factories out of about 1,500 manufacturers used annually. This transformation began in the early to mid-nineties under then CEO, Mackey McDonald; the baton was passed on to current CEO Eric Wiseman in 2008 (although he had been working alongside McDonald as COO since 2006).

The philosophical and strategic re-imagining of transforming a behemoth business like VF Corporation is one thing; to succeed in implementing the vision is quite another. Without naming names, the road to what might be called a “Fortune 500 graveyard” is filled with the good intentions of just such attempted transformations. Needless to say, VF is not only alive and breathing, it’s winning all the speed and scale records.

The Core Credo- “One for All and All for One” Consumer

The core driver of VF’s ability to envision success factors and the transformation required to succeed in the future was, and still is, its obsession with understanding each of its millions of consumers across 30-plus brands, as “universes of one.” This was former CEO, Mackey McDonald’s reference to how VF views each and every customer. Beginning in the early 80s, VF organized its entire business around a consumer response process that has become only more sophisticated through the integration of modern technologies, including the Internet and globalization. In my opinion, no other company in this industry compares.

Through this relentless consumer focus, they spotted the “casual revolution” and consumers’ preferences for lifestyle “collections” versus single-product brands like their own Lee Jeans and Vanity Fair Intimates. And along with these changes, VF also realized the need for a more efficient and effective supply chain, including a new manufacturing strategy to be primarily outsourced and offshore.

Stepping Stones to the New Millennium

Recognizing these dynamics, VF took their decade-long “obsession” to be superior in consumer response to yet another level. Arguably the pioneer in leading-edge value chain technologies, systems and processes, VF invented the term “flow replenishment” with the launch of their MRS (Market Response System) in 1991, preempting later industry concepts, variously labeled “just-in-time,” “speed-to-market,” “demand flow,” and other such identifiers. MRS, among other attributes, cut replenishment from 90 days to one week. MRS became CRS (Consumer Response System) in the mid-90s. Elevating VF’s consumer research efforts, sales tracking and data mining, CRS essentially provided their ability to “micro-market” products to its “universes” of individual consumers.

A final and necessary step in VF’s transformation was the enormous shift of almost all of their remaining domesticmanufacturing to offshore sources, which today accounts for about 95% of all VF’s production.

So VF entered the Millennium having transformed much of their business. No easy task across such an enormous organization and a culture rooted in making and selling jeans and intimate apparel. However, McDonald’s vision evolvedand gained momentum, with perhaps the most significant directional shift for growth being the repositioning of the older product-driven brands and the acquisition of lifestyle brands as affirmation of his declaration: “VF will grow by building leading lifestyle brands that excite consumers around the world.”

Wiseman Gets the Baton

Taking over as CEO in 2008, Eric Wiseman held a number of executive positions throughout VF since 1995, and as COO of the corporation since 2006, he was more than equipped to receive the baton as VF raced into the early Millennium. Indeed, as cited above, Wiseman has accelerated the pace. While revenues “hiccupped” a decline of 6% in 2009, at the height of the recession, from about $7.6 to $7.1 billion, VF managed to bounce back to a record $7.7 billion in revenues in 2010. And, of course, the 2011 acquisition of Timberland has now catapulted VF to its world-leading position at $9.5 billion in revenues. And Wiseman intends to double that measure to about $20 billion in 10 years, essentially taking the 800-pound gorilla up to 1,600 pounds.


How To Grow The Gorilla

Wiseman mapped out a growth strategy that will be driven by six core drivers (see chart 3):

1. Build Lifestyle Brands – VF Corporation defines \’lifestyle brands\’ as brands that are capable of making and building emotional connections with consumers by equipping them to do an activity they love or enabling them to express themselves individually through products and experiences that resonate with their unique identity. They consider the brands within the Outdoor and Action Sports, Contemporary Brands, and Sportswear coalitions to fit this definition. VF reports its wholesale and DTC (direct to consumer) business separately. In 2011, the wholesale business accounted for 81% of total global sales and 19% came from DTC business. See chart 4 depicting the breakout of the percentage of business contributed by VF’s five coalitions, including their growth rates.

Using their definition of lifestyle brands, in 2005, 35% of VF’s portfolio consisted of lifestyle brands, reaching 54% by 2010, and currently projected to increase to 75% by 2015. Interestingly, the outdoor and action sports coalition (all lifestyle brands), which contributes a whopping 48% of total revenues, and is growing at a faster rate than the other four coalitions, was a mere 2% of VF’s business a decade ago. Assuming a continuance of this trajectory, its rapid growth of existing brands, along with newly acquired brands, one could believe that this coalition will make up most of that 75% of total revenues.

