VF Corp owns 24 manufacturing sites, including this facility in Mexico

VF Corp owns 24 manufacturing sites, including this facility in Mexico

VF Corp's latest five-year growth plan sets out the company's goals to 2021, including a ramped-up focus on its top-performing Vans, Timberland and The North Face brands. Underpinning its plans, the company notes, is a rapidly changing marketplace – and the pivotal role played by its supply chain.

"As consumer preferences evolve, we need to transform and we need to be able to position ourselves closer to where our consumers are," explains Steve Rendle, president and CEO of the $12bn apparel and footwear giant.

"We need to pivot and become much more retail- and consumer-centric in how we think, how we act. It will help us to become more agile and quick to adapt to the changing market conditions that we see on a year-to-year basis."

With the ultimate aim of delivering a mid-single-digit sales growth and a 10-12% compounded annual growth rate (CAGR) in earnings over the next five years, VF Corp is shifting the focus onto its largest brands, international expansion – Asia in general and China in particular – and its direct-to-consumer businesses.

And it is planning "amplified investments" in key capabilities: how it designs and merchandises its products; how it brings experiences into its retail environments to attract consumers into its brands; how it operates its supply chain and distribution platforms; and how it trains and develops talent.

Shopper insights and data analytics are also critical "to better inform how we design merchandise and flow products into our own environments but also into our wholesale partner environments."

"As we go through this transformation, there's a significant opportunity to dramatically improve on our SKU inefficiency. And as we do that, we can reduce complexity and when you reduce complexity, you can increase focus and when you increase people's ability to focus, that has a direct impact on the quality of the products that we will create and the brand experiences that we'll bring to bear in our environment to speak to our consumers."

Changing marketplace

Rendle, who took the helm at the beginning of this year, makes countless references to the "rapidly changing marketplace," and the "speed and intensity of those changes and how they've come across the entire global region that we operate in, but most importantly…the United States."

Speaking at the company's recent investor day, he elaborated on the primary impacts embedded in the new five-year strategy.

"The first one is consumer preferences are changing. Consumers are putting a much greater importance on the quality of the products that they seek from brands.

"But product alone is not enough any longer to satisfy consumers. They are now putting a much more intense focus around the experiences their brands provide…as they look for brands they can connect to in a much more intimate way."

Second, he said, the retail landscape changed. "Consumers can find products whenever and whenever they want. And we don't see it changing. If anything, we see it becoming much, much more prevalent."

Third on his list is product innovation, which is "central to how we will compete and to continue to drive consumers' loyalty to our brands."

And fourthly, "we have an active strategy as we look to continue to innovate in how we make things, the processes that we use to produce products. Just last week, I was here in Boston, working with our partners at MIT, looking at new technologies that will enable VF and our brands to think about manufacturing products differently, and more importantly, how and where we make them.

"All of this is with an eye around improving the quality and the speed of the products that we're able to offer with a long-term vision of bringing product production much, much closer to where consumers are driving consumption."

Consumer data points

The company has anchored its new strategy "in our deep understanding of our consumer. We know our consumers extremely well. We know who they are, we know what they wear, we know how they wear, we know where they wear it, and we know why they wear our products.

"But more importantly, these are individuals and they have very specific wants and needs. And it's those wants and needs that we bring into our product creation process that help us really understand how to direct our energy.

"But we have a new learning. Last year, we saw that 45% of our Vans consumers purchased a North Face product. And we saw that 35% of our Timberland brand consumers were actually buying Wrangler.

"This is an interesting new data point and we're spending a lot of time right now looking at how to utilise this data in a way that allows our brands to think more broadly and to look at this new diverse set of consumers in a way that allows us to be more competitive, but to expand the consumers that we're talking to with an eye to continuing to grow. And I think this is a great example of how we push ourselves to be agile."

Brand and supply chain partnerships

Another challenge is not only creating better products, and a constant flow of new ideas and innovations, but also ensuring the right quantity gets made.

And here it's a case of "looking at that brand demand chain and being able to allow our supply chain to partner together and modify and streamline the products that we offer – and ultimately help us be much more thoughtful about how we deliver these products, where we deliver these products."

Rendle describes VF Corp's supply chain as "one of those elements that make us such a strong company," adding that as the company pivots to become more consumer- and retail centric, it wants to "elevate the contribution of our supply chain."

"It's about taking our brand's demand chain and bringing it closer to our supply chain to really harness the wealth of our consumer data, to better inform the products that we're creating and better inform the seasonal flow of those products.

"And as our direct to consumer platform scales, we have an opportunity to advance our omni-channel fulfilment capabilities, and that's about making sure we have products placed exactly where our consumers want to consume them at. And it's all of the back-end operations that go on within our supply chain and distribution platforms that put us in a much more advantaged position to drive our online and in-store platforms."

Manufacturing capability

As well as being the world's largest producer of jeans – its jeanswear brands include Lee and Wrangler – VF produces 562m units of merchandise annually across all its brands; that's 82 containers filled with VF merchandise shipped every day.

Its products are made at more than 1,000 supplier factories, as well as 24 manufacturing sites that are owned and operated by the company. Here it leverages its own internal manufacturing and factory engineering expertise to control costs, improve labour efficiencies and productivity, and elevate environmental and social responsibility standards – which is also shared with select suppliers under its Third Way initiative.

VF Corp's Third Way shores up key supplier partnerships

"The word that best describes our global sourcing strategy is 'balanced'," the company says. "We're not overly dependent on any given region or country. This allows us to competitively manage cost, as well as source closer to end markets."

About 40% of production is in the Americas, which is more than double the industry average. China produces 16% of VF units (compared with an industry average of over 40%); with additional sourcing coming from India (3%), Egypt (2%), Cambodia (5%), Vietnam (15%), and Bangladesh (15%).

The company's supply chain organisation is also playing a significant role in its new innovation agenda.

"It's really taking that long-standing manufacturing capability and bringing that to bear with our innovation teams as we look to how we can create new methods of make – not just methods of make for the products, but going up the supply chain and looking at the materials – and how we can create a much more dynamic and collaborative process with the long-term vision of bringing production adjacent to consumption.

"And I can think of no better company with the heritage and the deep knowledge that sits inside our supply chain to help our innovation team really look at and re-engineer and put ourselves in a much stronger position to be quick and agile in satisfying our consumers."