V.F. Corporation - Analyst/Investor Day

| About: V.F. Corporation (VFC)

V.F. Corporation (NYSE:VFC)

June 11, 2013 8:45 am ET


Lance Allega - Director of Investor Relations

Eric C. Wiseman - Chairman, Chief Executive Officer, President and Ex Officio Member of Finance Committee

Steven E. Rendle - Group President of Outdoor & Action Sports Americas and Vice President

Scott H. Baxter - Group President of Jeanswear Americas & Imagewear and Vice President

Karen Murray - President of Sportswear Coalition

Susan Kellogg - President of Contemporary Brands Coalition

Stephen F. Dull - Vice President of Strategy & Innovation

Michael T. Gannaway - Vice President of Vf Direct and Customer Teams

Thomas A. Glaser - Vice President and President of Supply Chain

Karl Heinz Salzburger - Group President of International and Vice President

Rick Wood

Martino Scabbia Guerrinic - President of Sportswear & Contemporary Brands EMEA coalition

Aidan O'Meara - President of Asia Pacific

Robert K. Shearer - Chief Financial Officer and Senior Vice President


Robert S. Drbul - Barclays Capital, Research Division

Evren Dogan Kopelman - Wells Fargo Securities, LLC, Research Division

Michael Binetti - UBS Investment Bank, Research Division

Scott D. Krasik - BB&T Capital Markets, Research Division

Christopher Svezia - Susquehanna Financial Group, LLLP, Research Division

John D. Kernan - Cowen and Company, LLC, Research Division

Mitchel J. Kummetz - Robert W. Baird & Co. Incorporated, Research Division

David J. Glick - The Buckingham Research Group Incorporated

Unknown Executive

Good morning, ladies and gentlemen. Just a reminder to please turn off your cell phones for this morning's investor meeting. And please take your seats. We will be beginning momentarily. Thank you. Ladies and gentlemen, Director, Investor Relations, Lance Allega.

Lance Allega

All right. Good morning, everybody. Thank you so much for coming out to join us today. It's good to see a lot of familiar faces and some new ones as well.

We've got a pretty full agenda for you today and very excited. Two years ago in March of '11, we laid out a 2015 plan. And 3 months later, we acquired a little company called Timberland. And then last year, we had a Vans 2016 plan in June. And then in September, we did an Asia Pac 2017 plan. So we thought we'd take today to really roll everything together in a nice, neat package for you, and we've got a lot of exciting things to go through.

Classic Safe Harbor statement. Obviously, today, we'll include forward-looking statements. And as I said, there's a full agenda, and we're really excited to have a pretty deep bench of VF leadership here today and really take you through the strategies and reasons to believe in our plan for the next 5 years. So again, thank you very much. We're looking forward to it.


Unknown Executive

Ladies and gentlemen, Chairman, President and Chief Executive Officer, Eric Wiseman.

Eric C. Wiseman

Good morning, everyone. Thank you for being with us this morning. Some of you have been following VF for a long time. I can see, by the technology, moving in the room, some of you are already beginning today's coverage of VF. We have a long story to tell here today, and we're pretty excited about what's happened to our company over the last 5 to 10 years. As many of you know, we've changed VF in a lot of ways over the last 5 to 10 years. And today, our company is much stronger and much more capable than we were when we began our transformation.

At VF, we're both very proud of our past. But more importantly, we're very excited about our future. We believe we're just beginning to achieve the potential that we have to grow and to deliver shareholder value. And we've talked a lot about where we've been over the last few years, and today, we're going to share with you some of our plans and priorities for the next 5 years.

We're confident of achieving our plans as we've ever been. And if you look back, the best place for me to start is looking back at where we were in beginning of 2011, as Lance mentioned, when we announced the 5-year plans to you. What we said at that time very simply was we were going to grow our company by $5 billion, and that's $5 in earnings per share by 2015. And greatly helped by the acquisition of Timberland, we've made substantial progress in the first 2 years of that 5-year period. You can see on this chart we're well ahead of the game everywhere that we should be. Our revenue, again greatly helped by the acquisition of Timberland and SmartWool, is 2/3 of the way to our plan target. We've made great progress in gross margins, again ahead of plan. Our operating margin, also ahead of plan. But as you know, Timberland and SmartWool have been a slight drag on our operating margin rate. Where they've also helped us, though, is in our earnings per share where we're also at about 2/3 of our target at $9.63.

So as I think forward to that, to the guidance that we shared in April of this year, it gives you another look at how much progress we'll make based on this guidance in 2013, most importantly in the earnings per share line, achieving most of our target by the end of this year, which is why we're here today. We're here today to help you understand what we're committed to achieving in the next 5 years and how we're going to get that done. And we have a whole bunch of our leadership team here today to take you through where we're going to grow, how we're going to grow and how we're going to enable that and achieve it.

When I think of VF Corporation, I really think about 2 things. I think about powerful brands and powerful platforms. Those powerful brands and platforms are so effectively managed by our leadership team that it's enabled consistent growth over time.

The powerful brands are the foundation of our business. We have brands that have really strong equity with consumers and, most importantly, have strong operating models. And those operating models let us invest in each brand to achieve growth while, at the same time, delivering superior shareholder return.

Our corporation's -- is covered with brands. We have a really, really diverse portfolio of brands. But our business model empowers brand teams to focus on their brands to deliver operating performance while, at the same time, letting us leverage our size to drive efficiency and profitability.

Our brands speak to a diverse set of consumers. We try to speak to them wherever they live, however they live their lifestyle and wherever they shop.

We think our diversity is maybe our single biggest strength, if you think about how personal the shopping experience has become. If you want to be relevant to a skateboarder, a 20-year-old skateboarder living in Orange County, you better show up in an authentic way or they'll dismiss you. And if you want to speak to somebody living a Western lifestyle, a 20-year-old living a Western lifestyle in Montana, you better show up in an authentic way or they'll dismiss you. The diversity of our brands lets us do that consistently, and the effectiveness of our operating model lets us do that in a way that drives superior shareholder value consistently over time.

Today, we're going to focus on 7 of our largest brands, and our leaders will come up and share with you how each of those, our 7 biggest brands, are going to enable their future.

One of the things that goes across all of our brands is the importance of innovation at our company. For us, innovation is about creating new opportunities for growth. We define innovation as something new that creates value. And our objective in being innovative is to shape the future of footwear and apparel. And over the next 5 years, our innovation platform is going to be much more important to us as we drive revenue growth, enhance our margin and strengthen our brands' connectivity with consumers.

What we talk about from is the mass channel to the mountaintop, we have to innovate. What we've learned in our third year of our innovation platform is innovation is just as important to our mass channel Jeanswear business as it is to The North Face.

Also we innovate in how we run our businesses. Whether we're innovative in robotics in a factory or robotics in a distribution center, or whether we're staying out in front of the digital and social space, we know we have to stay innovative. And of course, in our products, we have to always give consumers reasons to believe in, trust and buy our brands.

But innovation only matters -- by matters, I mean create shareholder value -- if we connect it to consumers. So we take a holistic approach in our innovation strategy. We think about our relationships with consumers, connecting across their lifestyle and their aspirations and their passion for products. Our consumer insights group uses both qualitative and quantitative data to shape product and brand strategies with the ultimate objective to drive loyalty from consumers and deeper brand equity connectivity. In every brand and in every geography that we do business, we try to combine the art of product design with the science of consumer insights to make sure we connect with consumers, always keeping them at the center of everything we do.

Now you're going to see this x a lot today. We're going to shape a lot of today's presentation about how we create shareholder value and how we win. And we're going to focus on 4 of VF's growth drivers, and I'm going to lay all 4 of them out for you now, and you'll see them in many of the brand presentations that you're about to see.

The first is we lead in innovation. And to us, that means a constant stream of new and better products, new and better store environments, new and better digital experiences that deliver what our consumers want.

Second, we connect with consumers, and we connect with consumers because we understand them. We believe that we invest more in developing and refining consumer insights and that we invested better than anybody else in the industry. We have an extraordinary robust consumer insight practice at our corporate headquarters in each of our brands and in each of our geographies that's connected to build terrific brand strategies that work with consumers with our products in each market.

The third plank, we serve our consumers wherever and however they want to engage with our brands. To us, this used to be a direct-to-consumer vocabulary. It's about serving consumers. It's recognizing that they are completely in charge of their relationship with our brands. So we want to make sure that we're effective as we do that in our stores, through e-commerce, at our partner stores and through social media. We need to make sure that they understand what our brands are doing and that they appreciate how authentic our brands are.

And the fourth growth driver for us is expanding geographically. We have a lot of potential left, a lot of growth potential left in the more mature U.S. and European markets. And we have abundant opportunity in emerging markets around the world. Over the next 5 years, our international business will almost double again. And as a percentage of our revenues, it'll continue to climb.

And one thing that enables all this is our powerful platforms. Our powerful platforms around the world have consistently demonstrated they can enable the growth and financial success of every brand we own and every brand we acquire. It's hard to find an example of a place where we have not been able to change the trajectory of a brand based on our global platforms. It's a critical thing to our future.

Our brands capitalize on these by understanding the power that they deliver to the brand. But in addition to physical platforms, we also had capability platforms that are critical to our success. Today, you're going to hear from Steven Dull, who's going to speak to our front-end disciplines around strategy, consumer insight, innovation and brand management and how, importantly, we share best practices of our brands around the world.

Mike Gannaway is going to join us up here today, and he's going to talk about our direct-to-consumer business, how that's so important to our growth, our opening of stores and building e-com connections with consumers and how we share practices of that on a global basis.

Tom Glaser is going to go up and talk about our supply chain. And you'll see that it is complicated, and you'll see that we execute it very well. It's one of our critical enablers of our success. Quite frankly, some of us we're concerned when we were a $5 billion company if we'd be able to execute as well when we were an $11 billion company. That has been asked and answered. We are actually working more effectively now as an $11 billion company through our supply chain than we were when we were a $5 billion company.

And this afternoon, I'm going to have a bunch of our international leaders join me on stage, and we're going to talk about the business in each of the geographies and the importance of international growth to our future.

Before I have all those leaders come up and before we get with the agenda, and I know many of you have -- no, not true, all of you have been looking through the books. But I will officially unveil kind of what the next 5 years are going to look like to you right now. And it's all about growth.

In 2017, VF will be a $17 billion company. As I said earlier, we're confident that we can grow our business at 10% a year. We think 8% of that will come organically and 2% by acquisition. Why are we so confident? In January of 2008, we laid out a 5-year plan for you that we met. In January -- in spring of 2011, we laid out a 5-year plan for you that we're exceeding at such a big rate we have to have this meeting 2 years later and talk about what the next 5 years looks like. So we're confident we can get to the $17 billion.

Over that time period, our gross margin will expand by 300 basis points to 49.5%. Over that time period, our operating margin will expand by 250 basis points to 16%. We know for us to achieve some of our growth rate, we need to invest more in our brands. And at the end of the day, Bob Shearer will lay out for you kind of what that -- what the shape of that will look like, but we're going to invest some of our gross margin growth rate expansion back into our brand so that we can deliver a $17 billion VF in 2017.

Our earnings per share will be $18 in 2017. It'll grow at a compound annual growth rate of 13%. We could have made it $17. So we had in 2017 $17 in -- $17 billion in revenue and $17 per share, but we just couldn't help ourselves. $18 is going to be the number. That's where we'll be in 2017.

And we're going to generate abundant cash flow over this period. Over the 5-year period, $9.5 billion of operating cash flow will come to us. We're about $1.3 billion last year. We think we'll be at about $2.4 billion in annual operating cash flow by 2017.

We're really excited about this story. A lot of you, as I said, have been following VF for a long time. Almost everybody you're going to hear from today at VF was part of the company back in 2004 and '05 when we were a $5 billion company and aspired to be an $8 billion company and then aspire to be an $11 billion company. And we've accomplished all that. And here we are today talking about a commitment to being a $17 billion company in 2017.

To understand that, you need to understand the pieces. And the first piece of that, and an important piece of it, is our Outdoor & Action Sports businesses globally. To talk to you about that, it is my pleasure to introduce the Group President of our Outdoor & Action Sports businesses in the Americas, and that is Steve Rendle. Steve, you're up. Thank you all very much. Good luck.

Steven E. Rendle

Eric. Good morning, everybody. How are you? I have noticed there's a lot of BlackBerry and iPhone activity going on. So as I -- I'm going to take about a day's worth of content, and I'm going to try to cram it into 30 minutes. I mean, this is a very important part of VF's overall business, some very exciting brands.

Outdoor & Action Sports is a very rich and diverse portfolio of 11 unique brands, diverse from the activities that we participate in, from outdoor to action sports to performance and travel; diverse when you think about the categories of product, apparel, equipment, footwear and accessories; and diverse in that we're in every region of the world that VF does business.

Over the next -- or over the past few years, we've seen significant growth, both organically but also through the acquisition of Timberland and SmartWool. And over that period of time, we've grown to be 54% of VF's total revenue. And as you project over the future, we'll achieve sales of $11 billion, which, if you stop and think about, that's equal to what VF was in 2012 in total. And as we achieve that target, growing organically from an 11% standpoint, 3% through acquisition, we'll be 64% of VF's total revenue.

You might ask, why do we think we can achieve that? I would tell you first, it's a powerful brand portfolio that we have and the people that run these businesses. But if you think historically, our most prior 5-year organic growth rate for this portfolio was 12%. And over the past 3 years, we've grown at a compounded growth rate of 15%. So we've shown that we can do it. We have the expertise, and we certainly have the powerful brands.

This growth will come from each of our global regions, each growing at double-digit rates. And we're often asked the question about our individual brand growth opportunities, and I would tell you this. We're fairly immature in each of the regions that we do business with, and there's a tremendous amount of headroom for us to grow in these years to come.

All the brands in our Outdoor & Action -- Outdoor portfolio will be integral to us achieving our $11 billion target. Today, I'd like to focus on 3. These are powerful brands with very proven teams, and they're proven leaders in their individual sectors. In 2012, these 3 brands made up 45% of VF's total revenue. And by 2017, they'll make up 52% of the total sales.

When you think of that versus some of the larger activity lifestyle brands or athletic brands in the space, these brands have -- are very underpenetrated in a lot of the markets across the world, and we have just great headroom to grow.

If you think also about the market share, and we're asked often about our share. What is our current share or what is our opportunity to grow share? And I understand why that question is relevant, but it's -- I think there's 2 sides to the story.

I think first, I'll give you some context to our share. It's a fair question. If you think about The North Face at $1.9 billion in 2012, we were -- had an 8% share of the global marketplace. And yet, The North Face doesn't just operate in the Outdoor business. It's in the Action Sports and performance business. And if you add that market revenue to the opportunity, that's a $74 billion market opportunity.

In case of Vans, we're a -- at $1.5 billion last year. We had a 5% share of a finite market. And this brand, too, plays much broader than just in the Action Sports space.

In Timberland, well, there we're just 2% of only footwear. And we'll be talking to you today about an exciting apparel opportunity that we have with this brand.

So the second side of the story is market share is always talking about a finite or a static pie. And if you think about the markets these brands play in, these are very dynamic, growing global markets where consumers are entering [ph] on a constant basis. And in fact, our brands and our marketing efforts are about attracting new consumers to these spaces for us to get passionately engaged with the activities that we're all excited about building products for.

So as Eric mentioned, you're going to see the x a lot. And the x to us has a center point. And over the history of these brands, but even more so in the last 4 or 5 years as we've developed our consumer information team, the consumer is at the center of every decision that we make. And we've spent a tremendous amount of time and resources investing in global consumer segmentation studies for these 3 brands, and these 3 brands' information is -- actually forms our entire portfolio. And these investments help us and really guide the decisions we make around product, around marketing, around our in-store merchandising, understanding really how our consumers want to be spoken to but also our digital strategies. And as we also think across our ability to leverage this knowledge geographically, we tap into the powerful regional platforms that we have in Europe and Asia to help these brands scale in each region of the world.

So let's get into some of the business. Last time I stood in front of you, we talked about a $3 billion North Face by 2015. The North Face remains the leader in the outdoor industry, and we are as confident as ever of this brand's potential. And over the next 5 years, we see this brand growing at a 12% compounded growth rate, achieving $3.3 billion in sales by 2017. If you think about that 12% compounded growth rate, we look at even double-digit growth across each of our regions.

And back to that comment I had about growing the pie, if you look at that Asia Pacific business, we're very young in the Asian market, and we're in a very unique position, an enviable position, of being able to start an outdoor conversation with the young, young consumer in China about what it means to get outdoors. Just a tremendous amount of opportunity and headroom ahead for us in that region.

We know our target consumer participates in a variety of activities, activities from running to skiing to hiking and climbing. And we know through our research that our consumers look to us for unrivaled performance and superior protection when they're out performing these activities. And the activity-based model that you've heard us talk about quite a bit over the years really is that platform that provides us an authentic, scalable means of reaching or really bringing our brand to our core consumers' new activities but also attracting new consumers to these activities. And we're the #1 outdoor brand in the world with particular strengths in apparel, in equipment, in footwear as well as accessories. And we're the #1 apparel brand in ski specialty. And the ski market, or the action sports market for us, is a unique place for us to speak to a younger consumer. And we're really excited about our recent agreement to sponsor the U.S. Freeskiing team, first coming -- allowed in the [indiscernible] Olympic. New activities will be coming to the international arena around skiing, and we will be representing the U.S. Freeskiing team as their uniform supplier. And this will be the first time that a North Face brand is enabled to participate and be seen on such a large global stage through just the massive media that these particular activities will be getting.

Our performance business. New to the brand is our fastest-growing category. Over the last 3 years, we've seen this business grow at a compounded growth rate of 24%. And the piece of the business inside of here, the training business, which is such an important business to consumers today, is growing at a 44% compounded growth rate, and we're getting great placement here in the U.S., in Europe and just beginning in some of our Asian markets.

At the center of all of this is our innovation platform. And innovation to The North Face is about solving problems or bringing solutions to problems that our athletes and our consumers bring to us every day. And we've made significant investments over the last few years in our advanced products and materials research teams, who really are helping us dive deep into understanding what superior protection is and what it means to bring products that protect consumers from the elements.

And we're focusing our attention specifically around motion control, moisture management last year. And maybe you saw the introduction of our new Flash Dry technology that's now involved in a number of products not just from Sportswear but to outer layers and it's moving into footwear.

And temperature control. Temperature control certainly is what The North Face has made its living on. We have a unique understanding now through our research that for consumers to remain comfortable, and that's for you and I not to feel hot, not to feel cold, we need to help our consumers keep a skin temperature of 91 degrees Fahrenheit. And our research teams are very focused on technologies that would do that from base layers to mid-layers to outer layers.

And in fall '13, for those of you that joined us at the trade shows this last season, we're launching our new Thermoball technology, which is part of the Science of Warmth platform. And Thermoball is a polyester synthetic fiber that's been constructed to mimic the structure of down, 600-fill down, fill power would be the comparable warmth, but it doesn't have the inherent negatives of losing warmth when getting wet. And this is just the first of many new products coming out of this platform.

And I think it's probably safe to say, and it's something that we really pride ourselves in and we're investing hard, is that there's nobody in our space that will be able to outinnovate us when you think about the consumer insights that we have, the understanding from our athletes and the information we receive from our consumers but also the investments that a brand like The North Face is able to leverage from VF to scale this platform and do research that many of our competitors just have no opportunity to be able to do.

Another area of innovation and a great whitespace for this brand is footwear. Our research tells us that activities are trending -- the outdoor activities are trending faster and mobility and performance are becoming very, very important, yet consumers want to maintain protection. If you look at the current outdoor landscape of footwear, it's either big and bulky and very protective, or it's lighter weight, more performance with very little protection. There's an opportunity for The North Face to capitalize on our brand's points of difference, performance, superior performance and protection.

And through that, we're launching a new footwear collection in spring 2014 under the name of our Ultra Protection Series. And this is a series of products, a single collection, that will span from hiking to multisport to trail running and training, and it will really provide the perfect balance of lightweight, performance and superior protection, layering in a number of new technologies, layering in some of the old technologies but being able to focus on moisture management, motion control but also impact control when we think about lighter weight footwear in the outdoor spaces.

The North Face has stories like no other brand in this space, rich, rich content generated by our athletes and proven out through our expeditions. Our focus is really about increasing brand awareness and leveraging our tagline of Never Stop Exploring. Our brand campaigns are about building emotional connections, connections that really draw our consumers into understanding the essence of our athletes and the expeditions. We then take that emotional connection as we get closer into that point of sale where we're helping drive traffic and helping convert consumers at retail through our series campaigns where we're distorting our athletes, we're talking more specifically about our products.

And our vision is to create great content and distribute it where we know our consumers are living their lives. We speak to them directly through TV. We have a new global TV campaign for the first time that will be launching this fall. Print campaigns, videos, online messaging are the ways we -- that we can have a one-way conversation. But more important today are the 2-way conversations that we're able to have with our consumers and engage them directly through social media.

Here you see is a very important part of this brand. And over the next 5 years, we'll grow from 20% of our total revenues to 27% with doors nearly doubling. Our sales will increase 18% with e-commerce growing faster than brick-and-mortar.

I started this conversation by saying just how immature our brands are in a lot of the global markets. And Europe is no different from The North Face standpoint. This is a large outdoor marketplace. Snow sports in Europe is twice the size as it is -- as the market here in the United States, and this is a great opportunity for our brand to build awareness and really drive off the strengths that we have in the U.K. And we're focusing aggressively today about building our brand in Germany, Austria, Switzerland and really seeding our brand in France, Italy and Russia, driving growth aggressively in each of these markets.

We're -- you think about Asia, and many of you participated in our meetings last year in Asia, we have an opportunity, a very unique [ph] opportunity to build a new category and, most importantly, a new consumer. You've heard we have a very deep understanding of this consumer, we have a good understanding of this market through our local market teams, and we have a very strong understanding of our competitive set. And we will leverage our position as that under -- as that #1 outdoor brand to become the undisputed leader in this important outdoor market.

Vans, just a phenomenal growth story for VF. A year ago, we laid out our 2016 plan. And with 1 year under our belt and the knowledge that this brand is performing extremely well, we're raising our target to $2.9 billion by 2017, growing at a compounded growth rate of 15%. And I know Bob and Lance have talked throughout the first half of this year, but I think it's important to reemphasize this. Vans is now our second largest brand in Europe, and it is VF's second largest brand on a global basis. Great, great growth and a tremendous amount of opportunity yet ahead.

