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Thursday, Jul 18, 2024

One Step At A Time: Vans Parent Reorganizes Amid Falling Sales

After Vans suffered another double-digit decline in annual sales in fiscal 2024, the retailer is hoping to catch some magic from Lululemon Athletica Inc.

Parent VF Corp. (NYSE: VFC) on May 30 announced that Michelle “Sun” Choe will be Vans’ new global brand president, starting in July. Choe for the past seven years played a prominent sales role at Lululemon (Nasdaq: LULU), which counts a valuation of $38 billion, nearly eight times larger than that of VF Corp.

“I am passionate about building high-performance cultures and teams and creating great designs and guest experiences that build long-lasting, meaningful connections with consumers around the world,” Choe said in a statement.

“At Vans, we will do just that—capitalizing on the brand’s identity as a lifestyle defined by creativity and authenticity.”

VF Corp. has seen its stock drop 85% in the past three years to around $13 and a $5 billion market cap. A large reason was Vans, its second biggest unit, reported sales fell 12% in 2022 and another 24% to $2.8 billion in 2023.

Bracken Darrell, who became chief executive of VF Corp. a year ago, has spent the last several months rearranging both Vans and VF’s leadership team. Besides hiring Choe, he’s hired a new chief financial officer, Paul Vogel, for VF Corp. and last October reassigned prior Vans President Kevin Bailey.

Since then, Darrell has been acting as Vans’ top executive on an interim basis, spending time at the apparel company’s Costa Mesa headquarters.

“Sun is a strong leader who is focused on consumer insight and has a proven track record of driving brand heat, and translating it into financial results,” Darrell said. “I am confident that Sun is the right leader to take Vans to new heights.”

Engaged Engages

VF Corp. bought Vans in 2004.

From 2004 until 2022, sales growth at Vans averaged 15% annually, topping out at $4.2 billion in 2022. Then the significant sales decline began.

Activist investor Engaged Capital, which is based in Newport Beach, last October started a campaign to cut costs and explore strategic alternatives. On Engaged’s recommendation, VF Corp. appointed Caroline Brown to its board last February.

Brown has more than 30 years of experience in the apparel industry, including at famous brands like Giorgio Armani, Donna Karan International and Carolina Herrera.

On June 3, VF Corp. said Brown would resign from the board to become brand president of The North Face, the largest unit at VF Corp.

VF Corp. announced that Mindy Grossman and Kirk Tanner have been appointed independent directors.

“All three additions bring invaluable skills to the company and will play important roles in helping accelerate VF’s strategic and business transformation,” Engaged founder and Chief Investment Officer Glenn Welling told the Business Journal.

“Bracken is putting the key elements of the foundation in place to turnaround the business,” Welling added. “He is hiring the leaders needed to run the brands, he is pruning the portfolio to focus on what matters, and reducing costs to improve margins and provide financial flexibility to reinvest behind the brands that will drive the majority of the value creation—Vans and The North Face.

“It’s just going to take a bit of time before you see the benefits of these decisions in the numbers, but this is where it starts.”

New Leadership

Prior to joining VF Corp. last year, Darrell was credited for leading growth and reinvention at consumer brands like Whirlpool, Old Spice and Gillette.

He most previously spent 10 years at Logitech where he led expansion into over 20 new product categories, more than doubled revenue, and achieved a tenfold increase in market capitalization.

In the past year, Darrell reassigned Bailey, who joined VF Corp. in 2004, from Vans global brand president to head a companywide business improvement project, dubbed Reinvent, designed to also help drive a turnaround at VF Corp.

Darrell also hired Vogel, the former chief financial officer of Spotify Technology (NYSE: SPOT), as the parent’s new CFO, effective July 8.

He succeeds Matt Puckett, who is stepping down. Vogel’s résumé during four years at Spotify include doubling its revenue and customers as well as enlarging its profit margins.

“By the time I reach my one-year anniversary at VF in July, we’ll have almost completely changed the leadership of this company,” Darrell said.

“With Sun’s appointment, we are further transforming the VF leadership team to ignite growth across our brands and enhance value for our shareholders and other stakeholders.”

Choe has been in the industry for nearly 30 years, leading design and merchandising for other apparel brands including Marc Jacobs, Madewell, Urban Outfitters and Levi’s.