2. Go Global – Currently at 34% of total revenues, Wiseman projects growing the international business to 40% by 2015, primarily in Europe, China, India, Brazil, and Mexico. And a big driver of their global growth, and consistent with VF’s obsessive consumer focus, is their commitment to invest in understanding local consumers’ desires and shopping behavior across a wide and diverse range of global markets. They call it “smart localization.” And as has been proven domestically, VF views this as a huge strategic advantage.

Another big accelerant for global growth will come from the major “outdoor and action sports” brands such as The North Face, Vans, Timberland, and Kipling, as well as jeanswear: Wrangler and Lee (which launched in China in the early 90s and is considered an upscale brand). As Wiseman pointed out: “activities like mountaineering or surfing and skating, they’re global activities, so you can speak to people in many countries.” Furthermore, these lifestyle brands fit VF’s “direct-to-consumer” strategy and expansion through e-commerce and retail stores.

3. Serve Consumers Directly – With almost 1100 owned and operated retail stores (growing to 1200 in 2012), and its e-commerce business growing at a blistering 37% in Q2 of this year, VF’s “direct-to-consumer” revenues will reach about 20% of their total business, or around $2 billion by year’s end. This is up from 18% in 2010.

While Wiseman pointed to the fact that VF’s wholesale business actually grew faster than its direct business over the past three years, he made it clear that where they formed partnerships, such as in China, they count their business through these partners as wholesale revenues. However, VF literally controls everything involving the brand, instructing the store’s operators on merchandise, brand positioning, fixturing, presentation, training the staff, etc. Given such control of this sort of hybrid direct-to-consumer model, I would certainly view these revenues under a “retail” definition. Thus, the 20% projected retail sales by year end could be much higher. Wiseman’s answer to what that number might be: “….. I honestly don’t know the answer to that.”

4. Win With Winning Customers – Given VF’s vast knowledge of its millions of consumers across each and every one of their 30-plus brands, they are able to leverage that knowledge with their retail customers. In many cases, even their largest customers accede to the fact that VF knows more about their ultimate consumers than they do. Therefore, VF’s brands are able to work proactively as true partners, controlling and guiding much of the merchandise direction and in-store operations, including the presentation of the brands.

5. Lead in Innovation – Understanding the need to grow through market share in a slow-to-no-organic growth marketplace, VF is intensely focusing on innovation. And their approach, rather than through a “think tank” and “brainstorming” type of process, is to reach outside their walls and even outside of their industry for ideas. For example, VF is the sole apparelcompany collaborating with the MIT Media Lab, which generates an average of 20 patents per year. As Wiseman said: “… incredibly smart people in places like MIT are working on inventions, but they don’t always know what their practical use is. We’re trying to see how they could help us in some way; it could be in a product; for one of our factories; for our global business technology group ­– it could be anywhere.” They’ve also worked with Robert Redford and the Sundance Group for help on brand storytelling. And, their own internal VF Innovation Fund, which has funded 77 projects to date, is already beginning to provide a positive return on investment.

6. Enable VF’s Future – So, at the end of the day, and at the end of my Q&A with Eric, I asked him, “What keeps you awake at night?” And his answer speaks volumes about how he wants to enable VF’s future. He replied: “I get asked that a lot, and I always answer it the same way ­– and it’s the truth: I sleep really well. I don’t get up in the middle of the night; in the rare occurrence that I do, it’s always because of one thing: the math. Can we sustain growth of 10% a year, which is what we’ve done for the last six or seven years, since we’ve had our new strategy? Actually, we’ve exceeded that, and if we can do that for another six years, we’ll pass the $20 billion mark. So, what keeps me up is how do I take the amazing people that we have today and prepare them to be as successful when VF is that large. I know that most of the people who work here are focused on the next 12 months, not the next six years. I worry about what tools and technologies are going to make that company execute better than we do today. And I think it’s a CEO’s job to lose sleep over those things, because if you don’t have the people ready, and you don’t have the tools ready, the trajectory will absolutely change. The future is a long way from when we started this journey; when we sold Intimates we were $4.3 billion, and we’ll be $11 billion this year, and $20 billion is a big number. Doable, and we think we can get there. I just want to make sure we’re successful when we do.”

This is the vision of a true leader, one that puts his people above himself. I’ve never heard Eric Wiseman, over all the years I’ve known him, to directly or even indirectly imply that any positive success was due to his own greatness or brilliance. It is always due to his “people.”

It is precisely that leadership quality and Wiseman\’s comment that “we invest millions and millions and millions of dollars into developing our people every year, and giving them the experiences they are going to need to achieve their personal and professional potential” that landed them on Fortune’s list of “best companies for leaders in America.”

And it is the reason that the VF Corporation is not only the biggest apparel company on earth, but also why they are arguably the very best.



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