We'll see -- our regional growth rates are virtually unchanged, each region growing at a strong double-digit rate. And we talked about this last year. I'll just -- I think it's important because this is a very unique methodology that this brand has used to scale itself. At the center of that gravity for the Action Sports and for Vans, as many of you know, is California. And over the years, Vans has been able to grow its influence up and down the West Coast into the Rocky Mountains. And then around 2004, shortly after the acquisition of VF, we turned our focus west, and we began to grow across the Southern tiers to the southwest and into Florida. And in 2010, we turned our focus north, and we talked a lot about our strategy that brought the brand to life here in the New York market, but it's that unique strategy that's enabling us to grow awareness, grow equity and build, build -- and to build on our revenue.

I think just important part, this brand has a very unique set of activities and events that it's able to leverage and really draws our consumers in with. We will enter a market. We focus with partnership store. We build out a very unique and authentic brand retail environment that with that partner, we're able to attract that core consumer and to really build our relevance. We then focus with our own stores. In the case of New York, we ring to this market with our stores. And as we did that, the awareness grew and our wholesale business with our key partners grew. And it's that strategy that as we think to the future, we're now heading into Boston, we're doubling back down to Atlanta and we'll be turning our sights West, deploying the same strategy.

And in Europe, we talked it's the same strategy. U.K. is our epicenter or our center of gravity for the business there, and we're doing this really deploying the same tactics: building awareness through events, focusing with core skate retailers to really deliver that authenticity and then looking to scale with our own stores, building awareness and focusing on key accounts. And as that strategy plays out, we're now stretching our reach into Germany into France and then Italy.

Our Vans consumer is probably the most digitally connected consumer across all of VF. And with our rich arsenal of authentic brand content aligned around our 4 consumer activation [ph] pillars that we talked about last year, action sports, art, music and street, we're able to deliver this content in a very unique and authentic way, building awareness, building an emotional connection that is, as we deliver this content either through our website, our proprietary Vans TV or that 2-way conversation that we're having with our consumers through social media, we're able to deliver content wherever this consumer is, whatever device they're using to build that relationship and continue to drive our authentic messages.

Innovation's important to Vans as well. And I would tell you, as we've grown in Europe, as we've grown in Asia and as we've now grown into this kind of the colder weather environment of the United States, innovation to us is about taking these classic styles that the brand is known for and bringing them into a 4-season model. We're weatherizing our classics products now by bringing unique water repellent finishes like our plasma ion mask where we're bringing insulated materials, different types of fleeces is in our liners, and we've developed our UltraCush footbed, which is about providing comfort, but it's also providing a warmth benefit into these colder markets. And we're leveraging our knowledge from the snowboard boot market and bringing in outsole technologies onto these classic styles, providing our consumers traction in these colder weather environment.

Our 66 launch last year has really, really brought to head a category of products that's got innovation deep, deep in its center. And it's through that understanding and knowledge of our 66 consumer and the types of innovations that they're looking for, we're bringing new cushioning and new weight reduction techniques and new high-tech construction technologies that are revolutionizing our Pro Skate footwear. Our new Rowley Light, shown here on the right side of the slide, is now -- has an UltraCush footbed. That was unheard of previously in the skate community. But why it's important, they're still able to have that connection with the board, that feel of the board. They now have comfort. They have impact protection, elevating the performance of this particular product.

In apparel, we're taking our classics action sports products that these kids are very, very connected to, and again, we're weatherizing these. We're bringing hollow pore fibers to core styles, bringing warmth. We're bringing the ion mask technology to the outer materials to bring water repellency. Just elevating the level of quality, the level of technology and enabling this consumer to enjoy this brand, not just in the warm months, but bringing it into the cold and wet weather markets and cold-weather months as well.

Vans is our strongest retail platform within VF, and over the next 5 years, we'll grow from 38% of our total sales to 40% with doors nearly doubling. We'll grow at a 16% rate per year in e-commerce, just like The North Face, will be where we see the fastest rate of growth as we connect in a very unique way with our consumer.

As we -- and as our top retailer, this brand is constantly looking at ways to reiterate itself, reinvent itself through retail. And our new global store design really elevates those core DNA elements, bringing the level of experience and emotion to a point that really connects nicely with our global consumer in each of these regions. We're making significant investments in our website. I don't know how many you have been on Vans.com. It's good. But this time, in spring 2014 first quarter, we'll be launching a new website that is seamlessly merging content and commerce into a high-engagement site where we're elevating those unique and powerful stories, stories that build that emotional connection, and greatly simplifying the e-commerce process, which, as you know, when you can simplify the e-commerce process, that traffic converts, and we can drive sizable revenue in one of our most profitable platforms.

So Timberland. We're 22 months into the integration of Timberland, and we are as confident as ever that Timberland will be the next powerful growth story for VF. Two years into our journey, we've touched on every aspect of our North America, Europe and Asia-Pacific business operating units. We've activated a global consumer segmentation study. We've refocused our product and marketing vision. We've introduced a robust go-to-market process. We've rationalized our distribution strategy, and we've relocated both of our Asia-Pacific and EU offices in those VF locations in Hong Kong and Stabio [ph].

A tremendous amount of work and energy is going into bringing this brand onto our platform. And in 2011, we set a target of achieving $2.3 billion by 2015. We remain committed to that goal and have set that target for 2017. We'll see solid double-digit growth, both here in the Americas and in the Asia-Pacific, and mid-single-digit growth in our European market where, as you know, our greatest penetration is in Southern Europe. And that obviously, as you all know, is where we're seeing strongest economic headwinds. It is important to note we will grow, and as we grow, we will gain share, because not many brands can talk to you about growth in that particular market. And this being our largest market across the globe, a very important area for us to continue to invest, an important market where we will absolutely continue to see growth.

To understand our consumer, we have spent more and invested more energy into consumer research the past 2 years than the Timberland brand has done in its 40 years. And the good news is our consumers are telling us they love this brand. They love the quality, they love the authenticity and they love the outdoor performance. But what's even better, they want to see more. They want to see more newness. They want to see more style. They want to see more head-to-toe looks and more energy.

So beginning in fall 2013, and this slide and the slides to follow are an example of how you will see us bring to life the new style, the new element, and really elevating that rich heritage of Timberland through both our products and our marketing. These well-crafted products with rugged style that just happen to perform outside, just like they always have. Very unique place for this brand, and we're really excited about the team and how they've been able to pull this together in such a short period of time.

So 2 examples of where we're innovating with our brand. It's the 40th anniversary of the yellow boot. Great opportunity to celebrate this iconic style, but also a great opportunity to bring new looks, new ideas built off of that platform. On the left of this slide, you see our new cupsole program. This is born from the yellow boot but styled for today's younger consumer. That's in the market today.

On the right side of the page is our family tree. This family's tree started with the yellow boot. Taking that same quality and authenticity, we're able to really leverage that into whole new platforms, whole new looks and really building this brand and helping it reach new consumers.

Our Women's business is an opportunity for us to really distort this idea of head-to-toe look and really elevating our brand through the product and through the marketing. And there's no better place for us to start than with tall leather boots for what our brand is known, for really upping the style and really elevating the DNA, the comfort and the protection, but elevating that element of style, and in many ways, bringing new products to this consumer will be unexpected.

There's a portion of the boot business -- of this business that we don't talk a lot about, and it's our Timberland PRO work boot business. And our research here has told us, and really, is reinforcing, that Timberland PRO is the leader in durability, protection and comfort. And the Hyperion work boot that you see here really brings to life those benefits. With built-in Anti-Fatigue foot technology, our new footbed, that's come out of PRO, and you will now find that in our commercial lineup, the new Ever-Guard high-abrasion leather. What we learned here, we're able to bring into more functional scuff-resistant materials in our core line. And then our Vibram outsole. A proprietary Vibram outsole that is unique, providing traction both indoors and outdoors.

Apparel is a bigger part of our head-to-toe lifestyle story where we're able to talk about footwear, apparel and accessories. And we've heard from our consumers that versatility is key and we're really driving back against that. And this collection that you see represented here really speaks to the rugged and weather-ready focus of Timberland of its past, looks good in the city, looks good in the outdoors or anywhere in between.

We have a significant business in Europe and Asia, and that really is the primary focus of Timberland in the past from an owned apparel platform. And these looks really elevate and help build our business there, but this is also what we will be reintroducing into the United States market this fall into a select number of men's specialty retailers, department store and also our own stores. And really excited about the opportunity. But I'd like to emphasize, this is a reintroduction, where we're going to bring this product to market, we're going to learn, we're going to listen to our consumers, and we'll iterate this product. We've been very clear that we have an expectation of adding $300 million to the apparel business within the overall Timberland, and the U.S. market will be a very important part of that, and we're going to be very thoughtful and very careful as we enter here.

And how do we connect with our consumers? We'll focus the majority of our effort in the digital space. The great content that we will then distribute online to where we know our consumers are living their lives. Whether they're watching videos, social media or researching their footwear and apparel purchases, they'll find us on every device that they own.

B2C is an important part of this business as well. We'll grow from 33% of our sales to 35%. Revenue growing in 11% over this -- per year. And I think it's important for you to remember, this is a very profitable part of the Timberland business and a very important part of our long-term growth strategy. And when consumers visit our stores, they'll have that same, new elevated experience, the traditional DNA married with the new contemporary updates. On the right is our new Chicago store where you can really get a good example of how we're bringing the brand to life. And along the bottom right or bottom half of this page are some of the new merchandising looks, the ways that we're representing the brand, elevating that contemporary, new stylish look.

International markets for Timberland are .A majority of our business is done there today. As I mentioned, our European team will be going through a tremendous amount of integration this year as they move to Stabio [ph], they come on to our operating systems and really focusing on a new streamlined organization structure. We have incredibly high brand awareness, and we'll continue to invest on growing that. We will focus on optimizing our distribution, growing distribution, and as we do that, elevate this new lifestyle focus to our European consumer. And as you heard last year in our Asia presentation, this is a critical, critical long-term growth opportunity for us in Asia. We're underpenetrated in China relative to where we are in Taiwan, Hong Kong and Japan. We're leveraging the experience of our Asia team and helping this team connect with consumers, scale its distribution and really connect more intimately with our consumers there.

So that's it. Today -- the theme of this day, as Eric mentioned to you, is reaching $17 billion by 2017. And I'd like to leave you with this. This is a diverse portfolio of brands lead by 3 powerful businesses. We have talented and committed people that are dedicated to growing these businesses. But as Eric has known, our group likes to be a little bit contrary. And in fact, it's our contrary attitude, I think, that's helped us succeed. So I would like to leave you with our message, and its 11 by 17, and that's a big part of helping VF achieve its 17 goal. We're extremely confident that we will continue to deliver the strong results that you've all become accustomed to. Thank you.

Now, I'd like to introduce my counterpart, Scott Baxter, who's Group President of our Jeanswear, Imagewear in South America.

Scott H. Baxter

Thank you, Steve. That was great. I mean, that's just wonderful. Great business. Really appreciate it. Good morning, everyone, and thank you for being here. It's great that you came to spend some time with us today. I was really looking forward to our presentation and the opportunity for us to get together because 2 short years ago we got together, and I had a lot to talk about in the Jeanswear and Imagewear business. But the really impressive thing is the progress that our teams have made in 2 short years. And we're going to spend a lot of time talking about that today. I'm real proud of what they've done, and I think you're going to like this message.

So let's go ahead and let's talk about the Jeanswear business. The very formidable, very large business. And as you can see, we're going to go ahead and grow from $2.8 billion to $3.3 billion, a strong 4% CAGR going forward. Now where is that going to happen from a geography standpoint around the world? We're going to have continued strong growth in our Americas region. We're going to stabilize the EMEA region, and we're going to have continued strong double-digit growth in the APAC region.

Now, you can't have that growth and you can't grow like that without a strong leading, stable of brands. Look at these brands that we have, wrangler, Lee, Rock & Republic, Riders by Lee. Nobody has a portfolio of leading brands in the industry like we do. It gives us that platform to grow from. It gives us that opportunity to have the voice of the leader within the industry. When you have a set of brands like this, it's incumbent upon you to take that leadership role and to innovate and to grow and to bring newness to the channel on an ongoing basis.

So how are we going to do that, and where are we going to do that? If you look at this slide right here, it's important to note that our existing core is really strong in several areas. We're really strong in Mass. We're really strong with the Wrangler patch, and it's incumbent upon us to grow that existing core. How are we going to expand that core? We're going to do it through really intelligent initiatives like our Hispanic initiative.

So one of the many initiatives that you're going to hear from me today, one of the many things that we're doing from a consumer insight standpoint. It's a really strong demographic. It's growing. Very intelligent. Growing in affluence. Growing in income. And it's untapped for us. Tremendous potential. They love the brand. There's many things that we can do there.

And how are we going to extend from there? Well, a few short years ago, before we got together 2 years ago, we didn't have a very large department store business with our Lee brand, but we had received a test right before that with Belk department stores. And our test with our Lee Platinum label had gone so well that we received complete system-wide distribution with our Lee Platinum at Belk. And because that went so well, because we built products for the consumer that the consumer liked and we listened to the consumer, we received a test from Macy's for our Lee Platinum. And that has gone so well that we've actually expanded that test twice since we got together 2 years ago.

And so what's happened since then? Well, this fall, we kicked off a test with Bon-Ton store. So if you think about it, the progress that we've made in 2 short years just on that department store business, it gives you an idea the potential that we have going forward. It's really significant.

Now I'm not going to spend much time on this slide at all, but what I am going to do is I'm going to dig into all 4 of quadrants on this X, and I'm going to give you real-life examples of why our strategy is working and how it's working. There is nobody more laser-focused on the consumer than the folks at Jeanswear. We know our consumer really well. We've known them for a long time. Wrangler's been around for a long time. Lee is celebrating its 125th anniversary next year. We spend a lot of time, we spend a lot of effort, and we spend a lot of resources understanding the consumer, and that really helps us make a difference. We're building product and innovation. Because at the end of the day, it comes down to product that people like, people feel comfortable in. They like the fit, they want to wear.

I want you to really take a look at this slide. This slide is extremely important to me, and it's extremely important to our business going forward. When I was here 2 years ago, we probably had 10 to 12 innovation projects in our current pipeline. And of those 10 to 12 projects, we probably thought about them a little bit, and the person that was handling it and the resources behind it were pretty limited. It was maybe the person that came up with the idea or if it was a Wrangler idea, it was probably someone from our Wrangler brand managing it. But now, I want to fast-forward 24 months, and I want to share with you how far we have come. We have 80, 80 projects in our pipeline right now. And those projects had been vetted before they've gone into our pipeline. We actually have resources that manage this entire process. So before, like I said, it was just part of what people did during their jobs. We have dedicated resources and the dedicated staff that help us manage this. We have 80 projects. And I want you to think like this. As you think about these next 5 years, what have we done? We've created a pipeline of growth and opportunity and product that's short term. We have stuff that's coming out in the next quarter. We have stuff that's coming out every quarter this year. We have midterm. The next 2 to 3 years. We have long term, 4 to 5 years. We have created a path for growth for the next 5 years, and then the exciting thing about this, those are just me talking about the aggregate numbers of the projects. These projects are different in nature. We have materials. We have innovation. We have really big platforms around fit, around comfort. We have breakthrough ideas that are really game-changing. That's the difference. And then, like anything else in life, with 80 big projects like this, you never know what's going to come next. You never know where we're thinking about some of these projects are smaller in nature from a revenue standpoint, and we have really big numbers attached to some of these projects. But you never know when one's just going to explode. This is our spot, shape, build and scale model. This is extremely important. I wanted to spend a little extra time with you here on this today because this is a path for growth that we've invested in and it's a big difference from when we got together just 2 years ago. And I think that we're refining this process for the industry and it's going to be a difference 5 years from now when we have a chance to talk about it again.

From a serving-consumers-directly standpoint, we have a really robust e-commerce business. We hear from our consumers, and you know what they tell us? They tell us, "Your product is really easy to shop for online. Your product is really easy to connect to online." People really like our products online. They find it easy. They find it fun. Everybody pretty much knows their size in jeans, knows their size in shirt. And so it's really been a big win for us. And we're putting more resources against this. I wouldn't say that we're best-in-class, but what I would tell you is that we work really hard to catch up. And we're working with folks, like Steve and his team have been wonderful partners as far as sharing information, helping us get better, and that's just leveraging one VF. That's what makes VF fantastic because we have people who do world-class stuff that we can steal from, and it's all good because it's part of the family. So we're really growing there, and we're getting better and our business has been growing double digit for at least 3 years now. And I'm excited to talk to you about that again in a few years.

And then the other part is, I wanted to show you a couple of our different stores. And the stores are really important for us. You can see our Wrangler store in Germany, and one of our Lee stores in Asia. They're really important for us because they help us tell the brand story. It lets the consumer touch us and touch our brand directly. And one of the single most important things that a store does for you, it gives you instantaneous feedback on your profit. You know immediately if your consumer is accepting and taking that product and they like it. Not only can you tell from the cash register, but you can tell from the interaction from the people that you have at the store, and that's really important.

So from a geography standpoint, I utilized this slide and I utilized the Americas and South and Central America for a specific reason. Over 70% of the business that we do in the global Jeanswear category is in these regions. And why I utilized this is not -- I didn't want to show you where we didn't do a lot of business and talk about all this opportunity where we didn't do a lot of business. I wanted to impart upon you where we have a big business, and I wanted to share with you why we still have tremendous opportunity.

In the United States, the Americas, all the way from Canada down to Mexico, I already shared with you that we've got this big Hispanic platform and opportunity. It's untapped. Huge potential for us. And that's happening right now, growing right out of our Mass, which is a substantial business. I talked, or I'm going to talk, a little bit about our Western theme, our Western culture, and still the great opportunity that we have there. I talked about our department store business and how that's growing and how well our tests are going. That's just an example of where we have a really strong core business, and yet, we still have tremendous opportunity. And then a little bit different, from a South American standpoint, we have really well-known brands in a very big and dynamic marketplace but we haven't tapped into that potential yet, but we are going to do that. We've got a platform now down there. We're kicking that off right now. We've just announced our President that's going to go down there and run that business for us, and we're bringing VF platform together. And there's huge opportunity down there to bring the power of VF and to grow that business. So a good example of just how we can do it in 2 different ways.

So this tells you a little bit, we're going to grow the Wrangler brand to $1.8 billion, strong 3% CAGR growth going forward. I started with this slide. It was important to me to start with this slide. You might think why not start with a Mass slide because that's our huge Mass business, right? It's our biggest business that we have. I started here because of the authenticity. Wrangler was born in 1947 for the -- we built a product called the MWZ 13, and it was built for the cowboy. It is absolutely, without question, the single most important piece of apparel in a cowboy's closet. They live for this product. It is our heritage. It's our authenticity. And I will tell you, they wear that product to get married in, to go to graduations, to go to school in, to work in, to play in. They wear Wrangler, and they are our biggest -- they are just our biggest ambassadors that we have. And we have a leadership, a strong leadership position in this category, in both men's and women's in tops and bottoms, and we can anchor so much out of this platform, from an innovation standpoint, because they're such brand champions. They love newness, they love innovation and they purchase it when they see it from Wrangler. They really get behind the brand. They're just incredible ambassadors.

So I wanted to share a little story with you about this product. The #1 selling item that we have in our Western line is a product that we made, that I just referenced, in 1947 called MWZ 13 built for the cowboys. Well, we kind of figured that 1947 to 2013, the cowboy maybe has changed a little bit. They do have cellphones now, and they actually use them and certain things have changed. So we went down deep in the heart of Texas and spent a couple of weeks with cowboys. We rode with them on ranches and worked with them. We asked them a ton of questions. We spent time. We got their feedback. We tried to understand what they want to do, what they look for in a product. And then we went back to the lab, and we built a fantastic new product. It's similar to the old product, but it has some new features, like a cell phone pocket, like a little different fit. People are bigger today. Like a little different in-seam. Maybe little different fabric and a couple of cases. But it's a product that zoomed in 2 short years to our #2 best selling item. I think it's a great example of where someone might have said, "You know what, it's the #1 selling item in your line, why build another product to compete against it? Why mess with it?" Well, I really am impressed with our people because they thought, "Hey, we can enhance the whole line. We can build something even better. We can build something for the old and the new, people can have both." And it's helped grow and propel our business greatly, and it's helped us really think about newness and innovation within the Western channel.

So who are these people? They're the authentic cowboy. That's the person that actually lives and works in the Western world. It might be a rancher. It might be a cowboy. It might be a country singer. But it's people who actually live and make their living and spend all day in their Wranglers. It's the most important piece of apparel they have. Brand champions. It's the new cowboy. That's the person that really loves the culture. Loves country music. Loves to rope, loves to ride, loves to spend time outdoors, but has to have a different job. Maybe as a teacher, maybe as a fireman. But as soon as the 5:00 bell rings, they throw on their Wranglers. When the weekend's here, they're riding horses, they're listening to country music. They love our product. They wear it. They're inspired by it. We're building products for them.

And then there's also the inspired -- the Western-inspired cowboy. But that's maybe a person a lot like you and I. Maybe there's an occasion where you like to just throw on your Wranglers and go out and listen to some country music twice a month. Maybe you just like to throw them on because you feel great about it. You love the culture and you love the feel and the thought of being like a cowboy. And that's a huge category that's actually growing in influence all around the world actually. And we're pretty excited about it. It's really growing in the States. It's really grow in South America. People are really moving back to a simpler time and a culture and that Western theme and that culture and they like it. And as we look at the business, there's significant opportunity in all 3 of those.

Let's talk a little bit about Mass business. It's a significantly large business. Really important to VF Corporation. And also, we're a leader in this business. We take that position really seriously. We know this consumer better than anyone. So as the leader, we have to play offense. We have to set the bar for everybody else. And we're doing that from an innovation standpoint. The single most important thing for these folks in this category, the single most important thing is comfort. These people wear their Wranglers all day long. They work in their Wranglers, they garden in their Wranglers, they coach little league in their Wranglers, they go out in their Wrangler. So when we talk to this consumer they're constantly telling us comfort, comfort, comfort. It's a huge platform for us. It's a big differentiator for us. And we're building product around comfort. This is a product that we're coming up with, called Flex Tech. Now, it's got some stretch in it, but I'm here to tell you, don't mention stretch with men. They don't like it. We call it Flex technology, they like that a lot better. But it's an extremely comfortable product. This product has tested in our Mass business better than any product we have ever come out with. What we've heard from our consumers as we tested this product was 2 things: One, "It's my favorite piece of apparel." And two, "It's my most comfortable piece of apparel". And this is hitting the market as we speak. And this is part of a much larger comfort platform within this channel that other parts of our business can draw from because that's the power of VF, and you're going to hear some more about that in the future.

