On September 12, 2018, VF Corporation (VFC) hosted its Investor Day in Orange County, California. At the event, the company focused on its Vans strategy.
- The company outlined a five-year plan to grow revenues to $5 billion by FY23 from $3 billion in 2018, at a 10%–12% CAGR. The company believes that this new target is achievable through discipline and diversification.
- Vans launched a loyalty program in February 2018 and members of this program are driving 60% more spending than nonmembers.
- Vans is focusing on five must-win categories—t-shirts, fleece, pants, jackets, and backpacks—to generate $1 billion in revenues—representing 21% of the brand’s total business—in FY23.
On September 12, 2018, VFC hosted its Investor Day in Orange County, California. The company reported that the day would mainly focus on its Vans strategy.
The day featured many management presentations, including those by: Steve Rendle, President & CEO at VFC; Kevin Bailey, Group President-APAC at VFC; Doug Palladini, Global Brand President at Vans; and David Gold, VP-Business Strategy at Vans.
Vans has Outperformed its Set Target of $3.3 Billion in FY19 and has Raised its FY23 Revenue Target to $5 Billion
The company increased its revenue target from the target that it set of $3.3 billion based on an 8%–10% CAGR reported at its last investor/analyst meeting on March 30, 2017.
The company reported that it has outperformed the $3.3-billion goal and has raised the revenue target to $5 billion at a 10%–12% CAGR (Figure 1). VFC projected an accelerated growth of 19% CAGR from FY17 to FY19 and management believes that this growth rate is achievable through discipline and diversification.
Vans has Evolved from a Skateboard Manufacturing Company into a Global Action Sports and Lifestyle Brand
In 2018, Vans sales reached $3 billion and the brand sold over 75 million units of footwear and apparel in 80 countries (Figure 2). Steve Van Doren, VP-Events at Vans and son of Vans co-founder, Paul Van Doren, says, “Our product team looks to see if the project covers our four pillars: skate; action sports; music; art, street culture, or southern California culture.” This thought of Doren is in sync with Vans’s not-just-one-thing philosophy which is summed up in the line: Our consumer is not just one thing and Vans is not just one thing. Neither Vans nor its consumer fits neatly into a specific category.
The Vans Approach is to Connect with its Consumers across the four pillars of Creative Expression: Skate; Action Sports; Music; and, Art, Street Culture, or Southern California Culture
The company uses events and experiences to connect with and support its customers using emerging media, and social and user-generated content, as well as through its direct to consumer (DTC) and wholesale channels where integrated product and brand marketing strategies drive emotional connections. The four pillars lay the foundation for engaging and connecting with the consumer (Figure 3). The company reported that skateboarding is a key differentiator for Vans because it speaks of the authenticity and heritage of the brand, influences broader culture, and empowers all ages and genders.
Vans Classic Styles Allows for Evolution
The company has a diverse and iconic footwear business, with some of its classic styles unchanged since 1966. Vans reported that one of the benefits of its diverse range of “classics” designs is that it fits the varied tastes and needs of the brand’s consumers. Sales of Vans’s classic designs are shown in Figure 4 below.
The brand’s classic designs are constantly evolving to stay modern and relevant to consumers (Figure 5), and Vans is a brand that is constantly changing to remain the same.
VFC Launched a Loyalty Program in February This Year and Members of this Program are Driving 60% More Spending than Nonmembers
VFC launched a loyalty program in February 2018, which in less than six months since then had attracted more than 3.6 million members in the US alone. Members of this loyalty program are the company’s most loyal and engaged consumers, driving 60% more spend than nonmembers.
The loyalty program is helping the company know its customers better (Figure 6). Through this program, Vans is getting to know who its consumers are, what they are interested in, and how they are responding to products, which in turn helps better personalize marketing campaigns by ensuring that the right messages are being sent out.
Vans is Focusing on Five Must-Win Categories—T-Shirts, Fleece, Pants, Jackets, and Backpacks—to Generate $1 billion in Revenue in FY23, Representing 21% of the Brand’s Total Business
Out of the 19 categories of apparel and accessories that Vans manufactures, it has identified these 5 must-win categories to innovate in and create franchise styles for (Figure 7). Vans has identified these categories from a skateboarder’s perspective and new products will cater not only to athletes but also to lifestyle consumers.
Vans is focusing on these five categories because they have grown at nearly 25% CAGR and have accounted for more than 60% of Vans’s men’s apparel and accessories business over the past two years, whereas all 19 categories of the brand have together grown at around 15% CAGR in the same period. The company’s goal will now be to drive double-digit growth across apparel and accessories and reach $1 billion in FY23, representing 21% of the total Vans business. The company reported that focusing on these five key categories will help it achieve its recalibrated revenue targets (Figure 8)
DTC Represents more than 50% of the Company’s Global Revenue and Will Account for Two-Thirds of Vans’s Overall Growth Going Forward
Management reported that DTC represents more than 50% of the company’s global revenue and will account for two-thirds of Vans’s overall growth going forward, as revenues from Vans brick-and-mortar stores continue to grow steadily. DTC business is therefore something the company is banking heavily on (Figure 9).
FY18 was the company’s 15th consecutive year of comp store increases in North America, and by the end of 2018, the company will have achieved double-digit growth in 51 out of the past 52 quarters.
Growth Opportunities Include E-Commerce, Athleisure, and Asian Markets
The company identified three areas of opportunity for growth: e-commerce, athleisure, and Asia. On opportunities in athleisure, David Gold, an industry analyst, reported that the athleisure footwear market in United States alone is worth $10 billion annually and Vans has almost no share in it at present.