Since Choe joined Lululemon in 2016 first as senior vice president for global merchandising and then in 2018 as chief product officer and a member of the leadership team, its sales quadrupled from $2.3 billion in fiscal 2017 to $9.6 billion in fiscal 2024. During that period, the stock increased sixfold to $319 and a $38 billion market cap.

“This is a strong hire with a fresh, outside perspective and a proven track record,” BTIG analyst Janine Stichter wrote in a note to investors.

JP Morgan analysts wrote prior to Choe’s announcement that their fieldwork was pointing to her as a potential candidate to take over Vans, “supported by her product innovation focus, breadth of category experience, and location.”

Vans Consolidates Footprint

Vans Inc.’s team is moving from two buildings to one at its 182,000-square-foot corporate office in Costa Mesa, according to Bracken Darrell, chief executive of parent VF Corp.

Vans, which has over 500 employees in Orange County, added a smaller, secondary building behind its main headquarters facility in 2021. The company said it was exploring potential new uses for the separate facility.

“While there may be new possibilities for the second building, our priority is connecting our operations into our primary building location,” Vans officials told the Business Journal. “We are excited about the opportunities this transition will bring.”

Parent VF Corp. has been rearranging its retail footprint as well.

“We have not done a good job in our own retail especially in the Americas as we could have and we are ending stores,” Darrell said on a May conference call with analysts. “We are probably down about 115 stores over the last two years in Vans. We’ll probably drop another 40 this year.”

The retailer counted more than 2,000 retail locations globally in 2023.

Part of this cutoff is to include “more dynamic innovation” in brick-and-mortar, Chief Commercial Officer Martino Scabbia Guerrini said.

This includes testing new store formats and concepts then adopting and scaling across regions, Guerrini added. VF Corp. introduced a new store concept for Vans’ first store in Shanghai in 2020, which the company said was recently “seeing success.”

VF Corp. has been cutting down at its Denver headquarters as well, having “dropped two floors” to consolidate, which is a part of the parent company’s recent elimination of physical assets to benefit cash flow.

Vans’ Core Shoes Losing Allure

Dude, Jeff Spicoli’s iconic shoes are in decline.

Vans Inc.’s checkerboard tennis shoes gained national fame when they were worn by Sean Penn, who played loveable stoner Spicoli in the 1982 movie, “Fast Times at Ridgemont High.”

The new management at parent VF Corp. has hinted that it needs a new look.

Previously citing a dependence on its classics styles, Vans has introduced newer shoe lines, such as the UltraRange Neo VR3 and Ave 2.0. OTW by Vans, a line of footwear and apparel released in 2024, is a new “pinnacle expression of the brand,” according to Bracken Darrell, who took over as chief executive at Vans’ parent VF Corp.

The OTW category will include new products from design collaborations and premium versions of classic Vans silhouettes, such as the classic slip-ons.

“While the core remains in decline, we’re seeing strong performance in our new products and we have a cascade of product launches coming,” Darrell said.

VF Corp.’s inventory soared 61% to $2.29 billion in fiscal 2023. Executives spent the past year reducing its inventory to $1.77 billion in the fiscal year ended March 31.

“We closed the fiscal year with further inventory reductions helping us deliver $1 billion in operating cash flow and over $800 million in free cash flow, exceeding our guidance,” Darrell said in May.

“The inventory reset actions are helping create a cleaner market in which to introduce new products. We’re simplifying our product lineup and introducing a sustained level of investment in design and innovation.”

VF Corp. is also simplifying its marketing strategies saying its timeline “has shifted to fewer, deeper campaigns.”

Google searches for Vans products are trending much higher in the last three months versus the prior 12-month period, according to executives.

“While overall financial results have not yet improved, we are deep in execution and we are starting to see very early green shoots,” Darrell said.

The executive added the shoots were sprouting overseas. Direct-to-consumer revenues in Europe turned positive for Vans during the last quarter due to “a bit of newness starting to get traction and definitely a better assortment mix,” Chief Commercial Officer Martino Scabbia Guerrini said on the earnings call.

“I do think that turnarounds start in one channel, or one part of the world, and then they start to spread, not virally but systematically and I think that’s what we’re seeing now in Europe,” Darrell added.

“While VFC operates one of the higher quality portfolios in our softlines universe today, key brands, namely Vans, have begun to stumble, and timing of a turnaround remains uncertain,” Wells Fargo Securities Equity Analyst Ike Boruchow wrote in a May 22 report.

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