And who are our brand icons? How do we bring the brand to life? How do we tell that story? We do it with 3 folks, specifically at the Wrangler business. Most of you know, we've been with Brett for a long time, and Brett hasn't played football for a few years, but he still really resonates with the consumer. They really like his lifestyle, what he stands for, what he accomplished. And we utilize Bret from a rugged standpoint.

So as you watch our advertising and our commercials, Brett is our outdoor guy. He's the guy that gets out and makes it happen. You see in the commercials, he's with his dog and his truck, he's playing football, all that stuff, having a lot of fun -- and by the way, that's actually on his ranch that we shot that one commercial that you might be thinking of right now. Just a terrific guy, a great spokesperson.

And then we have Dale Jr. We've been with the Earnhardt family for a long time. They been Wrangler-wearers forever, and they are just terrific folks. And we use Dale Jr. from an authentic standpoint. So that's how we capitalize on that. And then I'd like to welcome to our family, Drew Brees. For those of you that haven't heard, we just signed Drew Brees, and we're utilizing Drew because of his work in the community, because of his work after Katrina and because of all that he's done with this foundation. And he's really a strong family person, really strong values. We're using Drew from a family and social standpoint. So we really feel like, from a consumer standpoint, we captured the essence of the brand and really have a strong communication channel to and from with our consumers.

Let's switch gears just a little bit. Let's stay in the Jeanswear group, and let's talk about Lee, growing from $1.1. billion to $1.4 billion. Very significant. Big, big product for us. Big brand for us. Nice strong mid single-digit CAGR. How are we going to do that? This is really important. And I wanted to share with you and talk a little bit more about innovation. This is our new Shapetastics product. We scanned 5,000 unique different women. 5,000. Scanned their body so that we could build a better product for the department store channel. This is about to hit the department store channel, and I am here to tell you, this is a game-changer.

Now, you heard me talk earlier about several of the different brands -- excuse me, in several of our different consumers. What we heard from, specifically from our Lee female consumer, single most important thing for them? Fit. Fit is #1. So we have gone back. We have done our research. We've done our homework. And we've put the time and the resources into this, with our new 360 tailoring. And this is going to hit the Belks, the Macy's, the Bon-Tons of the world, and this is a game-changer because fit is so important. A female consumer loves to have great fit because it gives them great confidence in what they're doing in their jeans. Whether it's work or play, it just exudes confidence and it helps you feel better about the product you are wearing. And we have really great technology that we've really thought through that is an absolute game-changer, and this is another platform. This fit platform is big for us, and there is a lot of opportunity in this fit platform going forward.

Now, I'm going to pause here for one second because I put this in because it's really important, and I want to tell you why and then I want you to read it. These are some testimonials from some Lee customers. What's happening in the world today is people are doing a ton of research before they get in the store about product. They're doing that research online. And they're doing that research with their mobile device also. But they're doing that research in the store too. So it doesn't just have to be before they get there. They do it in the store too. Something that's really interesting is probably more than ever in our culture, people are taking cues from others on what's important and what to buy and whether someone else likes it. Bloggers and testimonials have become extremely influential within our world, and these are just a couple of our testimonials.

And the only way that you can get testimonials like this is you have to build fantastic product, you have to lead in innovation. And we are gaining these type of testimonials. This why Lee is winning. This is why Lee will win in the future. That in addition to many, many projects in our innovation pipeline, a fit platform that they have going forward. So a really significant opportunity for us going forward, and social media would really help us do that.

We got together in September in Shanghai and spent some time talking about the Asia-Pacific business, and I just wanted to go ahead and reiterate, although we were just together not that long ago strong, continued double-digit growth in the Asia-Pacific region.

So with that, I'm going to wrap-up Jeanswear and move over to Imagewear. We don't spend a lot of time on Imagewear, as far as talking about it with you folks. But it is a very formidable, very large and very significant business, encompassing 2 divisions, the Image workwear division and the LSG sports license business within the Imagewear coalition. It's very large. We're growing to $1.3 billion, a strong 4% CAGR going forward, and I think it's really important to know here a significant cash generator for VF Corporation, a really important cash generator of VF Corporation, and also a really interesting business for VF Corporation because we get to look at the consumer in a different way. We get to see the consumer's eyes through a B2B focus. We get to see the consumer's eyes through a licensed piece although, Karen has a big license business this is another substantial license business but it's different for us and it helps us understand our businesses a little bit better because we get a couple of different lenses to look through, and we're sharing more and more of VF and it can only help us going forward. And when you look at this leadership set of brands, it's stunning. #1 in workwear, Red Kap, since 1923. #1 in FR significant growth over the last 5 years with Bulwark, Majestic on-field, authentic major league baseball. Only one person can be on-field. Only one person can have that authenticity, and we have it. And then if you look at the other marquee businesses that we do business with, there's no better set of assets to have a license with than the NFL, the NHL, the NBA. We don't have the NCAA on here, but that's also one of our businesses. And of course, Harley Davidson. I always joke and talk to the people that there are very few businesses that you're in that people tattoo themselves. And if you really think about it, all the tattoos that people have of Harley-Davidson, the passion they for that brand. All the sports tattoos that are out there. People have Yankees tattoos, Red Sox tattoos, Packers tattoos. These are people that are very passionate about their apparel and very passionate about their brand.

So where do we do business here? Who are our consumers? In the Image business, we do business with large multinational corporations, people in the oil and gas services, people in the manufacturing and automobile business. Those are significant customers. Large government institutions are big customers. Big utilities for our FR product to protect their employees, and then also with large global distribution companies like Cintas and ARAMARK and Ameripride and UniFirst. From an LSG standpoint, we do business at stadiums and concessions, anywhere you want to pick up your apparel.

I'll tell you what's become a really, really important channel for us from an LSG standpoint, that's the e-commerce channel. The reason being is so many of you might not be from New York. Or wherever you're from, wherever you're living now, that might not be, and most likely, isn't, if you're a professional, where you grew up. Your travel and your work is taking you someplace else, but you still have that affinity. If you grew up in Green Bay and you ended up moving to Denver, you still love your Packers. Well, we make it really easy for you to buy your Packer apparel online, and that channel is getting larger and larger as people become more displaced in America and they want to follow their team. And then of course, with our retail partners.

Let's talk a little bit about the Image business. I specifically put this slide in because it was really important in a couple of ways. One, I wanted to share with you earlier, remember, I talked about our comfort platform that we talked about with Wrangler? Well, here's a great example of Wrangler and of image coming together creating a product from a comfort standpoint. It's going to lead in comfort in the industry. So here's what happened. Our people had been talking to and always are doing research with their consumer. And one of the things that we found out is Red Kap plays in a certain marketplace, right? But there was an opportunity to play one level above there. And so we were thinking about what brand we could do that, we create a brand, we partner with a brand. And then the one thing that we can consistently heard from this consumer was, "Yes, the first thing that I do when I get home, I take off my uniform, I put on my Wranglers." Like, "Holy cow. That consumer is using our other products." That consumer is using Wrangler. Why not use the Wrangler brand? Why not bring the comfort platform home over, create a product that is just superior in not only comfort but mobility. Because we call these occupational athletes because they're moving and changing tires and oil or whatever. They've got to stretch and they've got to move around. So we are just now kicking this product off in the marketplace and we think there's just incredible potential for it. But it's a really great example of communicating. One, via talking, taking advantage of this huge comfort platform. Taking advantage of the relationship that we already have with our consumers from a Wrangler standpoint. I mean, you heard me say, they're literally taking off their work uniform and the first thing they put on is their Wranglers. I mean, we're going to go ahead and outfit from the morning they get up -- excuse me, from when they get up, we just got to get them some Nautica pajamas, right, Karen? So when they go to bed in Nautica and then they get up and wear Wrangler the rest of the day. I mean, this is really that consumer that we have and how we're working with them, how we're making sure we do. Now this happens to be probably one of my favorite stories of VF.

So I am going to take an extra minute to tell you the story. Because I think it's really a great story of ingenuity and a great story of our people thinking a little bit differently, going against the grain and how they've been rewarded and we've been rewarded as a company. Now do you see that shirt up here? That is just, in the far right-hand corner, that is our new automotive work shirt. We make hundreds of thousands of automotive work shirts, hundreds of thousands. And we have, forever, we've made those forever. And for the last decades, us, in the competition have raced to the bottom to take as much cost out of that shirt as possible. So what I mean by that is you have a shirt and you're trying to generate additional gross margin, and we continue to take make out of the product and make out of the product and try to make it more profitable and it was a race to the bottom with these. We completely commoditized the category, right? So we go out and we're talking to these folks. And here are folks are and they're talking to these folks and what do these folks say? They say, "We really don't like wearing a shirt anymore. I don't feel any pride when I'm interfacing with the consumer. I can't do my work. I can't perform in it like I used to because you took so much make out of it. You took my tools sleeves out of it. You took my tool sleeve out of it. You took my placard off of it. I can't protect myself." So our people came back. And they said, "You know what, here we are again trying to think about how we can take some more make out of the product. Why don't we do something completely opposite? Why don't we do a 180 here? Why don't we put all the make back in?" So here's what we did, we went back to the drawing board and we put all the make back in the product. We put a whole tools sleeve in. We put a placard in. We put long sleeves on, because we were trying to go to short sleeves because they're cheaper to make, right? We put a couple of different colors in because we had mono-colored everything. We put much better fabric in the product, right? We put placards in. We put [indiscernible] in. It's the single most piece of comfortable, yet functional workwear you'll ever wear. And guess what? For 2 years, over 50% growth in a category that had been dormant for years. Our business has been up over 50% 2 years running. And we charge double what we used for charge for a shirt. And here's what we hear from both associates and employers. From the employers, we hear it's a retention factor. We actually are retaining people we think by giving them apparel that they're proud of and that they can wear. And what we hear from the people that work, they love coming to work in it. They feel great about interfacing with the consumer. I just think it's a great example of our people listening and our people saying, "Hey, wait a second. Enough is enough in doing something a little bit different and having the courage to do that."

Let's spend a little time on licensed sports group. I shared with you a little bit about this business most of what we do starts with our authenticity in Majestic on-field. We're building great craveable product, product for the people that are passionate about their sports teams. Those incredible winning moments, whether it be the World Series or the Super Bowl or whatever it may be, and they actually like players too. When we got together 2 years ago, I talked to you about this business and I shared with you how we innovated around just specifically on-field. And our team, since then, has created these 4 platforms to start building product and innovating around. And that is really important to note because we have limited ourselves before with just this 1 platform. So now we have 4 and we've got just this much bigger universe. And now we're building and doing out of these 4 versus limiting ourselves in this one. And I wanted to give you a specific example of what happened from that. We used to make women's product. We set focus groups. And our focus groups used to be male-dominated. And we used to make women's product that really wasn't comfortable. It was just a smaller size men, maybe didn't have any fashion. And we really weren't listening. But we since gone back to the drawing board in the last couple of years and we've listened to women, and they told us, "We want fashion. We want design. We want lighter weights. We can't wear that heavy stuff that our husbands and our boyfriends wear. We want things that we can be proud of that we would wear, that we might even not just wear it to the stadium or the game. We're going to wear it out. We need a tighter formfitting product. We need better silhouettes." So we'd come out with products like our new women's replica, smash hit. We've come out with the shimmer top, the #1 selling women's piece in the NFL. That product has just flown off the shelves. But we did it through listening. And we did it again through these 4 platforms and making sure we understand what people want. We're building product for people and they're -- we're listening to them, we're understanding what they want and we're having success because of it.

So again, just a quick note on the CAGR. And my time is up with you today until we get together for our Q&A here later in the day. But I did want to leave you with this, 2 short years ago, we got together and spent some time, and I was so proud of the team and the progress they had made and all the things that they were doing. And it's really unbelievable for me to think all that we've done in those 2 short years. It's just shocking. And now, we've got 5 years to do even more. And we're so much more intelligent about our business. We have so much more from a resource standpoint to apply to our businesses. We have fantastic people doing great things. We're real proud of what we're doing. And you can count on us to continue to do that to be thoughtful, to be intelligent and to really grow this business going forward. I can't wait to get together again because I can't wait to brag about all the great things our folks are doing. And with that, I want to introduce Karen Murray, our President of our Sportswear division.

Karen Murray

Hello, everyone. Me, and then, one other presentation and then some coffee. So I'm really excited to talk to you today about Nautica. It is actually my first time talking to you as a group. I've talked to some of you individually, but it's my first time talking to you about Nautica's growth plans. And I'm going to give you a few examples of how the brand has evolved and grown over the past few years. VF Sportswear coalition in 2012 was at $577 million in revenues and will grow to $835 million by 2017, at an 8% CAGR. Growth is driven by both brands, Nautica, which represents about 85% of the coalition revenues today; and Kipling, which represents about 15% of coalition revenue. Nautica alone is expected to grow from $500 million in revenues in 2012 to $700 million in 2017 at a 7% CAGR. This business has continued to improve. The past 2 years' revenues have grown at 5% each year and we are projecting 8% this year, so we are confident we can hit the 7% growth goal. Our revenues are comprised of wholesale, outlet, e-commerce and royalties from our licensed businesses. Unlike all the other brands you will hear about today, Nautica has a large license business. In fact, on a global basis, the brand is over $1 billion. We are focusing today on 4 areas to grow. There is that X again. We're going to drive higher gross margins and build strong brand equity. The first concept focuses on leading in innovation and connecting with consumers, and I combine those 2.

Today, across men's sportswear, as you all know, there is a sea of sameness in many of the product categories. That is why men's sportswear is a low brand loyalty category with a high degree of substitutability. So when we look at the next 5 years, one of the most important things for Nautica is to enhance brand equity and loyalty through building a performance platform, which is new for the brand and differentiated products. As you've seen with all of our brands today, one of the great benefits of being part of the VF family is the ability to leverage our innovation and our strategy platform. Many brands are either true performance brand, high performance, or fashion brand. With Nautica, we merge fashion and function. Along these lines, I'm really excited to share with you how we execute this in one of the largest parts of the men's sportswear category, short sleeve neck. So let's take a look at our iconic deck shirt, hopefully, some of you will have seen that upstairs this morning. I would like to bring you through the evolution the past few years. Starting in 2011, we offered a basic 100% cotton deck shirt, not unlike any of the other men's sportswear brands out there. In 2012, we raised our game and created a performance deck shirt, a cotton/poly blend which maintained the hand feel of cotton but added every day benefit of breathability, moisture-wicking, easy care any UV protection. In 2013, we continued the evolution with the Performance Tech Pique. This is a 100% poly, but it offers a much more luxurious hand feel and the addition of quick dry. So over the past 3 years, by improving the deck shirt with performance characteristics, we've been able to increase the out-the-door price by over 20%. In fact, this category this year is up over 60%. To give you a sneak peek into next year, we're adding a signature stripe enhancement to the performance deck shirt. For spring '14, we are elevating our design detail to include a signature stripe placket and brighter trims and contrast logos, all identifiably Nautica. This shirt, by the way, comes in over 30 colors. We've conducted concept tests to assess this enhancement and product tested very, very well with consumers demonstrating higher purchase interest, differentiation, value perception and likability. We added technologies, for example, waterproofing and moisture-wicking into many of our different product categories. So while I'm showing you just one shirt, know that we've applied these technologies to many of our different categories. We are also adding marketing messages around differentiation. We will be introducing a new concept, which is due to launch again in spring '14, so 2 new concepts for spring '14. It is a new outerwear piece which will have the benefit of same feel technology, stretch, but like Scott, we don't call it out. It's breathable and it is waterproof. Again, hitting the sweet spot of style and function. And we will take that concept and then apply it to pants, to jeans, to many of our other product categories across-the-board. At the same time, we are also completing consumer segmentation work and that is just to understand, define and then target our consumer even better.

The next area I'd like to talk to you about to serve consumers directly is DTC, direct-to-consumer. We are working hard to drive this business to a greater percent of total and to increase overall brand controlled by investing in our e-commerce platform and introducing full price stores domestically. We have been and will continue to expand geographically with new flagship stores and with our key license and franchise partner. This is a major growth driver for us through 2017. Direct-to-consumer represents just over 1/3 of our Nautica business today, through 88 outlet doors and our website. Wholesale will continue to remain a significant portion of our business. And of course, this is led by our partnership with Macy's. But DTC will grow to over 40% of our total business by 2017 and that's driven by comp store increases in our outlet business and growth in our nautica.com site and expansion, as I just mentioned, into full price retail in the United States. Nautica is launching a redesign site for fall '13. Menswear.com sales for other retailers in our space usually represent in menswear 10% of total business, while we were at -- we are at less than 5%. So this does present a major opportunity for the Nautica brand. The goals of our new site are to create a better shopping experience, increase consumers' emotional connection to the brand and to ensure that we reach these goals, we are leveraging utilization research in redevelopment of our site. We are incorporating product-focused content around fit and styling to drive appeal, conversion and overall sales. In addition, our current website only serves domestic customers and we need to expand this globally. Our #2 fan base happens to be Mexico, and we're not serving these customers today. Nautica has continued to expand its international footprint through our licensed business. Our international partners are incredibly important to our business. They represent about half of our license business today and are increasing as a percent to our total. We are today in 75 markets outside of the United States, and we have 220 full price stores that look very similar to the one you see up on the screen in Panama City.

Consumers in our international markets consider Nautica to be highly aspirational. It is seen as a very premium classic brand. We are finding this to be particularly true where Nautica has greater control over its distribution and the face of the brand is through this full priced flagship. To capitalize on these elevated image domestically, Nautica is planning to open full price stores in the U.S. beginning in 2014. Over the past year, we have incorporated a consumer insight into our launch plan and our store build out, which currently in development. So in summary, the last 3 years have been transformative in the way that Nautica thinks about consumer insight, how to address their needs through innovation and how we tell our brand story. Both Nautica and Kipling are focused on strategies that will help us win against competitors by growing share, increasing emotional connection, raising brand equity and delivering superior margin and ROI. This has begun to show in our financial results. Over the past 2 years, we've turned a corner in our financial performance, we've expanded the growth margins and added marketing investments and all while increasing our overall profitability. Our brands have grown steadily and we are so excited about the future of our businesses.

And now, I'd like to introduce Susan Kellogg, well, that will bring you through all of our Contemporary businesses. Thank you.

Susan Kellogg

Hi, I'm here today to talk to about the Contemporary Brands. Over the next 5 years, we expect the Contemporary category to continue to lead the apparel growth. And for VF, we expect to add $200 million in revenue. With solid organic growth in the U.S., our largest business, due to DTC product and category expansion, our highest growth rate will continue to come from our international markets where we see a lot of opportunity. 7 For All Mankind, our largest Contemporary brand, will grow $100 million globally, with 2/3 coming from DTC and 1/3 coming from our wholesale business. All 4 strategies are vital to our continued growth, however, I'd like to start with leading in innovation. Yes, we're back to the X again. Innovation is critical to the Contemporary Brands coalition. 7 For All Mankind has a well-established and proven innovation pipeline. For example, in 2012, we launched the Slim Illusion in women's denim. This fabric has the unique ability to retain its shape, excellent recovery and comfort while being able to endure the rigors of advanced washing technique. This was a $10 million idea and is still going strong. This fall, we're launching its sister, Second Skin Slim Illusion with 100% recovery never been done before. And the bookings are already outpacing our previous launch. We're also taking this technology to commence this fall, Luxe Performance, and have already exceeded our forecast before we've even shipped. These jeans will -- while you can -- sorry, how to do it. Didn't know that it was going to happen. Malhia Kent, for those of you who are here in person, these jeans will retail for $395. They will only be available in select stores worldwide. This is one of our most exciting coalition -- collaborations we've done in the coalition. Malhia Kent is a very high-end couture mill in France and we are very excited to debut this in July. Print and celebrity marketing are nothing new to Contemporary and particularly important for our 7 For All Mankind core customer. In spring, we launched our first global multimedia, fully integrated marketing campaign with James Franco. This has been an enormously successful partnership, which we have continued through 2013. James Franco, who as some of you may be familiar with, is more than an actor. He's a painter, he's a filmmaker, he's a singer, he's a scholar, he's a poet, he's our friend and a true Renaissance man for 7 For All Mankind, a marketing innovator. He continues to create buzz and original content for us. This is imperative in building brand affinity as the millenials are voracious in their media consumption. Simply put, we need to be everywhere they are. And now, I'd like to show you one of the 7 For All Mankind clips from our spring '13 campaign.


Susan Kellogg

With this content, we were able to engage our consumers by giving them the opportunity to vote on the storyline of James' film globally through the 7 For All Mankind Facebook page. We now have 2 cuts of the film that are available on our page, James' original director's cut and our customers version. As we all know, fashion is no longer dictated by an elite few. As seen by Amri Singh, who's pictured here, a fashion blogger, who is a friend of 7 For All Mankind. She is a powerhouse. She not only wears our jeans, photographs herself all over the world in our jeans, but she has 7,000 unique monthly visitors to her blog site and 845,000 Instagram followers. Really remarkable when you consider Vogue sells 1.2 million magazines a month, really an incredible feat. The millennials have changed the fashion game, and we have changed with them. We also engaged with our customers in our store. We recently leveraged our relationship with celebrity, Nikki Reed, where she previewed her exclusive jewelry collection in our 7 For All Mankind stores. You can see the tremendous line outside our new Orlando store for this event. It was very successful. This was a great way to enter a new market, drive traffic and acquire and engage new customers.

Moving to DTC. In 2012, about 1/3 of our business came from owned stores and e-commerce. By 2017, we plan on more than doubling our stores globally and are expecting our DTC business to grow to 43% of our sales. The next 5 years represents a very exciting opportunity for us to continue to tell our story in our own stores and grow with our fantastic wholesale partners. Additionally, we plan on more than tripling our global e-commerce business by 2017, driven by increases in all 3 of our major markets. The international business is very important to 7 For All Mankind's future growth and brand relevance. We expect it to go from 37% to 48% in 2017. This is possible through leveraging the VF international platform, a definite competitive advantage. This concludes my presentation for today. Thank you for your time.


Unknown Executive

Ladies and gentlemen, Vice President, Strategy and Innovation, Stephen Dull.

