VF has been on a spree. In 2004, it paid $396 million for lifestyle brand Vans. They purchased bootmaker, Timberland, for $2 billion in 2011, spent close to $3 billion to buy workwear Dickies in 2017, and the “hot” streetwear brand, Supreme in 2020. Its other brands include The North Face, JanSport, Icebreaker, Kipling, Altra, Napapijri, Smartwool and Eastpak. This sets the stage for VF’s new CEO Bracken Darrell.

There are many examples of CEOs hired to run apparel and retail brands with little to no experience. Then when those companies were in trouble, the CEOs defaulted to the playbooks they used in their former careers. 

A Wake-Up Call

Net losses for the 4^th quarter 2023 totaled $42.5 million, or 11 cents a share. Compare that huge drop to earnings of $507 million, or $1.31 a year earlier. Here’s how the sales stack up by brand:

• The North Face fell 10 percent to $1.2 billion
• Vans was down a whopping 28 percent to $668.2 million
• Timberland dropped 21 percent to $473 million
• Dickies fell 16 percent to $147.9 million
• The “other brands” category, which includes Supreme, slipped 6 percent to $479.1 million

This is not an ideal scorecard for Darrell. Investors were certainly not happy, and shares of VF were down 7.5 percent to $15.68 in after-hours trading.

“It’s a Strategic Thing”

The 12th chief in VF’s history seems pretty sanguine about what he’s taking on. In a WWD interview, he called the quarterly report “disappointing.” Well, I guess that’s like shrugging off a bit of indigestion. However, John Barbey, the founder of this 125-year-old business, just might be turning in his grave.

In fact, Barbey family descendants who collectively own about 15 percent of VF are supporting another stakeholder, Engaged Capital, in its push to replace two board members. Kelly Barbey said the family is targeting Clarence Otis, a director since 2004, and Juliana Chugg, a director since 2009, blaming them for failing to respond to VF’s challenges over the last few years. Not so coincidentally, both had career paths in the restaurant industry, toys, and CPG brands. Need I say, “Here we go again,” referring to C-level leaders and board members who have little or no experience in the businesses they are leading? More on this in a minute.

A side note here, but significant because the founding family still has a powerful stake in the business. Their ownership is likely why for the better part of the 20th century, VF Corp. was run like a conservative bank — and largely under the radar of Wall Street’s pressure. I remember during my tenure in the 1980s that the CFO was almost as important as the CEO. Debt was not in his vernacular.

Now Bracken Darrell describes the situation as a “strategic thing.” So, which brands fit, and which do not? I just hope he has some really smart executives who can sort this out for him.

Here We Go Again

If I understand his background correctly, Darrell was CEO for 10 years at Logitech International, turning around their tech accessories business. Prior to that, he was credited for returning P&G’s Old Spice brand to growth.

Veering into one of my favorite mantras of late, Gap Inc. has just hired a new chief who hails from Mattel. The four prior to him were the CEO of a Canadian drug store chain, a senior executive from PepsiCo, a consultant, and a technology engineer. These were all “Hail Mary” passes to turn around the dying Gap brand. Breaking news: It’s still dying.

There are many other examples of CEOs hired to run apparel and retail brands with little to no experience. Then when those companies were in trouble, the CEOs defaulted to the playbooks they used in their former careers. A dramatic example is Sears under Eddie Lampert’s fatal ownership. Following his failure to turn around the retail business, he resorted to his financial acumen and “financially engineered” Sears retail business downward for roughly 20 years, monetizing and selling assets, with much of the proceeds deposited directly into Mr. Lampert’s pocket.

Darrell Quotable

Is Darrell channeling these other misguided/unqualified CEOs? Here’s what he had to say recently: “There are a lot of things that aren’t good about being a turnaround, but one of the best things about being a turnaround is you really get a chance to take a fresh look at the entire strategy of something, in this case, of the whole company. Since we are in a turnaround, everything’s on the table from the board’s perspective and certainly from my perspective. So, it’s really taking a hard look at, ‘Gosh, if you could start from scratch with the assets…what would you really like to stay in and why? And so, there’s a strategic view of it. I loved being in growing markets because it’s a lot easier to grow if you’re in growing markets. Generally, the apparel and footwear markets are growing, so that’s good. And then the second thing is I love to have really powerful brands because they act like monopolies. So, the more powerful the brand, the better.”

Well, okay. Sounds like common sense to me. Darrell next attributed the stunning decline in YOY revenues to five factors:

1. Unseasonably warm weather, (always a good excuse)
2. Difficult comparisons with a year earlier (not my watch)
3. Underperformance in the Americas (out of my control)
4. Efforts to clean up and reinvent Vans (its largest revenue contributor of roughly 30 percent annually)
5. Some impact from a cyber-attack in December (way out of my control)

He went on to say, “These are disappointing numbers across the board, and we’re acting with urgency to improve performance so that we do not report another quarter like this.”

How? VF is planning to right-size its business, including cuts from layoffs aimed at eliminating $300 million in fixed cost savings. Darrell said, “Reducing debt and strengthening the balance sheet remains a priority and we benefited from the reduction of inventories and the recent reduction of dividends. We’re already reducing the net debt substantially this quarter versus last year. That’s before we sell any assets.”

Brands Beware

Right-sizing and bringing down the debt, duh. But the beating heart of the corporation are its brands. And with all due respect, while Old Spice and Logitech are two brands that Darrell successfully turned around, what he’s facing now is a portfolio of distinct autonomous apparel lifestyle brands, all of which are in trouble. The “word salads” from the chief are not going to turn them around.

Darrell had better remember that in this over-stored, over-websited industry, when a consumer leaves a brand, for whatever reason, they have any number of new brands to choose from, right across the street or a key-tap away. And that is a brand problem, not just a product or marketing fix.

Drum Roll Please

And so it begins, the long unwind to devaluing VF. Already out there for sale: Kipling, Eastpak, and JanSport. What should he look at? Supreme is one of the hottest brands to hit the youth market, driving unprecedented wait lines for patient customers, and in my opinion, was an operating culture and brand misfit in VF’s portfolio. It quickly went from hot to not, and then deadly cold. Bad acquisition choice. The North Face should be a fairly quick fix. Timberland and Dickies are questionable and might be good candidates for sale.

The Elephant in the Room

In the category of what a shame, Vans has suffered an incredible loss and may be very difficult to turn around. Because about 65 percent of its sales are wholesale, some experts believe this is a negative, citing lack of control as a barrier to growth. Therefore, its 30 percent contribution to revenues, screams for an “all-hands-on-deck” effort to right the ship. Darrell has said it would not see a turnaround this year.

In a parting shot, I hope VF’s new CEO, Mr. Darrell can pull it off. And while the Barbey family may not be exactly cheering him on, I’m sure they will be pressing him to lead their 125-year-old investment back to its iconic greatness.