Gold reported that according to Forrester Research, by 2021, online sales of footwear, apparel and accessory will be worth $500 billion, and Vans has identified e-commerce as its most profitable growth channel.
Also, Asian markets still remain untapped by Vans. In China, for example, only 50% of the company’s target segment is aware about the brand versus the 90% brand awareness that market leaders have, even smaller competitors have brand awareness of up to 70%. These numbers reflect the kind of potential Chinese markets hold for Vans (Figure 10).
Vans’s Asian Market is Growing at an Annual Rate of 25%
Vans is expanding its presence in Asia. Since its entry into Asian Markets in 2008, the brand has been growing at an annual rate of over 25% annually there and has registered a growth rate of 27% over the last quarter. To increase awareness about the brand amongst Asian consumers, Vans has made many strategic moves such as creating the Vans Skate School and organizing many experiential events in Shanghai, including VPS Men’s World Championships (2017) and Vans Park Series (2018). The skate school is a regional skate clinic to introduce the Asian “expressive creator” (EC) to skateboarding and these events are aimed towards inspiring expressive creators.
Vans is Piloting New Boutique and Full Store Designs for “Elevated Retail 3.0” to Generate $2 Billion in Global Store Revenues
The company reported that it is looking at boutiques as curated assortments of its most popular products. For example, Vans opened its largest aspirational and experiential Vans store in the world in Williamsburg, Brooklyn, to cater to the large “expressive creator community” in that area. The company also has a boutique in midtown Manhattan, which features the widest assortment of its products globally and is projected to get nearly 750,000 visitors this year. Vans has plans of opening its second Manhattan store on Fifth Avenue in October 2018. This concept of elevated retail is being piloted in North America and will scale into key cities around the world starting 2019.
Vans reported that it is improving the experience in its mall stores with what it calls Elevated Retail 3.0, which is store design and consumer experience of the future. This concept of elevated retail is inspired by consumer insights and lab testing results and the new stores will have a more elevated look and feel with more tables and fewer floor fixtures to improve navigation throughout the space. Products in these stores will be better showcased with multilevel lighting that will provide more immersive storytelling and a more engaging experience with impactful digital elements (Figure 11). At present, the company is validating the performance and productivity of this new design as it prepares for scaling up new stores and remodeling existing ones around the world next year. The goal of Elevated Retail 3.0 is to make the brands global store revenues reach $2 billion in global store revenues in FY23, with a long-term growth goal of 8%–10% per year.
Vans is Using Digital to Create Brand Experiences—Expects to Touch the $1-Billion Mark in Global Business
The company reported that it is using digital to incorporate creativity into consumers’ brand experience at www.vans.com. As an example of how it is using storytelling to engage its consumer, Vans leveraged influencers to tell their stories of UltraRange—its footwear range launched in July 2017—from their personal perspectives. This strategy that Vans employed for Ultrarange worked and the company saw that site searches for the UltraRange doubled and more visitors remained on the site after visiting the UltraRange page. Consumer bounce rates also decreased by half and UltraRange is an example of how the company is leveraging content and commerce through brand storytelling. The company estimates that its digital strategies will power the company’s growth into FY23 to achieve the targeted $1 billion, which is more than 20% of Vans’s total revenues.
Vans Estimates its Apparel and Accessories Business to Grow at 13%–15% CAGR and Generate $1 Billion in Revenues by FY23
As shown in Figure 12, the company’s core footwear business is expected to grow at a normalized rate in the range 8%–10%, progression footwear is expected to grow at 14%–16% annually, and apparel and accessories business is expected to at 13%–15% annually and generate $1 billion in revenue by FY23. By FY23, the company expects its apparel and accessories business to represent 21% and progression footwear to represent 19% of its total business.
Vans Estimates That Digital will Generate over 20% ($1 Billion) of its Revenues in FY23, a New Milestone
The company reported that:
- Its DTC business is growing at a rate of more than 27% while wholesale is growing at over 17%. DTC is accelerating with store revenues growing at 23% and store-count growing at 8%.
- In 2018, comp store growth was 30% globally. In wholesale, the company is looking at a double-digit growth and is expected to grow at an annual rate of 6%–8%.
- DTC stores are positioned to grow 8%–10% annually, and the store-count is expected to grow at an annual rate of 5%–7%.
- The company is working to accelerate digital and is expecting e-commerce to grow at a rate of 30%–35%.
- By FY23, Vans estimates that digital will represent over 20% of total revenue to achieve a new milestone of $1 billion.
(These points are summarized in Figure 13.)
Vans Estimates That the Americas will become a $3 Billion Region in FY23
Looking forward, Vans expects to see strong growth from all regions. APAC remains the fastest growing region at an accelerated rate of over 24% a year. The company expects the APAC region to increase 17%–19% annually, and it represents 17% of total revenue. Within this, China is growing more than 30% annually. The brand’s growth rate in EMEA is 8%–10% annually based on its wholesale strength and DTC expansion opportunities. The company expects EMEA will be a $1-billion region by FY23. Finally, the Americas’ growth rate of 10%–12% will make it a $3-billion region by FY23. These projections are summarized in Figure 14.
FY23 Revenue Targets
The company expects its apparel and accessories business to generate $1 billion, the digital channel another $1 billion, and the Americas region to be worth $3 billion, totaling $5 billion (Figure 15).