Stephen F. Dull

It's a pleasure to be here. In the next 25 minutes or so, I'm going to talk about our front-end platform and how we're adding value to the front end of things. We've always been really strong on the back end. Our supply chain has added hundreds of millions of dollars over the last, well, actually, probably even just recently. We intend to be as good, if not better, on the front end, and to add equivalent value. What I'd like to do is take you through our 4 front-end disciplines, strategy, consumer insight, brand management and innovation. You've seen that in all the presentations, and you've seen a number of examples. I'll go, obviously, one by one. So strategy. Strategy, for us, is about making choices. We have a very disciplined and rigorous process to make choices. And it's not just choices about what to do, it's choices about what not to do. We don't want to do things with a marginal return. And that's maybe even more critical than choosing what you actually have to do. So we have a process, I'll take you briefly through it. And it starts with very aggressive aspirations. All of us who work with Mr. Wiseman, know we have really aggressive aspirations. So it starts with the question about how big can we be or how successful can be. But there are other aspirations, too. So for example, Timberland wants to be the largest most sustainable outdoor brand in the world. That's an example of another aspiration. Now again, strategy is a set of choices, and we think of it as a cascade of choices. If you're going to meet your financial targets, and you're not going to get into trouble with Mr. Wiseman, you better figure out where you're going to play. Where are the best places to get that? So for Timberland, they want to be the largest and most sustainable outdoor brand in the world. They'd better choose a consumer target that cares about that. And so we make choices about geographies and channels. Then it's really important that you know how to win in those, where to place. You have to know how you're going to win that consumer target. You're going to have to know how you win in those channels. When I say winning, I do mean against competitors, I do mean gaining share, but also winning financially, we want superior returns. And some examples of how to win, brand position, innovation, there's others, and I'll talk particularly about those 2. Now if you're going to win, you better have the capabilities to win. VF, I think we have and would like to have the best consumer understanding of anyone in the industry and beyond our industry. We think it's necessary. We know that it adds a lot of value. You've heard a number of examples. And lastly, what gets measured gets done. We're going to make sure that we're going to measure what we're doing. And by the way, if you don't have the capabilities, you better look at a different way to win. And if you can't win, you better look at a different place to play, and that might mean that you can't meet those aspirations. It works both ways, but we do start making choices of what to do and what not to do in a very disciplined and rigorous process for doing that. Now how do you create value with that? Well, first of all, it ensures that those goals that we set can be made. It also focuses that business on winning against competitors, growing equity financially, exceeding their competitors. It also prioritizes actions. We know, again, what to do and what not to do. And what that does, it drives really effective and efficient use of the resources that our shareholders have given us. So how do we use this at VF? Well, some of the things that you've been hearing about, well, which geographies at which pace get what level of investment? Which brands get disproportionate levels of investment? And also identifying new spaces for VF to enter. We use these set of choices to make those choices at corporate and in our brands. So some of those examples, which consumer target provides the best opportunity to grow? What consumer benefits are we going to offer that will be different, better and relevant to our target consumer? Okay, next, Consumer insight. Consumer insight, and you've heard from a number of our businesses, it is about injecting the consumer into everything that we do. So 2 fundamental foundational aspects of consumer insight. The first is segmentation, and I'll also take you through shopper behavior. You've heard a lot about segmentation. It is the science of picking your most valuable target. We've done this with all of our top brands and all of our major geographies. We are really serious about identifying who our target consumer is. So over the last 4 years, we've done 1,000 video ethnographies. That's where a consumer takes pictures of their own lives and our brands in their lives and they send that in and we analyze it. We've talked to 3,000 people in person. We've done -- gone into their closets. We've gone shopping with them. We talked to them one-on-one. We get to know them over a period of several hours, and sometimes, I think, Scott, referred to this over several weeks with the Cowboys. And we have surveyed more than 80,000 people across 12 countries. Again, we take this really seriously. And by the way, Nautica is engaging global segmentation right now. As Karen mentioned, we'll be well over 100,000 consumers that we've talked to in the last 4 years. Again, we take this really seriously because we know that this is the way we're going to create value. So here's an example from Vans. Now you're seeing a summary of a summary of a summary. But just to let you know how we do it, we deeply explore a lot of different facets. So we look at motivations and values and needs. Then we look at what activities they're engaged in culturally, sports engagement. And most importantly, we look at how much they spend. And then we use some pretty sophisticated analytics to group those sets of needs and motivations and values into like-minded -- other consumers that are like them. And then we compare those groups and we say, "Okay, which is the most attractive for us?" So we look for where has the most value? Where has the most potential for growth, and which targets fit with the Vans equity in this case? And what do we find? We found a multibillion dollar opportunity globally that we're really excited about. We don't have the largest share of that because we like to define our markets really big. We've got a lot of runway to grow with this target consumer.

So how do we make this valuable? And you've heard some of my colleagues talk about this. If you know who your target is, you can put products in front of them and they will tell you whether they like them or not. That's really helpful because you can avoid making some mistakes. So we don't leave this all up to chance. There's still art in this. This is not science that overrules all art. However, we can go in front of our target, and we learn a lot from them when we put product in front of them. We know where they shop. We know what experiences they want. So that helps us, too, when we know our target segment. We can focus marketing, messaging and media to what that consumer wants to hear, when they want to hear it, where they want to hear it. And we can choose innovation investments that matter to that consumer.

Now shopper behavior, that's the second major fundamental platform. Now why would we bother studying shopper behavior? Because there are far more shoppers than there are buyers. In fact, even great conversion leaves you a 4x or 5x opportunity. And on the web, it's a lot more than that. By studying shoppers, we -- and if we can convert more of those shoppers to buyers, there's a huge opportunity. Now we talked about target consumer, and that same consumer will shop different categories very differently. So it looks a little bit complex, but in one category, they may enter and look for color style and brand. That same consumer may go into another category, not may, they actually do, and they may have a price in the budget and some sort of promotion in mind. So by studying that kind of behavior, we learn about how to convert more of those shoppers into buyers.

And by the way, one of the reasons you should feel really confident about The North Face is we've completed some shopper behavior work, and there is an enormous opportunity for The North Face just by converting more shoppers into buyers. And we know how to get after that. Okay, talked about focusing on the right conversion levers. We also guide product merchandising and visual merchandising. We can set the level of in-store staff if we know what the economics of conversion are. And we can inform promotion strategy and guide web design, a lot of things between segmentation and shopper insights that make VF competitively advantaged in shopper insight. Okay, brand management, we have been adopting and adapting a lot of best practices from other industries, especially consumer packaged goods. Apparel and footwear is not at all like packaged goods, except you still have a consumer, and you can take some of those tools and apply them to apparel to add value. So 3 things I'm going to talk about here. First of all, how is it that we define brands? How is it that we look at marketing effectiveness and efficiency? And then how do we talk about equity? By the way, equity is really important. You've heard, again, you've heard my colleagues talk about that. Equity is the #1 thing that helps you charge a price premium, which leads to higher gross margins. So it's really critical that we're managing brand equity. Okay, brand. You can read any marketing textbook and you'll see some version of a brand pyramid, that's what we call it. We'd like to believe that ours is special. However, it's not that it's special in and of itself. It's really hard to get this right. And the process is also really difficult. And we think we've developed the core competence of doing that. So it all starts with a promise. What do we promise our consumer? Now we have this thing called the archetype. Now an archetype is a personality type. For those of you who took psychology, Carl Jung identified some fundamental personalities by which you would recognize that person instantly. Wizard of Oz has the Wicked Witch of the West is a classic architect -- archetype. Now why do we even bother with that? When you see a movie and you just can't get into the characters, it's because the archetypes are squishy you don't recognize them. The same thing is true with brands. If it is clear what archetype that brand represents, it has a lot more appeal, and we spend time studying that. Now what's really important here are the benefits around parity and points of difference. Talk about parity first, there are certain things that are just table stakes in any game. So maybe durability might be it. You can't be less durable on a table stake. So the first thing we try to do is make sure we are at parity with our competitors on the things that consumers expect. But then we have to go above and beyond, how are we going to be different and better and relevant to our target consumer? So there's functional points of difference in which we also want reasons to believe, or why should I believe that you're different and better, and then emotional points of difference. This is a highly emotional category, and we need to know that our brands have both. All of our brands have gone through a really rigorous process, and keep coming back to this using consumer insight to define our brands. And I'll give you, again, some really high level of examples because this applies to the most technical brand and to the most fashionable. So roughly, The North Face promises you protection in extreme environment. Now of course, we talk a lot about functional benefit, but you can trust your life to our products. That's a key emotional benefit. And why? Because it's athlete-developed, athlete-tested on expeditions in extreme environment. They trusted their life, they survived, and you will, too, very strong emotional benefit. There's a lot more in The North Face pyramid. Now it extends to -- and by the way, the brand DNA is relevant to our target consumer. Now it also applies to fashionable brands. So our target is called the Peacock, and think about the promise. We promise they will wish they were you. Now you saw us in the video, a very different promise in The North Face. But it doesn't mean it's all emotional, there is some really strong functional benefit. We will give you a more perfect sexy body. How do we do that? Proprietary fabrics. Susan was up here, showing you a proprietary fabric. It's part of that science of the DNA that we have that proprietary product in addition to being highly innovative. We use design engineering. We use other enhancements. So both brands, one has emotional, one has functional, they all have a very carefully determined brand DNA.

Now I'm going to move to why this is really important. We want to make sure we give our target consumers something better and different that's relevant to them. And that is how we're going to make money. So the other thing that benefits all of us actually is that our supporting functions have a consistent view of our brands. They know what the brands are trying to deliver. It's not like the list of 20 nouns and 20 verbs that you might see from a typical company. People know what our points of difference are.

And you can't script thousands of people's decisions. But what you can do is give them guidelines. And the brand DNA functions as a guideline. And again, it tells us where we need to improve, and it is again about making choices for efficient and effective use of resources.

Okay, marketing effectiveness and efficiency. We started about 8 years ago doing multivariate regression, correlating just about everything with sales, everything having to do with marketing but also exogenous variables like the economy. And John Wanamaker said "Half of my advertising is wasted. I just don't know which half." We do know which half, and we're eliminating that half. And we are working across all major brands in the United States. We've moved into Asia, and we've moved into Europe. And what that does is it tells us what the return on investment is for $1 that we spend on marketing.

And I'm pretty proud of VF for getting here because when we started, our brands were -- had somewhat -- some of the brands had strong returns, some were a little bit marginal. But when you look at this, all of our measured brands today are above $1. Now what does that mean? We spend $1 on advertising. We get more than $1 back short term and more than double that long term. That's the way the numbers work. Now some of our brands have a lot more. Now you would say, really, why don't you just double your advertising spending and you'd make your 2017 goal? But, I mean, the reason is -- and actually, if you think about it, we added $100 million in marketing in 2011. We added $45 million to marketing in 2012 and another $45 million in 2013.

This is one of the reasons why we feel really confident we're going to do that and get a return, is because we are measuring the return of that. And so, the other thing about this why you just aren't going to double your marketing, there is a marginal return. There's a curve. We could be going up the curve and getting more, but you never know when you're going to fall below, and so we need to do this prudently and in a measured fashion. So we can't just double, but you see us increasing over time because we're using these sciences.

Copy testing. We know who our target is, and we know what our efficiency and effectiveness is. We put our advertising in front of our target consumer to see whether it's well branded and it breaks through the clutter. We're doing this in the United States. And with both qualitatively and quantitatively, we're doing it in Asia, and we're doing it in Europe.

Now here's where we're going with this. If you look at branded breakthrough and persuasion, it's pretty easy to read this chart. If I'm above average on persuasion but I'm below norm on branded breakthrough, that means I've persuaded you to go do something, but I don't know what your brand is. We might have accidentally persuaded you to buy our competitor's product. Or below average persuasion and above average breakthrough. I'll add broke through, but I didn't do anything about it.

So all the gray boxes, essentially we're wasting money. We don't want to waste money, right? We want to be in the northeast quadrant. So we're going to test all our copy. Now not every single piece of copy is tested [ph]. We're moving to that, but a lot of it is. We're going to prioritize spending where we have breakthrough advertising. The minimum standard would be average and average, and our brands will lose permission to spend. If they don't improve, they have to get tested. That means we're not going to waste money on marketing. We're going to get a return on marketing so that we can build brand equity.

Now brand equity. We measure brand equity for our major brands in our major geographies because we know equity leads to you being able to charge a price premium, which leads to gross margin. There's a lot in this sort of a summary chart. We measure all the imagery and the things that are captured in the pyramid. But we -- actually, The North Face numbers here in this one particular case, we have a lot of room to go in The North Face. And in one core target, we surpassed a major competitor. So we're making progress because we use these things and we measure all of our activities. So that's brand management.

So I'm going to shift to innovation. Probably the biggest set of numbers I can put in front of you is this number here, $1.6 billion. When I was last here, we talked about the beginning of our innovation program. VF has always been innovative. However, when we decided we were going to accelerate innovation between that point and now, we have added $1.6 billion in ideas. Now that's a year 3 revenue and its probability unadjusted. One of the reasons we feel confident is for every idea that comes off in the early stages, we're adding another idea or 2 ideas. So we're growing that pipeline. And in the launch phase, there's already $400 million of products and experiences that have been launched and are on track. So we feel pretty comfortable we're going to get this or more.

And you've heard a lot of examples about the things that are already being launched. So you -- of course, you're familiar with Flash Dry. But we also use some innovative techniques for expanding that opportunity. There's a product coming out from Bulwark. None of you probably wear fire-resistant apparel. If you did, you would know that it was really uncomfortable. And people put their lives on the line, but they're really uncomfortable. We solved that trade-off with a proprietary fabric, fire resistant and comfortable with a proprietary fabric with a special mylicon [ph]. Great partner for us. And that's being introduced. And it comes from this innovation agenda.

And I'll go all the way over to cost. And because you've heard a lot about fit and comfort, I'll go over to cost. And a lot of people are using the iPad. So a couple of years ago, Vans said, "Hey, we want to be at the foreground." They're saving millions of dollars a year on sales collateral by using iPads instead. And that -- obviously, that's a great multiplier. But the -- there's lots more to come, too. For example, we're looking at alternative ways to make denim blue instead of dyeing it, more sustainable and quite a bit lower cost. It surprised us because we are very, very efficient at making jeans and at making denim, and we have some different ideas for how we're going to make denim blue. So $1.6 billion, and we're on target to get it.

Now I'll give you some examples. And you've heard some of these, so I'll try not to go through them too much. But really, when we started, one of our senior execs said, "Gosh, I don't know how you're going to innovate a basic 5-pocket jean." I mean, it just didn't seem obvious at that point. Worked with a technology company. We have 30 new platforms, and you've heard some of them and there's more to come.

There's no-fade denim, which is a -- actually is a big unmet need for consumers. It's being introduced across our brands. But also, we've extended in order to increase our advantage to comfort neuroscience and advanced materials. There is no one better at measuring comfort than the Japanese. We have a relationship with a Japanese university around the real science of measuring comfort neuroscience.

We're working with the one of the top neuroscientists in the U.S. around beauty science because there's a lot there that you would not expect to see. And we think, again, we can gain an advantage by understanding the science of beauty, both for men and for women, by the way. And we're doing a lot of work on new materials, working on new benefits in jeans and new levels of benefits that therefore no one has seen.

So what's in the future? More new materials, more benefits, unexpected and higher levels of current benefits. A lot more around the science of design. There's a lot there. Well, we're building an innovation center that'll be globally accessed by all of our jeans brands. And we're going to be introducing the consumer into more and more product development because we're convinced that adds a lot of value.

Retail. It's not -- innovation just isn't about product. So it used to be, at least with our major accounts, winning customers control the floor. Even when you go back a little further, we didn't have much of our own retail. Well, guess what? It's still their floor, but we're working more closely in partnership, and we're using our target consumer to reinvent the shopping space.

We used our target consumer at Wal-Mart to reinvent the women's jeans shopping space. And Wal-Mart has benefited. They've been a great partner. And we've benefited, too, but it's the magic of consumer co-creation of that space, using our target consumer to reinvent the experience. We've also done that at Dick's and The North Face as well, another great partner for us.

In our own stores, again we have used our target consumers and rapidly iterated a design of a store, and we're yielding comps of over 40%. And we feel really good about that pilot because they've been sustained now for quite a bit of time, and that's the Kipling brand. And, well, because they've earned it, they're getting the right to expand.

Now I'll talk a little bit more about Kipling to wrap things up. What are we going to do in the future? We're trying all kinds of stuff to understand and create that -- the future of retail. So virtual try-on [ph], we're experimenting with that. Experience at retail is going to get highly elevated, and we're working on that. There's a lot of things happening around the globe around trends. We're trying to put that into our stores as well.

We're experimenting with big data, experimenting with voice-driven search on the web and looking at unconventional locations. You are going to see more and more unconventional locations. We took an idea out of a Korean subway where consumers could aim their phone at a wide array of groceries and then pick it up when they got home. So they paid for it, chose things. And we said, "Gosh, we can do this with apparel." So we tried this on the Nautica brand and learned a lot, and we think we can apply more unconventional locations in the future.

Communication. I talked a little bit about how we're measuring marketing. But again, advertising with an art. We found that we can greatly inform the art by talking with our consumers and actually using them to help co-create our advertising. So the artist hasn't lost control, the brand hasn't lost control. The consumer is now contributing. We're really going deep on a benefits focus. The way we think we should talk about benefits is often not what the consumer wants to hear or it's not even what they understand. So we're using consumer co-creation to benefit expression.

If you've seen the U versus V commercial, we used that technique for that, a very -- and by the way, a breakthrough ad and really led to a lot more business for us. And we're using that on a number of brands, and we're seeing higher sell-through as a result of that breakthrough advertising.

So in the future, a lot more science. There's a lot of science around how we choose things, and we're going to be using that kind of science. And much more consumer co-creation. Earlier in the innovation process, we -- actually, I have a team out now, been to the United States and India and China. Probably, they'll go to Brazil and then Europe to understand an entirely new benefit in denim. It's been very surprising. It's not what we thought it would be, a big idea, when the consumers put it in their own language.

Okay, how does this all come together? Well, here's a little case study really quick. Eric asked a question in his inimitable fashion when Kipling was about $200 million. He said, "How do we get this brand to $1 billion?" Not an atypical air [ph] question. That sent us on a pretty significant journey to really go through this process of choice making to say, "Okay, what countries should we go to? What countries should we not do? What channels? What go-to-market changes?" And a lot has changed in that.

Now it also started with consumer insight, global consumer insight to identify the core Kipling consumer who we call the imaginista. Not that, that would mean anything to you, but it means a lot to the people who run the brand. She's not a slave to fashion. She's a very different kind of person. She's on the go, generally a -- generally has a family. But because she's on the go, she wants a light bag that's well organized, and there's a lot more behind that. But we use that to craft our promise to her, which is to lighten the load of your day. That's physically, emotionally, mentally. And it's in keeping with the initiative spirit of the monkey. Again, there's a lot more in there, carefully crafted brand DNA for Kipling that we know is a large, multibillion-dollar segment.

And last, one of the things that helps us to do -- and again, this is all about choices to be effective and efficient with resources. We talked about the consumer co-creation, a retail format. But even within innovation, highly focused innovation investments. We own crinkled nylon. We're innovating within crinkled nylon and different kinds of fashion. But we're searching right now the technology firm for a superlight, durable fabric.

Now they could have invested in all kinds of stuff. The point is, we're investing in the 2 critical things that we know will matter. So did we get to the $1 billion? We eventually will. However, in the next few years, we found $400 million that we know we can get over the next 5 years. And most importantly, we have very high confidence and specific plans to get there, and the entire team will get there. So we'll eventually get it to $1 billion because Eric is relentless. But we know we're going to get that $400 million. We know that brand could be $650 million sometime soon.

So I just want to leave you with the thought that we have the people, we have the brand, VF has the resources and we have the tools, which are all the reasons you should believe that we're going to make those 2017 numbers. Thank you.


Michael T. Gannaway

I'm Mike Gannaway, and I have the privilege of sharing with you our direct-to-consumer business in a bit more detail and our 5-year plan. And I also just want to comment a little bit about that video. Project Digital Excellence, I'm going to talk about more later, but it really is a key enabler that will help us win in the digital space and an example of how the B2C platform is leveraged across brands and across geographies.

In 2006, we first declared a strategy of building direct-to-consumer. In our previous 100 years of history, we never talked about that. It was new for us. I'm proud to say that 6 years later, in 2012, we delivered $2.3 billion in sales in direct-to-consumer. That was 21% of revenue. Our plan is to build that direct-to-consumer business to $4.4 billion. That's a 14% CAGR and will represent 25% of VF's business.

Certainly, it's a strong plan but is one where we're comfortable with because these are the kind of growth rates we've experienced in the past 5 years. And we've added capabilities I'm going to share with you that help us feel confident we can deliver the same kind of trends in the years going forward.

From a geographic standpoint, we'll see double-digit growth across regions; a strong 12% growth in the most mature market, North America; 15% growth in Asia. And remember, owned stores are just a component of the China strategy, which is very heavily a partner store strategy, and very strong growth in Europe as our stores and our online sites begin to mature.

From a channel standpoint, we're focused most of our energy on full priced channels. During 2012, full price represented 62% of our direct-to-consumer business, 51% was in stores, 11% was in e-commerce. We'll continue that focus on full price stores. And as we look at 2017, we'll have about 69% of our total business done in full priced channels, full price stores maintaining that 51%, 52%. And the big move and the big change is in e-commerce, which we expect to grow 25% CAGR.

And just a comment on e-commerce because, one, it's our fastest-growing channel; and two, it is our most profitable channel. I want to put a little bit into context about where we are today and where we see it going.

At VF, we were late to the party relative to launching e-commerce. It wasn't until 2008 that we really started to focus on it, first in North America. And I'm excited to say that with the launch of jansport.com just last week, we now have all of our major brands in North America with live e-commerce sites.

We started focusing on e-commerce in Europe a couple of years ago. We are still immature. In fact, our Vans business across Europe has not yet been annualized. In Timberland, we have a site only at the U.K. We still have Europe to expand to. And Wrangler and Lee are waiting in the wings in terms of their chance to launch lines. So very, very big opportunity in the e-commerce in Europe. Our guys have done a good job to date. We've made good progress, but tons and tons of opportunity.

In Asia, we've just begun. In China, we have The North Face, we have Vans and we have Timberland up on sites with Tmall. So again, just starting. Tons and tons and tons of opportunity. And our plan is to triple our business to get to $750 million. Again, that's a 25% CAGR.

I will also say that there are -- that there's so much moving in the e-commerce space, there's so much activity and there's benchmarking that we did that has indicated perhaps there's even upside against that kind of a number.

Now I talked a lot about commerce and I'll get back to commerce. But I also want to talk about B2C in context. The growth driver within VF is called serve consumers directly. It's about creating connections between our brands and our consumers, but connections including those in our stores, full-price, those in our outlet stores, those in e-commerce but also the -- all the tools in the digital connections.

Again, at the end of the day, at VF, we're different, we think, because we don't think of ourselves as retailers or we don't think of ourselves as just retailers. We think of ourselves as brand builders who use direct-to-consumer stores, online sites as well as all the digital tools to connect directly with our consumers to build relationships, to build loyalty and, ultimately, to increase the value of that customer and brand over the lifetime of that individual.

It's a subtle difference. Thinking of ourselves as brand builders as opposed to retailers is subtle, but it's significant in driving decisions we make and investments that we make. We're about connecting with consumers, utilizing B2C tools.

So let's talk about our 3 growth strategies: continuously driving comp store growth, accelerating e-commerce and opening the right new stores and the right brands in the right geography to fill out our footprint. Now these strategies may look familiar to you. They are the same strategies we use and talked about 2 years ago and the same strategies we've talked about 2 years prior to that. They are the fundamental strategies of direct-to-consumer growth. We maintain our focus on these and our focus on increasing our capabilities and focus to execute.

First, perhaps the least sexy and least inspiring of them but certainly the most important is driving continuous comp store growth. When we say continuous, we mean year after year after year after year. It is the lifeblood of B2C profitability and productivity, and it's the basis around which the rest of the strategy grows.

We have a relentless focus at VF around driving comp store growth and unwavering focus on the key performance indicators that drive that growth. And these KPA indicators are important to every store manager we have up to the organization, to the CEO. We stay focused on them. We measure and we drive strategies against driving traffic. We drive activities around and measure our performance against increasing conversion rates. We build strategies and measure our performance around building basket size and the tools to help do that. Yes, it's about the brands, but it's also about building strategies and processes to continuously improve our performance against these KPIs. Again, unwavering focus against them as the most important element in our direct-to-consumer strategy.

Second, as --- our strategy is to accelerate e-commerce. I talked about the numbers. I want to talk a little bit more about it in detail and give you some ideas about Digital Excellence, which is what my colleagues began to talk about originally.

I mentioned we are immature in the -- in e-commerce and thus immature in some of our digital capability. We asked ourselves over the year what would it take. What would it take for VF to leapfrog to leadership in e-commerce and in the digital space? And then we asked ourselves that question, and we said an answer to that might be fruitful because again, this is our most profitable category of business. Growth here is tremendously accretive.

So what we did answering that question, we took a small group of individuals across functions and across brands and dedicated them to answering this question. We went outside because we quickly discovered there's no single playbook that has yet been established. There's no single answer to how to get in the act of winning in the digital space. But there are answers all over the place, so we went to look for them.

We talked to agencies. We talked with consultants, we talked with the industry. We went to Google. We went to eBay. We talked to other retailers about how they were thinking about the digital space. And the goal was how will we make a playbook to help VF win.

From that work, we've created a vision for ourselves, a digital vision. Through benchmarking, we defined the size of the prize. How big should some of the -- should the VF brands be in e-commerce? How big can they be by region. We socialize our thinking and interacted with our brands to make sure we had brand input and brand buy-in to the notion of how are we approaching this.

Next, we defined and looked all around to say, "What are the functions that define the digital space?" "What are the activities that define the digital space?" We defined 75 of them, 75 individual activities that define the space. We organized them around 6 categories. We put our head around it, but the key is the 75 functions. We then looked in the industry and talked to experts about what are the best tools and capabilities existing within those 75 functions by which we could identify. And that became a body of work, which is the first input of the Digital Excellence, which is here is what winning looks like in 75 functions. And this winning in each of these functions drives not only consumer connections but results.

The next thing we did, and we just finished this recently, is we asked the brands to self-assess themselves against excellence in each one of these 75 functions. The answer to the question is -- are you doing it? Yes or no? Are you doing this well? Yes or no? Which partner are you doing it with? And we've ended up with quite literally a map by brand of where we stand against world class.

And the summary points, which are the sum of these, I'll include things like, say, processing, the customer experience, marketing, social, fulfillment, customer service, usability and, finally, omni-channel. So the outer rim on these graphs, and these happen to be examples from Vans and Timberland, the outer rim is world class by our definition in terms of performance. The inner rim is our own brands' self-assessment as to where they are relative to that standard. The beauty of, as we see it, is that not only is it clear we have tremendous opportunity across our brands. More importantly, it's clear what we have to do.

So our brands are now, as we're speaking, beginning to build road maps, prioritizing -- they'll look different by brand because we have different target segments, we have different priorities. But each of our brands is in the process of building a road map, bringing them to their state of excellence. And we'll measure on a quarterly basis how we're doing against this. And obviously, we measure our results from a financial standpoint daily and weekly.

So this is tremendous opportunity for us, big opportunity. And most importantly is in the space that's kind of crazy and wild as the digital space is, we have defined a path of action for our brands.

And just a comment, one of the payoffs is omni-channel. It was mentioned before. Omni-channel is, at the end of the day, kind of the payout. It is, in fact, the strategy to have consumers at the center and let consumers touch us in any way and we end up with one view of them. It's about inventory anywhere so I can satisfy a consumer from any channel. It's about employee-assisted selling that I can get data information about products, about events. It's about a single view of the customer, that we know you when you shop with us in-store, online and, with your permission, your social behavior. That leads us to an opportunity to do one-on-one marketing, which ends up building relationships, building loyalty and enhancing the value of that lifetime relationship.

Lots of opportunity. We're tremendously excited about the e-commerce opportunity and not only the e-commerce but also the digital tools that drive connections and drive future business.

The third strategy in terms of growth is about opening new stores. And all of you know that at VF, you would expect we have rigorous standards in terms of financial approvals for our new stores. Don't need to go into that. You can assume what we already have. But what I do want to do is talk a little bit about informed site selection.

Here, this is -- Stephen talked about the science of marketing. This is the science of site selection. And it's a tool that we've begun to use or are using to build out developed in North America. We're going to begin to use it in Europe, and we'll use it in Asia when the data becomes affordable and more meaningful.

But it starts from, as Stephen talked about, it starts from the target consumer. Who is -- each of our brands has a very clear view of their target, a very clear view of their segments. That's where we start. You can imagine the difference between the target segments of Vans and 7 For All Mankind. Very, very different, that's where we start. They are turned into segments, as Steven said, and there are tools out there that tell us where those segments live at the household level.

So that we start from target, moving into segmentation segments, and there are tools there that we use to tell us where that customer lives. We add to that a growing database of e-commerce users who have given us their address, so we know exactly where they live. And a combination of those things plus others give us a very good indication of where our stores should be and when they're there, how much they should be producing.

Now I've oversimplified a very complicated geodemographic kind of activity, but I think you get the message. And a point and -- as an example, and we'll use Vans Atlanta. Steve talked a little bit about Vans. Before we actually did this, this is actual behavior, and Vans came to the geodemographic group and said, "Gee, that's -- I want get a look at customer segmentation across the U.S. Where do my customers live, where is that concentration of my customers, and where should I be prioritizing my next market rollout?"

You can see red is the big indicator of density. Red, orange, yellow. You can see where the maps are, where the marketplaces might be, Orange County, Southern California, the Big Orange, various marketplaces that we are either concentrating in or in the future. The value of this tells us where we should be prioritizing markets. It also tells us how many stores likely we can have in the marketplace, which helps us define how many stores we can have in the market.

Let's go to Atlanta, which was the target site. This is -- this represents our actual e-commerce customers. So as we thought about entering this market from a retail standpoint, we already had a large number of e-commerce customers. And you start to notice, you see this map, clusters of where they live, which might be an indication perhaps of where we should be putting our stores.

Here, we add to that the segmentation. Where do our targeted customers live? And this is where blue is the strongest, and dark green is the second. You start to see there are clear pockets around the Atlanta metro where there are heaviest concentrations of the Vans target consumers. Really good indication of where you might be putting stores.

We end up overlaying the 2 things together plus a few other inputs like adjacencies and competitive set, and we end up with maps that show you and begin to cluster target segments of who may or may not be current users and e-commerce customers who are current users to help us identify where the stores should be, very clearly the scientific way.

Now of course, there is always an art and science. So the art means what corner of the stores -- corner should it be on. The science says what neighborhood it should be in. But in the case of Atlanta, we launched the market, exceeding expectations, and this is a skill set, as I said earlier, that we're fine-tuning, using across North America, beginning to introduce in Europe. Greatly helps our brands make the right decisions relative to stores and store locations.

Talking about stores and store openings. On the screen is the indication or listing of stores by brand for VF. We finished the year at 1,129 stores across 14 formats, brands and across the globe. Notice that there are only 2 brands that have more than 101 stores globally. It's very clear that if you have less than 101 stores globally, that you've got lots of runway for store openings during this 5-year period and the next 5 after that without there being cannibalization or being overstored.

It's also true that Vans and Timberland, which are our largest store count -- I wanted to point out just an unusual opportunity that we can see and understand. Steve talked about Vans. Vans has a very strong presentation on the West Coast, moved to Texas, Florida, just recently opened New York, rumored to move in Boston and Philly down to Washington. And that leaves wide-open space in the South and the big markets of the Midwest. Vans has plenty of runway for opening new stores even in its biggest market.

Timberland in U.S., we've indicated on this slide that we have only 14 full-priced stores in United States with Timberland. Clearly, lots of runway to move.

Currently, there are 67% of our stores are in the Americas, 33% out of this country, 23% in Europe, 10% in Asia. Our plan over the next 5 years is to open 640 stores net. That's about 130 -- exactly 130 stores net per year. Now in order to get that 130, we'll probably open 150 and close 20 as we continuously freshen up our portfolio of retail stores. And that's a pace not unlike we've been running at the last number of years.

Our expectation and our plan is that 65% of the new stores will be outside of North America, 35% of them in Europe, 30% of them in Asia as we continue to build out our footprints in those important marketplaces.

So 3 key strategies that we've been at for a while, that we're adding capability to our own portfolio and that we're getting pretty good at. And I just wanted to talk about how we do this, and this has been mentioned a couple of times before. These D2C businesses are the brands businesses, they are the execution of the brand strategy, and these businesses' organizations lie inside the brand.

It is -- it allows everybody to have laser-like focus. It's about The North Face. It's about Vans. It's about Timberland. At the same time, we have a tremendous opportunity to leverage ourself, leverage VF where it makes sense. And on the front end, we work hard to leverage VF relative to best practices, relative to gaining consumer insights. And on the back end, we obviously leverage for cost and for productivity where it makes sense.

We organize ourselves in a council process. We have a D2C council regionally that sets priorities and makes decisions relative to its own activities and priorities. We have a council in North America, we have a council in Europe, we're developing a council in Asia, and all are tied together by a small group at headquarters that works with all 3 of them. So clearly, the secret sauce, which is you get -- drive brand focus but leverage VF at the same time.

So in summary, I mean, our plan is to grow our business by 14% CAGR to $4.4 billion. We are really, really confident we can deliver those results because one, we have powerful brands that we work with, brands frankly, and what Steven said and all have said today, that have never been stronger. We have organizations that are focused like lasers on the 3 key strategies of driving comp store growth, accelerating e-commerce and opening the right stores to fulfill our footprint around the world. And we're also confident because these same kinds of growth rates we're looking for in the future, we've done in the past years. And with continued enhancement of capabilities, we're confident we can deliver them in the future. Thank you.


Thomas A. Glaser

I'm Tom Glaser, President of the Supply Chain. I'll tell a little story about that, the story in Vans. I was with the Operations Director that works beneath Peter. And one particular quarter last year, they had a triple-digit increase in revenue and a fantastic bottom line. I told them to frame it and put it on the wall because we're probably not going to see that again. That's a pretty amazing story.

So I was going to break my conversation today into 2 parts. I'm going to give you a little bit of a tour of VF. Part one is just to give you a little bit of sense of the size and scale of our business, update you on some of the facts and figures and give you a sense of what we deal with every day as a team.

Second part, I'm going to talk through some of the things in our playbook. We have a very thick playbook of things that we work on as a team to execute this fantastic growth, but I want to share a few that I think are a little bit different from others.

Let me define what the supply chain is for VF. Many companies define supply chain as basically logistics and distribution. We think of it very broadly. So my teams work on demand planning and forecasting, supply planning, where we make the stuff. The raw material procurement for both our own internal manufactured things and the things that we source because we generally specify everything from zippers to raw materials to the threads that we use. The manufacturing and/or sourcing and what's that made by decision, what's the best place to get our products, the quality control that we need to put the right products on the floor, the logistics moves, the distribution centers and finally the customer service.

And around that, we wrap around all the metrics to be able to measure that and to be able to get back to the business, so they can make the right decisions for the future. So that's the supply chain definition for VF.

We make a fairly large amount of stuff, 486 million units. That gives us scale all over the world on a number of different product categories. Since we've been sitting in this room together, I estimate that we've made about 0.5 million units' worth of items to ship to our consumers.

On top of a lot of style -- on top of a lot of units are tremendous amount of style and color, okay? We estimate about 760,000 different combinations that we produce every year, and we produce them in many different categories, from chef coats to aprons to workwear, socks, tons of shoes, handbags and even a couple of hours from here, we have a domestic plant that makes on-field baseball uniforms.

I believe one of the things that VF does very well compared to our competition is managing this level of complexity, and as we look forward in this industry, I see we have to embrace complexity. It's going to be more differentiated consumers wanting differentiated products, and we've got to be able to supply that to them.

We also have 29,300 -- actually 29,333 fantastic associates in our supply chain. Check out that smile of one of our workers in the Dominican Republic. It gives me a great deal of a -- warms my heart when you see people come to work every day with that level of enthusiasm.

We're also very different from many of our peer group companies. One of the things that makes us different is the fact that we make a fairly large amount of our own stuff. We have 32 manufacturing plants throughout the world: Mexico, Honduras, Nicaragua, the Dominican Republic, Argentina, Turkey and Egypt making workwear, making footwear, making jeanswear, and we think this is a really big differentiator for us.

We estimate about 30% of our products are made internally, 70% we source. But the big advantage here for us is a couple of things. One, we make our own things, we generally -- when we make them, we make them in a lower price than we can source them for. Generally, when we make our own things, we make it faster than our competition. So it allows us to give better inventory service, better read and react capabilities for our consumers.

And finally, because we know how to make our own stuff, we have this capability. We call it hard skills. We know how to engineer products and engineer plants and build plants. We know how to make our own things, and we -- when we apply those capabilities to when we do choose to source, it gives us a great advantage because we know all the components of how things are made.

In our sourced environment, we operate about 40 countries throughout the world, over $3 billion at FOB at first cost. Again, very great scale. And we estimate we work with about 2,000 different factories on any given day. So that's a little bit about the complexity.

So more facts around our manufacturing capability. We're the world's largest jeans manufacturer. We're the largest producer of garments in Central America. And with the addition of Timberland into the fold, we're one of the largest footwear producers in the Caribbean.

So more facts for you. We buy about 600 million yards of fabric per year. That's enough to wrap around on the equator 13x. 370 million zippers means we've zipped up about every American every year. We also have quite a few distribution centers, 32 throughout the world. They're well positioned to be able to support all of our various businesses.

In the last year -- this year, we'll actually bring 3 new distribution centers online, one in Hackleburg, Alabama. I don't know if you recall, a couple of years ago, VF lost a -- tragically lost a distribution center in Alabama. And we're really pleased and proud that we're able to rebuild that plant in that small town, and we're thrilled. It's a brand-new facility, should last us for years, and it's terrific.

In addition to support our international businesses, we're bringing on a new distribution center. It started actually last week in Belgium for our North Face business predominantly in Europe. And we're beginning to ship merchandise and touch wood. If you're in my business, distribution centers are hard to open. It's working fine.

And in the third quarter of this year, we're open up -- opening up a new distribution center just out of Shanghai, China to support Aidan's business. Again, a great enabler for business to give us better capability to service our customers.

We also ship about 68 containers, 40 footers per year -- per day, I'm sorry, which means that over the last few hours, we've shipped about 12 containers' worth of items that are coming back either to the U.S. or Europe or inter-Asia.

We also manage a tremendous amount of datas and orders. We estimate that we manage about 38,000 replenishment orders every day that come into our system, which is about 14 million per year. In any given point in time, the VF systems are managing 750 terabytes' worth of data, which is 95x greater than the printed material in the Library of Congress. And even though we have all this data and you guys are sending plenty of e-mails today, we are not tracking your e-mails.

Okay, that's a little bit of the facts and figures around our supply chain. But what I thought I would share with you are some of the things that we do well that create competitive advantage for us. And I'll go through this specifically, but their global balance; our manufacturing; again, hard skills, what we call the third way, which is I think a relatively unique way of how we deal in the sourced environment; our ability to integrate acquisitions, very critical for us; and our planning and operations capability.

We believe that these 5 things plus our entire playbook give VF great advantage in gross margin, in service and in inventory management to control.

So let me move on to global balance. One of the things you'll notice here if you're sort of a student of the industry, which I am, and I track trade figures monthly, is that VF marries a very different from our competition. Most of our competition sources in China as we do. We produce about 21% of our units in China every year. The industry produces over 40%. For Japan, it's much higher than that. For Europe, it's higher than 40% -- it's actually higher than 40% for Europe.

We think this positions us very well relative to our competition. You can see for -- in Mexico, 22% of our units are produced in Mexico, primarily in our own facilities, but we also source in Mexico. And overall, VF makes about 40% of its goods in the Americas, while our competitive peer group companies produce about 20%.

I think that gives us advantage in 2 ways, okay? One is -- actually, I would say 3 ways because I think our manufacturing is competitively advantaged on cost. Obviously, it's competitively advantaged on speed. But also, it gives us an advantage on positioning relative to China. That disciplined for us as we -- as being disciplined about where we make our goods has served us well.

So let me just take an intermission here because I know you guys, if you're tracking on your seat, talk a lot about China as we do, too. And China, again, has about 42% market share to the U.S., a little more for Europe. We are anticipating that costs in China are going to go up disproportionate to the rest of the industry. We think -- we don't know when that will totally occur. It's occurring today. They're still holding onto market share, but we anticipate over time that their market share will go down, that companies like ours will reposition themselves out of China. Over a period of time, China is still a fantastic place to make goods. But there's no other China other than China. So it's going to be a repositioning that occurs over the next few years, and I think again, we're well positioned to make that happen.

In our industry, we do believe that there'll be a little bit more inflation than we have seen somewhat in the past. We had a very high deflationary period. We had the period of the cotton crisis, which drove up a lot of inflation. We -- since right now are seeing prices pretty flat, but we're anticipating in our modeling to see low single-digit inflation go forward, predominantly driven by China who's now exporting inflation. So that's a little bit on China.

Again, I talked about hard skills and our ability to manufacture products. We manufacture a tremendous amount of jeanswear today and workwear products in our own facilities. One of our strategies over the last few years has to take our lifestyle brands and put them into our own factories. And we just started to make The North Face in Honduras at the end of last year. We're thrilled about the progress we're making there and look to be able to expand it. Again, better costs and better speed.

We're very pleased with the Dominican Republic factory that was part of the Timberland acquisition, sort of a gift with purchase there. We think it's a great facility. We look to double the size of that plant over the next 4, 5 years. In fact, we just invested -- see that picture of a robot there? We just invested in robotics for that particular facility, which should give us better quality and better productivity.

I think a really great case study is Susan's business where we took a lifestyle brand, very fashion-forward, and figured out what could the supply chain do to support that business. And one of the things we decided to do was internalize our own production, which is very unique in that particular business, so I think every other brand is fundamentally sourced.

So we brought in a manufacturing team. We now produce -- we do most of the cutting in-house. We do a fair amount of the other activities around manufacture. We choose not to make 100% because it's a very variable business, so the key for us is to be able to understand to produce a base level. That gives us better cost, okay, and in this particular case, the whole supply chain playbook applied to the 7 For All Mankind business enabled us to get $11 million out of the business. Sort of we started to work together. But also gives us the visibility to what the other people's cost in that marketplace are because if you know what the workers are making and you know what the YPD, which is the amount of yards to make a jean, and we know all the trim card, we know the full bill of materials, clearly, we have the real advantage of understanding that cost, and that helps us work with our partner factories.

At the same point in time, we're able to prove the quality and the fit. And probably the most important for a seasons business, that we are able to make it faster. It's a very fast business today. We're able to go from sort of a flatfooted start. This is kind of where we want to putting goods on the store shelf in about 35 days, and we think there's even opportunity to improve on that over time. It's a big challenge for an organization to shift its mentality to be speed-driven, but we're really confident we can make improvements there. That's actually a picture of Barry, who's the President of 7, with the factory that we have in L.A. right behind him.

One of the other key ideas that we've been working on for a number of years, and some of you may have heard me talk about this in the past, is what we call the third way. So let me to -- quickly describe that for you. I'm going to kick it over through a video and let you -- give you some more explanation.

So the first way is -- what we've done for many years is our own internal manufacturing. We've done it for over 110 years, we've done a lot of, again, jeanswear and workwear, and we're expanding that into our lifestyle business, okay?

The second way was how I really entered the business, which was then a transactional-sourced environment, where you put together a PDF package -- PDM package, you go over to Asia, you'd work with a series of factories, you get a countersample and you book the goods. More of a buy-sell relationship.

What we're working towards is what we call the third way. What sits in the middle there? How can we use our manufacturing capabilities on one side, and how do we maintain the flexibility of sourcing on the other, and marry them 2 -- marry the 2 together? And we -- again, we have a full array of things that we're doing. We have a light version of this, we have a medium version of this, and a heavy version of this. The light version is more of just an engineering with a factory and production planning, which is actually a capability that Asia needs to improve on. And the heavy version is an actual purpose-built factory for VF where we produce our own merchandise.

So let me -- rather than go further than this, let me just kick off the video, and my team will explain a little bit more about what the third way is about.


Thomas A. Glaser

I can't think of another lifestyle apparel company that can do what we do around these ideas of a 3rd way and what an advantage it could create for us.

I'm going to give you another case study. This is actually a mockup of a factory that is currently, from a green grass factory currently being built for VF, in partnership with our engineers and our sustainability teams actually in Bangladesh to allow us to begin this year making a few million units of Jeanswear and an end state, in a few, years go up to 9.5 million units. Our team helped design the building. It'll be designed to our specifications and I think it'll be a great example of how we can take the best of both worlds from the source environment, working with partners and our own capabilities as a manufacturing company.

Maybe I'll just take a minute here and talk about Bangladesh. It's been in the news of late, and not directly related to our product, but it's been a tragic situation in some of those factories. We are going back as a company. We've always had very rigorous standards around how -- what our plants are like and what are the social environment is in the plants. We're going back and revisiting all of our strategies. We're going back and revisiting the engineering. We're back and revisiting the physical plants. It'll take us a little while to do that but, we do want to make sure that we're safe and secure and we're also working with various industry groups to do the same thing.

Another case study is Timberland and has been a fantastic acquisition for VF. It's been a lot of fun. It was our biggest acquisition. I was engaged along with my team and how to make that work within VF. So one of the things we immediately did was sat down as a group, the Timberland team and the VF team, and we decided what talents we needed to do, what capabilities did we want to bring together. One of the things that we did is we embedded some of our key talent into the Timberland machine. It's not that their talent wasn't great, but we do want to kind of run as a company and run the same way. So we began to harmonize our operations process, how looked at inventory, how we looked at gross margins. We also added manufacturing executives to their facility in the Dominican Republic. Okay. We connected those teams together, we set common goals. In the case of, actually, footwear, I don't know if this is the term, and I'll call it reverse integration. In Asia, Timberland had a much bigger footwear business than we did, so we bolted onto their machine. We started to use a lot of their particular factories, we've started to use their processes. And so we had a kind of a win-win. We helped them on one end, and they helped VF on the other end. I think that's when it really works well when you can do that. And the results have been pretty good, okay? On the apparel side, which is clearly a capability of VF, we were able to bring that in from a third party agent. We were able to bring back apparel business into our facility, and we are able to save 10%. We're able to improve our service and improve the quality by applying our operations to playbook, we are able to take inventories down 30% and, actually, from the base year to the next year we've saved $7 million in airfreight, which is a nice number. Overall, we looked at leverage at every possible focus, okay? What we need to do on raw materials, what do we need to do about people, what do we need to do about building assets and we're able to take $30 million out of the Timberland supply chain.

On top of that though, okay, because they did some things much better than us, we were actually able to take $10 million out of the VF supply chain in the learnings that we applied from Timberland. And finally, I mentioned earlier, we're excited about expanding the Dominican Republic factory from about 2.5 million units to 5 million units over the course of the next few years.

My final plank or my final item where I think VF does very well, it might be at times seem like the boring stuff, okay, but it's this operation's rigor. I think great companies are very, very focused on what they measure, what they get done, holding people accountable and VF does a very strong job on this from the cash perspective, we focused on inventories, we focused on the stress. From a cost perspective, we look at our operational cost with great rigor. We're obviously very focused on our gross margins and from service, we strive to have the best customer service in the business in full and on time.

From the perspective of how this particular plank particularly worked, I'm going to use the example of Vans where Peter and Yarn[ph] came in. It was nothing really particularly special that was done there other than getting together, working together, putting the playbook together, commuting it back to the Asia teams and then executing it, and having that level of growth. So I can't underestimate how particularly important this is. And we're continuing to double down on this. We're trying to improve our processes. We're launching more capability around sales and operations planning as we go forward. That's one of the key things that I'm working on.

So in summary, okay, if I can leave the words that we have unparalleled competitive advantage compared to many of our peer group companies. Our ability to manage complexity and in the world that is going to get more complex that we've proven it in the past, I'm very confident we can even do better in the future. Our global balance really helps us maintain our risk, again much better but some of our peer group companies. And I think talking about China limits our risk in China. Our hard skills allows us to get -- being able to be a manufacturing allows us to get lower cost and faster speed to market. And finally, our focus on operational excellence has continued to maintain very low inventories overall and high levels of service. And finally, I'd say our last really big secret weapon here is I'm proud to work with 29,000 very talented people, everyone from operations managers again to people who work in our facilities, to people work in our distribution centers. So thank you for your time today. I hope the tool was beneficial to you.


Ladies and gentlemen, lunch is being served in the VF Gallery on the fourth floor. You can use stairs or either of the 2 elevators to get up there. The lunch break is 45 minutes, so please be back at 12:50. Thank you.



Welcome back, ladies and gentlemen, we're going to be beginning this afternoon's session in about 2 minutes. So if you'd like to start to take your seats, and again a reminder, please turn off your cell phones before we begin this afternoon's session. Thank you.


Eric C. Wiseman

Good afternoon, everybody. I hope you had a good lunch. We're going to switch things up a little bit here and rather than have a couple of hours of PowerPoint on our international business, we're going to have a discussion about it. And joining me on stage right now are the leaders -- at the end of the day, Bob Shearer's going to share a PowerPoint with you, rest assured. Our CFO comes PowerPoint in-hand. We're going to talk about our international business a little bit. Let me introduce the people who are on the stage here with me. See this, to my right is Karl Heinz Salzburger. Karl Heinz is the President of our international business. To his right is Aidan. Aidan is responsible for our Asia Pacific business and all things Irish at VF. To my left is Rick. Rick's been with VF for a while.

Unknown Executive

Actually, 17.

Eric C. Wiseman

I was going to say 17 years, I thought we were the same year, recently moved from Canada to Europe where he's responsible for our Outdoor & Action Sports businesses. And to his left is Martino, who is responsible for our Jeanswear, Sportswear and Contemporary businesses. So that's who we are. An so we have a pretty scope of VF.

The video that we introduced this segment with, I think, makes a really important point about how we wrap our arms around acquisitions, and that's important for you to appreciate because of there's more of that most certainly to come in our future. When we acquired Timberland, our operating thesis was, we were going to try to take the best of VF to Timberland and bring the best of Timberland to VF. And we had really open discussion with dozens and dozens and dozens of management in the room about where the best practices were and where they were shareable. And Tom and his presentation talked about how we were able to add our substantial manufacturing expertise to their footwear facility in the Dominican Republic, and they were able to help us sourcing the footwear that we sourced out of Asia because they had a bigger better -- they had best practice. And that's how we approach all of our acquisitions. And certainly as we look at our growth going forward, we're going to have acquisitions that impact our international business. So let me move to the -- to talk about our international growth.

Over the last 5 years, we've been on a great one. We've doubled the size of the business from $2 billion to $4 billion. We grew at a compound annual growth rate of 15%. And that now represents 37%. You have to put that in perspective for those of you who have followed us for a while. Most of you remember not that long a decade ago when VF was a $4 billion or $5 billion company. We're now doing that much business outside of the United States.

Looking forward 5 years, it gets just as impressive. We almost doubled the size of the business again to $7.5 billion growing at a compound rate of 13% and getting to 43% of our revenues. So the question is, how are we going to do that? Where are we going to do that? Which brands? And I'll start by asking Karl Heinz a question because he's been around as we built all these platforms and the platforms are critical to our ability to acquire brands and enable their growth outside of the U.S. Could you talk about how those platforms have come together? And also talk about Stabio because we just opened a new headquarters for our international business 2 weeks ago.

Karl Heinz Salzburger

Sure. And let me start with the first question, platform. You have heard this word a lot today. For us it's pretty simple. It's a vehicle for growth. As simple as that. It's a vehicle for growth because we combine global thinking with regional acting. And clearly this platform has been evolved over time. Started with Europe. We started a few years ago basically with the jeans organization. Now we have highly sophisticated organizations all over Europe covering Central Europe, Eastern Europe, Western Europe managing more than 10 brands. Asia's even more impressive. In Asia, we started with a small operations in Hong Kong where we had managing jeans and some licensing business. Today, we have offices which span over all of Northern Asia from India, Korea, China, of course, Japan. I would say southern Asia is still an opportunity where we can actually do business today there but not with our organization. That's the first question. Second question about Stabio. First of all, Stabio is a place in Switzerland where we just moved in our headquarter international is in Switzerland where -- and on the border to Italy. We just moved in a month ago in this beautiful new building, which we...

Eric C. Wiseman

Oh, it's very expensive, Karl Heinz.

Karl Heinz Salzburger

Which was.

Eric C. Wiseman

We expect the return on that investment, you know how we are, right?

Karl Heinz Salzburger

You know Mr. Wiseman, we all know that. It's actually the single largest investment we have ever made outside North America. It's very important for us for many reasons. It's a green building, of course, and all that comes with that, sustainably and all that. But there are 2 things which are very important. One for the employees and one for our customers. We have -- we are called the United Nations of VF because we have 600 employees with 35 nationalities there. And for us we have seen great brands. We had good processes and financial disciplines. The third leg to be successful is to have great talent. And this building will help us to attack that. And what we want from this talent also is to share the expertise they have. So we have a lot of conventional meeting rooms, but also very unconventional. This is a gondola, which we -- from Switzerland, of course, where people meet inside. Then we have another one which sits in the Vans side. It's an old Volkswagen, which we found in Thailand from the '60. Inside, it's designed with a checkered board from Vans. So very desired meeting rooms. The second one I mentioned is for our customers. We have in the atrium, in addition to our showrooms for the brands, 8 fully-equipped stores because we're going to use these stores in our partnership initiative in Europe, it's a big thing. We have a couple of hundred stores, which are run by our partners. So what you want to do, what we do we invite them, we invite the Timberland folks who have Timberland stores, and we show them what we can offer in other brands. And ultimately the goal is to get more stores and more business.

Eric C. Wiseman

Great. Next question's going to be for you, Rick, for the one of the successful brands that's been put on top of the VF platform and has grown dramatically has been the Vans story in Europe. Vans was -- had a European platform when we acquired it, but putting it on the VF platform changed that trajectory. Can you talk some about that? And how you think that's going to keep going? Because it's been a fantastic success story the last few years.

Rick Wood

Yes. It sure has. You've heard a couple of times today actually about the strategy we employed in the U.K. to become as successful as we have in that marketplace. And really there's 4 elements to that. The first one is to heavy up in regional marketing. So we would distort our spends in those marketplaces. You can see here, this is actually the House of Vans in Berlin, which we did earlier this year. And really we do those sorts of things to introduce more consumers to the brand in a market where they -- where not as many people know us. We then -- we move on from there, and we take a strong emphasis on protecting the core of our business, which is really that action sports and skate business. We know that's the foundation of who we are, we need to protect it at all cost. And it's a great way for us to tell our story. The third way we have the up here is focusing our resources on our key accounts. We give the unique product marketing in-store strategies because we really know we need to win with those accounts, that's where we get scale out of those businesses. The fourth aspect of the strategy, we cluster our stores into these marketplaces because we know this is the ultimate way we can bring a brand experience to our consumers. So that's worked really well for us in the U.K. We're executing it now in Germany, France and Italy. And so far, the results are absolutely fantastic. And once we win in those markets, there are more than 30 more in Europe where we've got a platform where we will be able to leverage it.

Eric C. Wiseman

Thanks, Rick. Martino, I'll go to you. Martino's had the responsibility for our Contemporary and Sportswear businesses for years. Earlier this year, we asked him to take on the responsibly for our Jeanswear business. That business had struggled someway, but it appears to be turning the corner. Martino, could you talk some about that?

Martino Scabbia Guerrinic

Of course, ladies and gentlemen, good afternoon. So the Lee and Wrangler business trend in Europe is now stabilizing. And actually the profitability continues to improve. So we do see growth opportunities for the next 5 years and even shorter than that. What we're going to focus on to deliver the opportunity, we're going to focus on our core business, which is denim bottoms, our consumer segment to Steven's presentation we really completed the global consumer segmentation, and we chose specific segments that we're going to address and try to build a lifestyle around that. And also we're going to try to really focus on product. So product is a key. And product is based on innovation. I think Scott spoke about innovation platforms. And this is another good thing about VF, the innovation platform is global. So everybody contributes and participates. And some of those innovations are actually now coming to market and they're newly introduced. And I would like to mention a couple of those. So Lee is developing what we call Stretch Deluxe. So Stretch Deluxe is women product with made in Italy fabrics, fantastic stretch fabrics and on-trend fits and finishing at very affordable price points. So it's premium product, innovative product, affordable price point. It's already getting traction, a strong response for Lee brand in Europe. On the other side, we call the Wrangler denim performance. It's another way to translate the same consumer segmentation into local execution. So it's about really designed to function and provide what we call active comfort everyday. So again all those researchers and developments that could be about water resistance, or stain repelment or cooling, they're going to be applied and sometimes actually locally executed. We have bright spots as well, so we're going to focus on those. We're going to focus on markets where the 2 brands have leading positions like Scandinavia, Sweden for Lee or Germany for Wrangler. And we're going to try to invest behind our key partners. So you see some images were quite strong in department stores in Europe. We try to invest behind those presences and take share and develop more and more doors and increase our space and footprint in those key account. In Poland and Russia as well, very important markets, we have a dual brand store concept. Today, significant footprint because we have 250 doors in Poland and 25 by the year end in Russia. So that's another way to really keep increasing our brand visibility and making the brand accessible and successful in Europe.

Eric C. Wiseman

Thanks, Martino. Aidan, over to you. In September, we had an Investor Day in Shanghai. Obviously this whole crew was not there, but many were present at that meeting. You laid out your thoughts about how we could grow our business in total 17% in the region and 21% in China. It would helpful if you'd share with this group how exactly you expect to get that done.

Aidan O'Meara

Okay. Well clearly, China is the key to driving growth in Asia Pacific. We think that, that will continue to be the case in the coming years. We've had huge growth there over the last 5 years or so. But the truth is that in all the categories that are important to us, while our brands are well established, our market shares to date are low. They're typically in the single digit range. So we see a great opportunity to grow our shares. Our China revenues this year will be an excess of $0.5 billion, and we expect to more than double that by 2017. Beyond China as we look across North Asia, we have subsidiaries established in all of those markets. Most recently we opened Korea in January of this year. And while we don't have all of our brands on those platforms today, there are opportunities to extend our brands' penetration to those platforms. They're all successful. They're up and running and we have expertise necessary to do that. If I think even longer term and look at Southeast Asia, continues to be an area where there's a lot of growth. We don't think the timing is quite right for us to be there directly today, but we will be there in the future. And today we work with distributors and licensees, so our brands are well established, well positioned. We're investing in consumer learning, consumer understanding, so that we'd be ready when the right time to maybe selectively look at opportunities to expand into markets like Indonesia and Philippines, which have tremendous long-term potential for VF.

Eric C. Wiseman

Thanks, Aidan. Karl, just talk about how our platforms internationally helped launch the new brands. Karl Heinz's the subject matter expert on this. For those of you who don't know, he was the President of The North Face globally when we acquired it in 2000. And he's been a part of all the big acquisitions we've done, and particularly those of the international platforms. Napapijri and Kipling were 2 European businesses we acquired in 2004, but we also bought Vans which had a big presence that came on to our platform. Timberland, of course, is the mother of all international integrations for us. But we have lots of experience at how the platforms help enable the growth of those brands. Could you talk some about of that?

Karl Heinz Salzburger

Sure. Actually, it helps a lot. It helps a lot in 3 ways. The first line is entering new markets. Second one is share leverage cost. Third one is share best practices. So let me give you an example, entering new market. Eric mentioned about the company we bought in 2004, where predominantly at large in Italy more than 70%. A few years later we basically utilized literally these subsidiaries we had outside Italy and Germany and Benelux and France, put in some people. So in an actual house, we already put in people who had only marginal cost increases. Today, 4, 5 years later, Italy is 30%, has not declined, but it grew -- the company grew in many other countries. Another example is Timberland. It's a big company, a sophisticated organization, has a great network in Asia. Where, actually, we have reverse integration. We have subsidiaries in Malaysia, in Hong Kong, in Singapore, but not so much in China. We have a lot of experience in China, so we added them on our machine in China. Second one is leverage cost. We heard e-comm is a big deal now in Europe as well. Every brand has its own website and its own merchandising skills. But the engine, the systems run it at the same ship. So that's another way of example. The third one is opening stores. We have -- we are catching up compared to North America, we're opening more stores than we have done in the last 5 years. So every brand has the final work. But we have a group of people, experts in real estate locations so, which help finding the right locations in Europe. And then the third one is sharing best practices.

Eric C. Wiseman

Sure. Great. Thanks, Karl Heinz. Martino, we just touched on 2 brands that were the 2 European acquisitions we made, both of which you've been responsible for, for quite a while. Napapijri and Kipling. They've had terrific success. Can you talk some about what's behind with performance of those 2 brands?

Martino Scabbia Guerrinic

Yes, sure. But first of all, I joined VF actually in 2006, so shortly after the acquisition of those 2 brands, and I've been in charge of those 2 brands since then. So I really saw the growth and how they changed. And how I think very importantly leveraged the VF platforms. So those 2 in similar ways and maybe different outcomes are very good examples. So let's start with Kipling. Kipling was one brand out of one country. So it was a one brand making bags out of Belgium. And step-by-step we were leveraging the iconic identity of the brand, which is its fabric, the Crinkle Nylon, but also developing markets. Not only in Europe but then also developing distributors platform around the globe. And this is really important because it allows Kipling to keep -- to get a different traction and really now be one of the fastest growing brand. Kipling has grown since the acquisition at a CAGR of 14% in sales and it exceeded both sales and profits acquisition targets. Last year, Kipling was a brand globally of approximately $250 million. And as a curiosity, Kipling sold last year 8 million units, which means 30 bags every minute. So this interesting now Kipling as a brand in 60 and actually more than 60 countries globally selling at a pretty intense pace their product across consumers and in continent. Now the [indiscernible] side, another good story with double-digit growth, 11% CAGR since the acquisition, and took a lion's point it came out of Italy in a very special, unique way. This brand with an original flag, some patches, a lot of details, and it was very unique, so we're trying to start leveraging in this uniqueness but into a more pan-European presence. And that's the way it happened actually. It happened through the key department stores where it sits next to the big premium casual wear brands. And it happens through a model of partnership stores that we developed quite quickly in the last 3, 4 years and account today 150 doors across Europe. So it's again how we were able to leverage especially the entity into a much bigger business. So I think 2 successful stories with strong performance behind and above all I think now ready to really go bigger and global.

Eric C. Wiseman

Thanks, Martino. Karl, let's touch again on Timberland in Europe. Our biggest acquisition in history of the company, big platform in Europe, huge integration process and a lot of potential for us to grow that business. Can you comment in all that?

Karl Heinz Salzburger

Sure, the first part. How is it progressing, the operational side. I would say we are completely on track. I know we did a lot of work both in Europe and Asia. Timberland had a headquarter in London, we moved to that into Stabio in our headquarters in Switzerland. Actually those folks last month they were the first and moved into the new building. We are fully integrated, same systems, same financial disciplines so that's great news. Same in Asia. Asia we moved the company from Singapore to Hong Kong. We rebuilt the team. It's now fully under the leadership and platform of Aidan. So that's good news, you are there. On the growth side starting with Asia, we have in and are and plan to grow double digit in -- with Timberland in Asia. It's a good market, very balanced. 50% apparel, 50% footwear, so that's a great story. Europe is a little bit more complicated and needs some explanation. The largest market in Europe is actually the Southern Hemisphere for Timberland. And we all know at this moment it's probably the most difficult one in terms of economies. Italy, Spain, France, those countries. It's hard to sell anything in these countries at the moment. So what gives us confidence is that Central Europe, which is big, Germany, Austria, Switzerland and the Scandinavia and the Eastern Europe the brand does well. It has been growing since we acquired it. And it gives us confidence that over the next year we will deliver, the next 5 years we'll deliver the 6% growth rate, which we have planned. So the, how we do it? Timberland has a pretty sophisticated network of stores. We have about 50 owned stores and 250 partnership stores. Now 250 partnership stores is a meaningful presence and half of them are in Italy, so it's a big number. So what we are doing now. We have the organization, we have the talents, we have the best practices. We are intensifying that launched in markets which are a little bit healthier, Germany, Austria, Switzerland, Scandinavia and Eastern Europe. So that's -- on the Asian side, the big opportunity is we have also about 50 stores between Japan, Malaysia, Hong Kong and Singapore. The big opportunity lies with China. We just started in China with Timberland have a relatively strong number of stores compared to the other brands. So it's a long way to go there.

Eric C. Wiseman

Thanks, Karl Heinz. Aidan, While we're on the topic of China, you have talked about The North Face and really establishing sides in China to do that. The Outdoor industry is actually very small in China. For The North Face to get big in China, not only to have it succeed versus competitors, but help shape the industry. Can you talk about that some?

Aidan O'Meara

Yes, and just by way of background we've had tremendous growth since the launch of the business in 2007 in China. And this year, in fact, it'll VF's biggest brand in that market. And China will be the second biggest market in the world globally for The North Face, so tremendous progress. But again a bit like my earlier comments around market share, the truth is that our market share today is still less than 10% in a category that's very fast-growing. Outdoor is one of the most attractive categories for growth. Way outperforming, for example, the sports sector. And also the truth is that our brand awareness is lower. Our brand awareness is lower than a couple of our major competitors, so we see a tremendous opportunity to build out awareness and to become the indisputable market leader, that's our goal. We're very focused on being the market leader in that market. And that I think revolves around 2 key points. One is communicating the unrivaled performance attributes of The North Face brand to Chinese consumers in a way that they understand. And we've done a lot of homework about making sure we understand how to message that. The other is growing the size of the pie and encouraging participation in outdoor activities. And again with all the work that we've done around insights, we're very clear about how that can best be done. And that manifests itself in a very tangible way with our digital ecosystem that we put together because it brings together all of their information needs. There's a huge turret for information about how to engage in outdoor activities, how to join clubs, what equipment I need. And of course, we're turning that ecosystem into an e-commerce opportunity. We've had e-commerce up and running in China since September of last year. So we're linking the whole cycle together which I think is very, very important in such a competitive and fragmented world of digital as we see in that market. The final point, and I think this is another big development for us, we're launching our first TV campaign in China in fall of this year. And again, we see that as a critical medium to drive brand awareness and to get people to engage in this digital ecosystem, which we spent the last couple of years building. So we think the best is definitely ahead in terms of The North Face and that the goal of undisputed market leadership is a very tangible real goal for the brand to go after, and achieve.

Eric C. Wiseman

Martino, over to you. Mike talked earlier about our global direct-to-consumers strategies and how important they are for the brand. Scott actually showed a picture of one of your stores in Germany. Can you talk some about our Sportswear and Jeanswear businesses or getting after the direct-to-consumer opportunities in Europe?

Martino Scabbia Guerrinic

Yes, I would like to share actually a couple of stories, successful stories for Kipling and Napa that are going to be important and relevant for the future growth of the brand. So let's start with Kipling. I think you've seen how Kipling went through this very well-integrated strategic work and try to really become a consumer-centric brand. And the e completion of that in the second half of last year was to redesign the Kipling store count and we called it The House of Kipling now. So Kipling today has 240 stores globally, which is a big number. We own 55 of those. 185 are operated by partners or distributors. So if we look at this portfolio it's very important that store productivity is strong. The best way is to make sure consumers connect. So I think it was an interesting way and very innovative to redesign the store concept. You see some images here. In a constant prototyping with open doors and constant consultations with stakeholder and consumers. We did this in London, and we did it in 2 stores in London, on Bronson Road and Westfield mall. And London is also a good place to get global consumers because of tourist traffic. So we were really able to get a fantastic feedback live and defined by the end of the year what that counter looks like. So this year, year-to-date, huge acceleration in those 2 stores. And putting us in a very good addition now to roll new stores, ready to go in Hawaii, Mexico, Turkey and London as well, and refit other stores across Europe. So very important success story in how to connect to consumers and actually delight and serve consumer directly. Napa, quickly, a different story. Napa was able to build a very strong presence in Europe through partnership stores. So the partnership store model is a kind of smart, low-CapEx investment model where the brand position gets, I think, showcase the best, leveraging local partner's know-how in the best possible location. So this way, Napa started this a little bit opportunistically in the early 2000. But in the last 3 years we were able to open 100 doors across Germany and France mainly and took a lion's point that's one of the way that we got out of a strong dependence on Italy. And today Germany, France are the biggest markets for Napa in Europe. So as of now, 150 doors for Napapijri in Europe with this format was an ambitious plan to double this number by 17.

Eric C. Wiseman

Thanks, Martino. Rick, same question for you for outdoor and action sports brand.

Rick Wood

Sure. Outdoor & Action in Europe has a really robust portfolio of both owned and partnership stores for The North Face and Vans. But in the last couple of years, the real bright spot has been e-commerce for those 2 brands. The North Face started off a couple of years ago with 3 country markets where we were live with e-commerce. And last year, we added 6 additional markets, which really sold out our portfolio there and I'm happy to say today that's the fastest-growing channel for The North Face in EMEA. And it's proven to be a real great way for us to connect with our consumers. When we went in June last year, some of you may have been in New York for the Vans Analyst Meeting. We were weeks away from going live with Vans e-commerce in Europe, and I'm happy to see over the 120 days that preceded that meeting, we added 6 Vans markets to e-commerce in Europe, and we're about to add a seventh, actually, in about 2 weeks from now. And that business has exceeded our wildest expectations. We see some real upside there, and it's just been a fantastic experience.

Eric C. Wiseman

Good, final slide for all of you then. As you think about 2017, can you just share your thoughts with the audience about what excites you most about each of your businesses. And, Rick, I'll come back to you to start.

Rick Wood

Sure. I don't know what number of speaker we are today, but whatever number we are at here, ever single one before us has mentioned consumer insights. And I have to say that with Vans and The North Face, in particular The North Face, we were really pioneers for VF in consumer insights. And that has given us such insights into what our consumers are looking for from our brand and how we can deliver against their expectations. Everything from how we create products, how we message our marketing efforts even how we said set our floor spaces in our retail stores. All of those things combined, the consumer is responding to them so positively and I just see so much more opportunity for that in the future. And I'm really excited to see how that pushes our brands to innovate even more.

Eric C. Wiseman

Good. Martino?

Martino Scabbia Guerrinic

Well, excited in many ways. First of all, for the financial target that we have. That is interesting. But as you say, you really see a clear and robust strategy for Kipling as we discussed, to really become much bigger brand globally. And also a great expansion story out of a European anchor brand. And Napapijri is consolidating in this premium casual market in Europe and it's getting ready to really go global starting with Asia actually right now. And last but not least, our Jeanswear iconic brand in Europe we see that they're getting traction again. They are compelling stories in product and in-store propositions. I think we can drive consumer loyalty and gain market share again in those 2 brands.

Eric C. Wiseman


Aidan O'Meara

Difficult question to answer for Asia because there's so much going on there and so much opportunity. But if I had to pick one, it's the scaling of our investments in brand building. We've grown very fast. Since 2007, we're about $150 million. This year would be about $1 billion in Asia. And we spent a lot of time and energy building up the organization, the infrastructure, opening doors. But most important I think, touching on the insights again that Rick referred to, we spent a lot of time and a lot of resource understanding our consumer. So now it's all about execution and activation. I believe we have the knowledge and the capabilities that are necessary to really execute very well, make every dollar count in a way that our competition will not be able to match. And with the consolidation that I expect it will happen in Asia over the coming years, I think we're uniquely positioned to take full advantage of that. So I expect that to translate into faster share and faster revenue growth.

Eric C. Wiseman

You get the last word.

Martino Scabbia Guerrinic

Well, this is the senior leadership for international and for Europe and Asia. And the fact that they are so confident that makes me confident.

Eric C. Wiseman

But funny you should say that because I think about the task at hand getting this business to $7.5 billion, I remember really clearly when it was a $1.5 billion business 5 years ago in 2008, we were coming out, I was brand new as a CEO. We were talking about what we thought the future of the company might be. And our biggest single growth platform had to be our international business for lots of reasons. It has higher operating margins, higher after-tax income rates. And there are a lot of opportunities to take our brands on the road outside of the U.S. When we were laying down really bold plans 5 years ago, Aidan, what were you doing? In 2008, you were in Asia doing what you're doing? You were doing what you're doing. Martino, you were doing -- Rick was doing what he's doing but he's doing it in Canada. And for the same reason that Karl Heinz confident, these guys have delivered year after year. And the teams that support them have delivered extraordinary results for our organization and when I look at what's going to happen next over the next 5 years, I'm just completely confident $7.5 billion number is real because these guys do what they say they're going to do, and they're surrounded by great people and there'd more brands to be a part of that. So I hope that helps you understand that piece of the story. We're going to have about a 60-second disruption here right now while we exit the stage and the podium comes back and then Bob Shearer will be joining us. So thank you very much for your attention.

Robert K. Shearer

Hey, that was pretty slick. Well done, well done guys. Almost feel like I'm in a NASCAR event or something they way you did that. Yes, I just wanted, first of all, to start with just to say really, really nice to see you all today, and really, really appreciate all of you joining us today. So this is -- we're nearing the end, right? We're getting pretty close to the end here. My job is to pull all of this together. Our strategies, our pathway to the future, reasons to believe. Eric said that I have a PowerPoint. Yes, I do have a PowerPoint for sure, but I don't have a finance video. Unfortunately no video for finance today. Just numbers, right? Pretty good numbers though.

Okay. So by now you know the theme for the day. It's to showcase our powerful brands and also our powerful platforms that you've heard so much about today. But there was something else that we wanted to do. We wanted to bring some context to all of you today in terms of how we run our business, how we think about our business, right? And I think we've done a pretty good job of that. I hope you agree with us. We've talked a lot about how we've grown over the past. And how we're going to continue to grow over the next 5 years. In fact, 5-year plans have been a really important measuring stick for VF for a number of years. You've heard Eric talk earlier about the fact that the last 5-year plan we put out to all of you was in March of 2011. And because we've had such strong success against the plan, it kind of necessitated this meeting. I'm going to go back just a little bit further than that. It was in the early part of 2008 when we talked about our plans for the period 2007 to 2012. I'm going to show you a little recap here of how we've done. So this is a snapshot of that period. And it's kind of interesting. I know that some of you, I know there some of you have said that, "That plan is pretty bold." And some of you may characterize of the plan that you're seeing today is bold as well. So let's take a look at how we did it versus hitting our marks. So revenues we established an $11 billion plan at that point in time, this is for 2012, we hit $10.9 billion. Pretty close. A miss. It was Martino, right? They're interesting. Now you know how we operate around VF Corporation. International, we said that international would be 33% of total VF. We Really overachieved that at 37%, great result. Direct-to-consumer, we said we'd be 22%, 21%, a miss, right? Pretty darn close. Operating margin, okay, did fall a little bit short in operating margin. Now I could make the excuse of taking on the biggest acquisition in all of VF Corporation's history, which brought our average down. It would have been 14.5, much closer to the 15, but I won't use that because, actually, hopefully you'll forgive us for that. And earnings per share really overachieved that as well. We said we'd grow by a big hit. Home run 10% to 11%, and we achieved 13% so what's the take away here? The takeaway is that VF is a company that delivers on its promises, right? And we intend to do exactly the same with this latest 5-year version.

All right, so here's what I'm going to do. What I'd like to do now is take a little bit closer look at our financial commitments. You heard a number of them from Eric. I'm going to give you a few more in terms of the details behind this plan and we'll start with revenues. And as we look at the last 5 years, it's really important to keep in mind that most of our businesses as you know, took a couple of years off in that '08 and '09 period. Obviously that has a pretty big impact on the overall results and specially in revenues, the comparisons and the growth rates. So I'd like to tell you over the last 3 years, now this is 2010, '11 and '12. Over those last 3 years of this period, our organic growth rate, our organic growth rate alone was 10%. So our CAGR from 2007 to 2012 was 9%, you can see from the chart. That landed us that $10.9 billion. It was fueled by both organic growth and also smart acquisitions. So the question is what's next for the next 5 years? At $17.3 billion, we'll grow by 10% per year. And note the breakout of growth, Eric mentioned this earlier, our expectation is to grow 8% organically and 2% coming from acquisitions. The point here is that we are really, really confident that we have the right strategies, the right brands, the ability to execute to deliver on this target. It is all about our brands and platforms. And it's built on those strong connections with consumers that you've been even hearing so much about today. Our international platform, direct-to-consumer. The point is there's not necessarily a lot new in terms of our model, that's the good news. To me that's exactly the good news. The same things that have been working so well for us are going to work for us going forward.

Now if you were to add our 2011 Investor Meeting, I think this slide is going to look pretty familiar to you. These are the platforms that will drive a substantial part of our growth. And by the way, there's another common theme here in these platforms, and I know many of you know this, and it is that they are also our most profitable business, our most profitable businesses. So that works, right? Having our fastest growth businesses also providing us with the highest returns. And by the way, it's not meant to diminish by any stretch the other business you've heard about today. All of our businesses play a very important role in this plan.

All right so let's take a look at brands. These are our top 5 brands. They're all above the $1 billion mark today. Most, well above. We've seen and expect the greatest growth from the top 3. Don't forget Jeanswear. You heard it from Scott. This is really a new era for Jeanswear. For the mid-single digit range of growth, our jeans business with their strong profitability also really, really strong cash generation will be a significant contributor to this plan. Now, we see these 5 brands, plus you also read about Nautica and 7 For All Mankind today, and our 25 other brands that we have in the VF portfolio we believe that they represent the industry's most diverse portfolio, and it's capable of the broadest reach to consumers today. And that's really a big part of our story. And I think Eric mentioned this earlier. Our diversity, it's really helped us. It helps us counterbalance the challenges in any one consumer group, geography, distribution channel. It gives us a lot of confidence that we're going to be able to consistently produce those strong returns for our shareholders and just more on that a little later.

All right, so most of you know that we run our businesses under a coalition structure. And just quickly, a coalition is a -- it's a grouping of generally like business, sharing some common characteristics and that includes management. The idea is to get at the economies of scale but maintain very, very distinct brand personalities. All of our coalitions today earn very respectable operating margins. All our contributors, in different ways, as I said, to the overall revenue and earnings projections. Now the biggest contributor to our growth, clearly, will continue to be Outdoor & Action Sports. It's where we've invested most heavily. And for good reason of all of our coalitions, it's had and will continue to have the fastest growth rates combined with the highest gross and operating margins. It also includes our 3 largest and fastest-growing brands. Take a look at the breakout there, 11% organic growth is the expectation. 14% with acquisitions. The organic growth rate, yes, it's a little slower than where it's been. These are also much, much larger businesses than they were 5 years ago. Of course, they'll continue to grow as a percent of total VF. In fact, a couple of years ago, we told you that we were expecting Outdoor & Action Sports to represent half of all VF, and we said by 2015. At the end of 2012, the coalition was a 54% of total VF. By 2017, we expect that percentage to be 64% so nearly 2/3. So clearly it really is clear that VF is a company that's anchored by our Outdoor & Action Sports businesses.

Now the great thing about this chart is all of our businesses are growing. It's just that Outdoor & Action Sports outpaces all the others. Once again, with their higher gross and operating margins, that's really how you'd want it. And regarding the acquisition component of our plans, I guess it's no surprise that we expect revenues coming from M&A to fall in to the Outdoor & Action Sports area. We've been pretty consistent with that. It's where we've been hunting, it's also where we've had great success.

All right, so let's shift gears a little bit. Let's talk about growth within the international side of our business. Over the last 5 years, our growth outside of the U.S. has averaged 15% per year, and that includes absorbing the impact of that recessionary period as well. And as we look forward, we're expecting those business to contribute 13% per year on the roughly $4 billion of business in 2012. And that includes a couple of points from acquisitions as well.

Now you know by now that there are several very, very distinct platforms for growth within our internationals -- on the international side, first and foremost, is geographic expansion expected in Europe, in Asia, and also in the Americas. Direct-to-consumer will also play a very significant role both by adding new stores and expanding e-com, which outside of the U.S., you heard about earlier, is in it's been very early stages. In 2012, international was responsible for 37% of total revenues. In 2017, expected to move to 43%. Once again, growing highly profitable businesses attached to a significantly lower tax rate, really, really important. It yields high shareholder returns. It's a very powerful combination.

Just a couple of charts to summarize where that growth is going to come from. Starting with the 2007 to 2012 period, yes, international growth was influenced by Asia and maybe more specifically China, but certainly not limited to it. Pretty strong growth in both the Americas, and that's non-U.S., of course, and Europe as well. And as we look forward, pretty consistent pattern with the last 5 years. In fact, the Americas' and Europe's and growth is expected to be really similar, a little slower in Asia, once again on a much larger base. And there are some newer platforms as well that we didn't talk a lot about today that support this growth like Korea and Mexico. So double-digit rates of growth expected in every region on the international front.

All right, let's look at our another really, really important growth driver for us and that's direct-to-consumer, serving consumers directly through stores, through e-com. From 2007 to 2012, our 5-year CAGR was 17%, we more than doubled our revenues during that period. And we expect similar growth looking forward, 14%, 14% over the next 5 years in direct-to-consumer, should move from being 21% of our total revenues today to 25%. Now as Mike Gannaway said, it assumes adding over 600 new stores, those are net numbers of stores. And as we all know now, a lot of growth in e-com as well, we're really confident in that because we're seeing it happen today. Year in and year out, we've demonstrated we can earn really, really strong returns on the investments that we make in direct-to-consumer, especially outside of the U.S. our margins are expanding, which gives us a lot more confidence there. Really an important growth driver for VF, with great returns, very, very confident that we're going to get this done.

Ah, my favorite topic as I know some of you here would agree to, gross margins. Really, this is a story of strength and consistently. We've added 300 basis points to our gross margin over the last 5 years, and the bottom line is we expect the same going forward. Now keep in mind that we've guided to a 100-basis-point improvement for 2013, right, for '13. So we'll do a little math here, that means another 200 basis points of improvement over the next 4 years, right, that's 50 basis points per year. Yes, that's why I'm CFO, all right, 50 basis points per year. We've been really, really consistent, as you know, about earning 60 to 70 basis points of gross margin expansion from mix alone, from mix alone, over the last 5 years. And that's as a result of our fastest-growing businesses and platforms, Outdoor & Action Sports, international, direct-to-consumer, earning our highest gross margins.

So our confidence is really high and you heard some great opportunities coming out of our supply chain in Tom's presentation to expand gross margins as well. Those are opportunities that no one else in the industry has. They just, they can't match it. What it does is it keeps us ahead of the competition and also ahead in the race for consumers' dollars. So our gross margins are strong, especially considering the relatively low percent of direct-to-consumer for VF. Gross margins equate to brand equity. Our brands are strong. So as we all know, we get the gross margin right, the rest is going to fall in place.

And just to further that point on the mix impact, just a quick look here at how mix impacts our business. Gross margins within our Outdoor & Action Sports businesses are about 4 percentage points higher than VF averages. This has been a really consistent story for some time for us. You heard from Steve and others talk about the strong connections with customers in these brands. That translates into stronger margins. You also heard the details by leading with innovation and that's innovation that we get paid for in our ability to connect with consumers. We're really confident in our ability to keep gross margin rates in Outdoor & Action Sports well above the VF average.

International, also delivers above-average gross margins fueled by -- and actually this is pretty straightforward, by higher price points. And our direct-to-consumer business, also a big part of the gross margin story. Our full price stores, which are an expanding portion of our total direct-to-consumer business, provide us gross margins that are on-average 20 percentage points higher above the VF average. So once again, our fastest-growing businesses with our highest gross margins, that's been working for us and that's to continue to work for us. So all in all, I hope we've given you a lot of reasons why we're really confident in our ability to hit that 49.5% gross margin target.

All right, let's move to operating margin. Well, then that's not exactly -- that's not exactly the picture that your CFO likes to see, but it does require a couple of things to keep in mind. First is that the global recession didn't help us a lot over this period of time but maybe most importantly the 2012 margin includes the impact of the Timberland acquisition as you know by now. Without Timberland, our operating margin in 2012 was in the mid-14s. I think that puts a little different perspective as we look forward. That could also speak to the opportunity as we look ahead.

So as we look forward, keep in mind that we're guiding to nearly, once again, about 100-basis-point improvement in our operating margin for 2013. Once again, here comes a little bit of math. That means another 150 basis points of improvement over the next 4 years. Given the gross margin improvement expected and the Timberland improvement anticipated, we're really confident in our ability to hit the 16% mark. and even with -- I might add, even with some expansion and the investments behind our brands, so for example, our marketing spend in this plan will increase from about 5.5% of revenues today, that's where we are today, to about 7%, 7% by 2017. Yes, it's driven by investments in our biggest brands. And then it's largely offset, but not fully, largely offset by leverage elsewhere in the expense ratios. So once again, 300 basis points improvement in gross margins, 250 anticipated in the operating margin side.

And that brings us to earnings per share, a 5-year CAGR of 13% in EPS over the 2007 to 2012 period. It's not bad so let's just do that again. And at that rate for the next 5 years, our 2017 EPS will be $18, nearly double what it is today. Eric mentioned this earlier, we talked a lot about 18 by 17, just didn't quite have the same ring to it in terms of the messaging today, but you should be assured that we are absolutely committed to the $18 a share by 2017. So it's a great number anyway you look at it.

Return on invested capital. We know that ROIC is really important to you and you should know that it's equally important to us. We raised our returns by 160 basis point over the last 5 years and that's even despite the largest acquisition that was near the end of the 2012 period. And we expect that the ROIC to raise to about 20% by 2017. Reasons to believe here, one is the anticipated improvement in the Timberland business. Our expected improvement in the returns on the Timberland acquisition will obviously have a significant impact on our returns and a stronger margins as well that we just talked about. So we're proud, frankly, we're very proud of how we manage our businesses and the capital allocation during these kinds of levels of returns, and they are some of the highest in the industry.

All right, another key metric, and that's cash flow from operations. It's what funds our growth. We've always been a strong cash generator at VF, growing our cash generation to the $1.3 billion mark in 2012. That's been driven by strong earnings growth in our expanding direct-to-consumer business. The reason for that, cash is immediately collected. But there is more to come. We expect our cash generation to near the $2.5 billion mark 5 years out. Our projection is a cumulative total of $9.5 billion of cash generated over the 5-year period. I guess your question is what do we do with that cash? Actually, we've been pretty consistent relative to our priorities for cash. So really no big change here. Acquisitions clearly remain our #1 priority. They provided incredible shareholder return over the years. They've transformed the company, quite frankly. And as I said earlier, the likely area that we'd add brands, Outdoor & Action Sports.

For dividend, a 40% payout ratio remains our goal and for share repurchases, our approach remains the same. We view our buyback program more as a maintenance level type of spend, meaning to offset the dilutive impact of stock option exercises. But I want to make one thing clear, our intent is not to stockpile cash. So hopefully, over the years, we've demonstrated that fairly prudent when it comes to how we invest, we'll make good investments for our shareholders going forward.

And related -- just a few more points related to our acquisition strategy, the formula that we've used for success continues. We're looking to leverage our capabilities, existing platforms, our global infrastructure and, of course, we're looking for new platforms to allow us to leverage our strengths that we've outlined today, including building those strong consumer connections and innovation. And you should know that we evaluate every single acquisition opportunity through the lens of total shareholder return or TSR. The bottom line here is that, once again, our acquisitions have been a really important part of our VF story for some time, and we expect that they will be going forward as well. Move on to our dividend policy.

Back in 2006, we nearly doubled our dividend in an effort to return more value to shareholders. We did it knowing that we could fulfill our acquisition strategy given our strong cash generation, and at that time, we committed to, over time, a 40% payout. 2012 having just brought Timberland and its earnings into the VF fold, our payout rate declined to 31%. Now, once again, I want to be make this really clear, we remain committed to the 40% payout. we're not going to get there all the way back in 1 year. We did take a big step in 2012 with a with 21% increase but, once again, not enough to get us back on track. So yes, we are absolutely committed to the 40% over time. Our 5-year goal is to work our way back towards that 40%, and we are absolutely committed to that. And pretty impressive with this goal is that our strong cash flow generation, with our strong cash flow, can we can make acquisitions and still get the dividend to 40% level.

And finally, we've kind of referred to this as our guiding light around VF, and that's total shareholder return. I mentioned it earlier, probably a couple of times, I call it our true bottom line, like the chart says, if it's important to our shoulders, it's important to us. Our brands understand and our people are trained in TSR. We use TSR metrics to evaluate every single business' plan, each acquisition, each potential divestiture. And with a 5-year track record in TSR of 20% growth rate, clearly, the focus has worked pretty well for us.

But you know, we're not done yet. Looking forward, our confidence is really high that we'll continue to provide our shareholders with those superior returns that they've been kind of -- they've become accustomed to with VF Corporation. These are the components. This is how we lay out our TSR model. I think we've covered pretty much every piece of this in today's presentation. Maybe with one exception and that's in terms of the P/E change. And actually, maybe that's where you should fill in. Maybe should fill that gap in. But here's a couple of things that I remind you of as you do that. Two-thirds of total VF will be in our fastest growing, high-margin Outdoor & Action Sports businesses. As I said earlier, we are a company that continues to take the shape of an Outdoor & Action Sports business. That coalition includes our 3 largest and fastest-growing brands: The North Face, Vans and Timberland. Growth in these brands and across VF will be supported by geographic expansion, a growing direct-to-consumer business, including highly profitable e-com initiatives. VF will continue to take on a different look over this period.

So in summary, in many ways, the story that we presented to you should be pretty familiar. And we keep doing what we told you we would do, we've been growing internationally, we've been growing direct-to-consumer, growing our brands. VF is a growth company with a growth culture. I hope that's becoming very, very clear and is very clear to you. We'll hit $17 billion by 2017, and then we'll 1keep moving ahead, continuing a really strong trajectory of growth.

So thank you very, very much for spending the day with us. What we're going to do now is to take a brief moment to set up for the Q&A. So just bare with us for 1 or 2 minutes, if you would. Thank you very much.

Question-and-Answer Session

Eric C. Wiseman

We're happy to open the floor to your questions. Could we get the house lights up a little bit so we could -- there we go. Sorry it's hard for us to see you. If you have any questions, please raise your hand and we'll get a microphone to you and do our very best to answer your questions. Right down here in the back and then there's one in the front row after that. Mr. Drbul?

Robert S. Drbul - Barclays Capital, Research Division

Mr. Shearer, let me start with you. When you laid out the gross margins on the 4 different -- or the 3 different businesses, Outdoor, international and direct-to-consumer, can you talk a little bit about the operating margin levels of those businesses in sort of does it carry through and especially the Outdoor & Action Sports area?

Robert K. Shearer

Does it carry through, meaning what, Bob? Does it --

Robert S. Drbul - Barclays Capital, Research Division

I mean, are those going to -- is their operating margin expansion in those segments mix shift versus can The North Face and Vans, Timberland continue to grow their operating margins?

Robert K. Shearer

It might be easier to talk about that -- I want to answer your question from a standpoint, more of a coalition standpoint. So a couple of things to keep in mind from the operating margin side of things. Once again, as I said in the commentary, we're looking for a 100-basis-point of improvement this year, right? So that really begins to narrow the gap. In addition to that, as we look at our projections on a coalition-by-coalition basis, we do see the opportunity clearly to expand our Outdoor & Action Sports operating margins and it will expand in a couple of ways. Number one is Timberland. Timberland will clearly improve a lot during this period of time. Its operating margin will expand, that will expand Outdoor & Action Sports. In addition to that, this is something we haven't talked a lot about but our fastest growing brand right now, which all of you know is Vans, also has the highest gross and operating margins across VF. So what happens is as Vans continues to grow at that high pace that we talked about, there's a little bit of a mix shift going on within Outdoor & Action Sports. So it also helps elevate the overall Outdoor & Action Sports operating margin. So the bottom line on those businesses is we expect them to return to that 20% mark in our 5-year plan. in the other businesses, a couple of things, Jeanswear. Jeanswear is looking toward a really strong improvement in their operating margin this year, in 2013. And we expect that -- and they're back to those historically high higher levels and we expect that to be maintained over this period of time. And then beyond that, we see -- we do see some improvement in our Imagewear business, in our Sportswear business and also in Contemporary. So, Bob, I hope that answers your question. That's the way we think about it.

Eric C. Wiseman

We had a question on the front row? Evren?

Evren Dogan Kopelman - Wells Fargo Securities, LLC, Research Division

It's Evren Kopelman, Wells Fargo. I had a question on the capital allocation, thinking about acquisition versus more aggressive share buybacks. I asked because when I look at your target, the 10% top line, the 13% EPS growth, and compare that to some of your peers that are delivering more EPS growth from even less top line growth, how do you compare spending the capital on the more aggressive buybacks that some of those peers are doing versus acquisitions in your case?

Robert K. Shearer

Let me start on that?

Eric C. Wiseman


Robert K. Shearer

So one thing I think that's important to know is in the this 5-year plan, the acquisition component contributes about the same amount that if we use the same dollars, which was the assumption was $1.6 billion in the 5-year plan, to buy back shares. So -- but the way we think about it, Evren, I think -- so that's the starting point to say that well, it's kind of -- it would be kind of neutral. We could buy back shares or so we could make the acquisitions. But the point is, on a long -- for the long term, we just, we see the acquisitions as more strategic and more compelling. So that's why we always talk about the priority for us being our acquisition strategy. If you look at that past and where we've been, the importance of the acquisitions that we've done, the importance to VF Corporation and our returns, they've always really been critical. So for the long term -- from a long-term standpoint, that's the way we think about it. Now what -- we also know that we're not forced to do an acquisition. We don't -- there's no one twisting our arms to say we have to get one done. And we will. We would be more aggressive on the buyback if we just didn't see the right opportunities. So that's how we think about it.

Eric C. Wiseman

Yes, well, the one perspective I have on that, and you now know that Rick Wood and I have both been here for 17 years, is that if I look back at -- and that doesn't seem like that long to me because time flies when you're having this much fun. 13 years ago, we didn't have an outdoor coalition. We didn't have a sportswear coalition, we didn't have a contemporary coalition. We didn't have the very big international business and we didn't have any direct-to-consumer business other than an outlook division in Reading, Pennsylvania. And we've deployed our capital to create a much bigger company that can continue growing into the future. The challenge for us as the leaders of VF is how do you get from where we are, from '11 to '17, how do we get then from '17 to whatever the next number is going to be and from that number to the next? Our company will be 114 years old this year, and our job is to put it in a position so that the generations that follow us can continue to have the success and fun we're all having. And to do that, we know we're going to constantly need to reshape our portfolio. In the last 7 or 8 years, we've sold 12 or 13 businesses, I guess, nearly, all the way around? And we've added a bunch. And that's much more of our business model and once reason we can do that, as you heard from Tom Glaser and from Bob, we're pretty good at managing the complexity of that. And the proof of that is we continue to get profitable every year as we get more complex. So that's proof to me that we can and all that. So I think our -- we believe our capital is much better deployed shaping the future of the company so that we can get beyond '17 when the time comes. It's great. We think about -- we ask ourselves that question a lot. Are there other questions? Go ahead.

Michael Binetti - UBS Investment Bank, Research Division

Michael Binetti, UBS.

Eric C. Wiseman

First person at the door today, Michael Binetti.

Michael Binetti - UBS Investment Bank, Research Division

That's right. So you called it out early on the slides so I'll bring it up, maybe it's a good question for Karl Salzburger actually. You called out Europe is the lowest regional growth rate through 2017 and obviously, it's a tough market right now. But your market share in the categories that you're in, in Europe, much lower than the market share that you have for those same brands in the U.S. So maybe you can help us think about the components of growth that you're thinking about in Europe and frankly, those of us who put on or are optimistic, have -- would say, part of the VF story is they do have this lump of revenues in Europe but their absolute penetration in these categories is very low and it can be very much higher if they achieve what they have in the U.S.?

Karl Heinz Salzburger

Sure. We -- I think we need to start talking about the businesses we have, the outdoor coalition probably is the first one. The North Face is one of our large brands and together with Timberland. The European outdoor market is very fragmented. It's -- compared to the U.S., there are many, many players. And there are many players in the region, so in the countries. The North Face -- and I've been with The North Face now since from '97, from day 1, we also always went for a pan-European strategy, which works off. We are now the largest company, the largest brand, The North Face in Europe. But if you look from a regional point of view, we are not, which is a great opportunity. Let me give an example, Germany. In Germany, there's a company which is bigger than us. They have 200 doors, 200 stores. We probably have 10 in Germany, that shows how much we can do. The same is true in France or in other countries. So in outdoor, for sure, we can do. The second possibility, the growth opportunity we see going forward is I think you have seen from Mike's slide, we have less penetration in U.S. in terms of DTC, we just started -- advance in The North Face, rolling it out in other countries. Timberland, which is our largest brand in Europe, we're only active in the U.K. at the moment. We plan to roll out Europe a little bit later this year. So good thing is we have the know-how now. We made our mistakes. We know what it means rolling D2C in Europe, so we're pretty confident on that.

Eric C. Wiseman

One of our assumptions, Michael, about Europe is, in the next 5 years, is we assume no change to the current environment. So the current environment there is pretty rough. But we don't see any signals that it's going to change and it's talking about Europe. And that means we assumed Italy stays the same and Spain stays the same and France and Germany and the U.K. We've assumed no better and no worse from the current environment. That's pretty rough environment. Should that change neither direction, it will have an impact on what we're capable of doing.

Michael Binetti - UBS Investment Bank, Research Division

If I could just follow up one, maybe a jump off for you, to Eric or Bob, the -- how are the multiples you're seeing in the acquisition market right now? How attractive are they? And maybe if they don't come in, obviously it's been a pretty good market, how patient would you be in deploying the capital elsewhere if there's a not enough something like last year?

Robert K. Shearer

Yes. Michael, it's interesting over the years just to watch the current market valuations and what acquisitions are getting done at and that kind of thing. And in periods when the market was really off and our sector is really off, deals really weren't getting done. I know we heard a lot -- there have been great deals and really, not have to pay a lot for a great brand. The problem was, great brands weren't for sale. Not at these valuations. And now, with much, much higher valuations, if you look at some of the transactions that's taking place, they haven't been so wacky. A lot of times, it's -- it comes down to a willing buyer and a willing seller, and it has to work from both sides, and that's the way we look at it. We're just not going to -- we're not going to overpay because the valuations are higher. It has to give us the kinds of returns we talked about, our return on invested capital early in our targets. And we just don't make decisions that, say, we're going to pull that down. It's just not good for our shareholders. So yes, we can be patient. I said that earlier. We absolutely know that we can -- and we have been, hopefully, we've demonstrated that in the past and we will be. We're not going to overpay.

Eric C. Wiseman

You guys don't have the perspective -- you have the perspective of the transactions we've accomplished. You don't have the perspective of all the ones we've walked away from, many more than we've gotten done.

Robert K. Shearer


Scott D. Krasik - BB&T Capital Markets, Research Division

Scott Krasik from BB&T. You mentioned evaluations are high, so I don't think you've done a divestitures since Barbados. What are your thoughts or what are the criteria you look at when pruning the portfolio? And then also separately, are there any synergies to be gained by combining the sportswear coalition and the contemporary brand coalition?

Eric C. Wiseman

Sure. the -- we actually go through an exercise at least once a year, where we look at every one of our brands through -- Bob mentioned it, through a TSR lens and we ask of every brand what shareholder value was it creating within this 5-year plan. We look at their submitted 5-year plan to see if they are contributing to our total shareholder return. And we also asked if there's strategic reason to be in that business. So it's a 2-part question, is there a strategic reason to be in it? Or -- and is there a financial reason to be in it? Against that financial reason, we look at current multiples and we say, well, if we sold this business and deploy that cash against buying back shares, will that improve our TSR? Through that, we're always looking at our businesses on how they can create the most value for our shareholders. And we do that rigorously and we do it all, I'll say all the time, we do it at least once a year. And I am obviously not going to share any deeper thoughts about any particular businesses, but know that we have all of that information done. Before I get to the sportswear and contemporary, Bob, is there anything you wanted to add?

Robert K. Shearer

No, it's just that there's a lot of rigor around the process. We use an internal TSR model and that's exactly what Eric said, that's how we think about it. So if it's beneficial to us to exit a business -- and we look at all the characteristics, so if we exited a business, say a slower growth business and improved overall metrics, so revenue growth would have been stronger or gross margins which is a really important factor, P/E. If we exited the business and then expanded our gross margin by a lot, a big driver of P/E, driver of TSR, then we'll look at it. So that's how we look at it. We think it's a pretty thorough view.

Eric C. Wiseman

Yes, and then the second question was about, is there efficiency in combining sportswear and contemporary as one business? The answer would be yes, we could take cost out if we did that. That's I think the obvious answer. Our choice is not to do that, recognizing the differences in those businesses. While they appear similar on the surface, there's speed difference, there's location differences. The contemporary business really should be in California and the sportswear business really should be in New York. Yes, there will be some savings. We don't think that would improve our overall earnings because we think we would lose some of the momentum we have in each of the businesses.

Robert K. Shearer

There's a question back here? There's one here, too.

Christopher Svezia - Susquehanna Financial Group, LLLP, Research Division

Christopher Svezia from Susquehanna. A question, Bob, for you, on gross margin. 50 bps for the next 4 years and you're getting 60, 70 just from the mix of the business and obviously some room on supply chain it seems like. Can you just maybe walk through in terms of importance, what the offsets to that is? And then secondarily to that, if you had upside to gross margin, is it fair to say that, that incremental upside will be reinvested back into whether it's marketing or some areas within the business?

Robert K. Shearer

Yes, in terms of the offsets, that wouldn't have a lot of specifics behind that. The offsets are -- Tom I think mentioned earlier, that we're entering a period of where it looks like costs are going go up. We have a general assumption that we'll be able to offset that with pricing given the strength of our brands, but it's always a little hard to tell. So there's not a lot of specifics around that, Christopher. It's we like err on the side of caution and put out numbers that we know we can achieve. And the second part was...

Christopher Svezia - Susquehanna Financial Group, LLLP, Research Division

Maybe gaining upside?

Robert K. Shearer

Whether we reinvest? Yes, it's possible, and we have done that. I mean, it's possible or maybe likely. It's kind of how we manage our business on an annual basis. We establish our plans and we're always looking for some upside that we can reinvest in the business. And until we see that, that's not paying off -- and it has been paying off, right? Until we see it's not paying off, we'll likely continue to look at the business that way. So we look at every single year. We establish a target and we say, if we have some room to reinvest, we'd like to do it. But once again, until we see that we're just not getting the returns, and you heard Stephen talk about, we now have the capability of measuring those returns, which is a very, very important part. That's something we did not have in the past. It's something we think very, very few of our competitors have, as well, is to measure the return on this.

Eric C. Wiseman

And not just measuring the returns, it's measuring the copy testing of the ads. And if somebody brings us a big market opportunity with a copy-tested approach to communicating what they want to get done in a very, very fertile market where we could take market share in a very profitable way with effective advertising spends because we've measured all that, we're going to green light that is probably the answer. And particularly it's strategically important to accomplishing one of our core objectives. So what we used to do and what many people in our industry do is kind of put some in there and say, "I feel good, let's do it." We've added a lot of science that helps inform those decisions as Stephen Dull talked about.

John D. Kernan - Cowen and Company, LLC, Research Division

John Kernan at Cowen. Steve, I guess this would be for you. I think the North Face revenue guidance for this year is for high-single digits. There's obviously some weather location that slow things down. What gets the revenue accelerating to that 12% target? Is there a channel, geography or category that reaccelerates the revenue?

Stephen F. Dull

Sure. Great question. I would tell you, it's what I started my conversation with, is that activity-based model and the ability to stretch this brand to new consumers, new activities. And that's just not here in the United States but it's in Europe and it's in Asia as well. It's certainly looking at growth in our Asia platform. We're looking at growth within our key wholesale partners in each one of these markets where we're able to place just not our outdoor but our spread of mix across the activities and across those categories. So it's really just a focused activity-based model, the categories of business, key wholesale partners, regional expansion. And absolutely, B2C will be a big part of that and within B2C, how we connect from a North Face perspective. North Face is our largest e-commerce business within the VF portfolio and we've learned a lot through that business that's being applied to our other brands and we see this great potential knowing where we connect today, what we could do to connect further in the future.

Eric C. Wiseman

Are there any other questions? All right, I see we have another. Over here on the side.

Unknown Attendee

I was wondering if you could talk to us a bit more about China and the supply chain. As mentioned in the comments, it is going to become increasingly more expensive to produce there and you laid out some plans to shift production to other areas. But could you add a little bit more color to that, for example, how -- frankly, how difficult the timing is, what the skill sets are of the people in the various countries and how easy it is to make those transitions?

Eric C. Wiseman

Great question, and I'm going to delegate that question to Tom Glaser who is the best person in the room to answer that question.

Thomas A. Glaser

It's been a bit of a tricky -- it's been a bit tricky because we look at the situation on the ground in China, honestly, and we see the wages go up, and we're, ourselves, positioning, I will call it a gradual transformation, a very thoughtful transformation because there's no other country that has the capacity that China has. But quite frankly, I look at the trade date every month and every year, and they're holding on to their market share. So I guess that, that's my story and I'll sort of stick into it. I think that China will eventually -- for our industry people, will reposition out over time. I think it depends on the product category you're in, what that means for your business. So footwear, we have a strategy. For Jeanswear, we have a strategy. For packs, we have a strategy. And all those are different. Some of that will mean repositioning to other countries in the Southeast Asia, in South Asia. Some of that will be repositioning more back to this hemisphere. It will depend on the characteristics of that individual brand, the speed requirements, the margin requirements, and the availability of raw materials. So it's been a great story. I've spent a pretty big chunk of my career actually repositioning supply chains into China. I didn't think it would quite happen this quickly but I'm going to think of then, a chunk of my career, gradually repositioning out of China. And I guess that's the natural evolution. Having said that, China for China is a very big deal for VF. And China for the region, so in essence, China may lose export share but then reposition that back for their internal market. So we are still going to be well positioned in China, or just be well positioned in a little bit of a different way. Have I answered your question there?

Eric C. Wiseman

Are there any other questions? Here we go.

Unknown Attendee

Maybe can you guys talk a little bit about DTCs? Information you provided in the U.S. is pretty impressive in terms of all that data. One, do you have that data internationally? Because I don't know how far out the e-commerce is internationally. And then could you just talk about the capital needs for the increase in ETC over the next 5 years?

Eric C. Wiseman

In your question about the U.S. DTC, you're talking about Atlanta example or --

Unknown Analyst

Right, do you have that data as you go internationally?

Eric C. Wiseman

Sure. So the answer to that part of the question is, do we have that kind of consumer data, where they live -- where their exact address is, where we're shipping to in Asia. No, we don't have that. Do we have that in Europe? Not really. We have some information, but it's nowhere near as precise as the information we have in the U.S. Will that come? Yes. We will be advantaged because we'll have to develop skill at it here in the U.S.? Yes, because we're real good at sharing things across our company. So when that and as that information becomes available, and Mike Gannaway talked to about our direct-to-consumer counsel, which we have one in the U.S. and one in Europe and one in Asia, but Mike's responsible for making sure they all speak to each other as well. So everybody is aware of what we would call the best practice of that here in the U.S. and kind of anxious to get at that. In terms of the capital required to execute the 640 stores, Bob, do want to make a comment about that?

Robert K. Shearer

Well, I guess the point I'd make there is we don't necessarily break out our -- all of our capital spend. But this year, what we did say is we're going to open about 160 new stores and the plan, as you saw all that with the 640 stores or so that Mike talked about, will be relatively stable. So there's not going to be a big increase in capital that needs to be allocated to new stores over the 5-year period. Pretty consistent.

Eric C. Wiseman

We have Mitch Kummetz here, and I think we've got someone over here?

Mitchel J. Kummetz - Robert W. Baird & Co. Incorporated, Research Division

My question here is...

[Technical Difficulty]

So a question back on acquisition. So if you look at obviously your biggest acquisitions over the last decade plus have been Outdoor & Action Sports and they've been more sort of domestic oriented that you've obviously done a great job growing internationally. Recognizing that many of these markets are still undeveloped in Europe and Asia, Outdoor & Action Sports in particular, and that they are so fragmented, do you think that going forward that can be more fertile ground for acquisitions for you folks over the next say, 5, 10 years?

Eric C. Wiseman

Yes -- the answer is, yes. I don't want you to think we haven't been consistent with looking at international acquisition opportunities, because we have. We haven't been as successful at getting them done, that is for sure. One of the reasons -- or one of the things that enters into that is it's hard to find larger international Outdoor & Action Sports companies that actually move the needle for us. Having said that, we are always looking. We have an internal M&A team and that team is constantly working with Karl Heinz and his team in each market and they're working within each of our coalitions. They've been working not only with Karl Heinz, but they've been working with The North Face, as example, with Steve's team in San Francisco, on globally, what do you see taking shape in the industry? So we're looking. The only reason we haven't gotten more done is we're willing to pay the price, and they weren't the right opportunity available. I can't remember us going through a year without having dialogue with somebody about that. I hope it does happen that way. There you go. Could you turn that off now?

Unknown Analyst

A couple of housekeeping items, I guess, on the DTC growth. Is there -- for one, is there like a specific global comp that's embedded in your guidance? I might have missed it if you gave that or maybe you didn't.

Robert K. Shearer

Low-single digit.

Eric C. Wiseman

Yes, low-single digit.

Unknown Analyst

Low-single digit. And then you mentioned the unit growth on DTC. I don't know what that is on a percentage basis, but is a square footage growth sort of along the same lines, are the stores getting bigger, smaller? I guess it kind of depends on the regions that you're opening, but I mean should we think about it as about same? Whatever that unit growth pencils out to be, should we think of it as similar square footage growth?

Robert K. Shearer

I'd say similar, but if anything, maybe a little less. You learn all the time. Smaller, especially in the stores, smaller generally gives you a little bit better returns. So, yes, similar -- not incredibly different, but maybe a little less stores [indiscernible].

Unknown Attendee

Is it on the market, Bob? I think you mentioned going from 5.5% of sales to 7% of sales.

Robert K. Shearer

That's right, yes.

Unknown Attendee

And that implies, I think, given the revenue growth sort of a doubling of the marketing budget, if I'm not -- I mean, somewhere along those lines, right? Where do see that money really?

Robert K. Shearer

Yes, the 3 large brands, the 3 largest brands would get a big, big piece of that. In fact, specifically, we'd expect our North Face brand. Our plan would be to actually expand The North Face marketing percentage to more like 8%, that will probably be one of the highest. It would be one of the highest in VF. And both Timberland and Vans would be at about the 7% range. So as those faster growing larger businesses, obviously, where we spend more on a higher percentage in those, it lifts the whole -- lifts all boat in terms of the percentage. That's kind of how we think about it.

Unknown Analyst

Carrie Kelly [ph] in America Trust and Business Advisors. I have kind of a broad brush real estate strategy question for you. As you build out your brands and as you build out your DTC presence, and I guess I'm thinking about a perspective of walking into a mall and you're thinking about the touch points for VF Corporation, whether it's a Timberland store, a Vans store, wholesale doors, how do you think about segmentation with respect to -- and how do think about saturation? Again, I know you have plenty of run way, but how do you think about it 5 years from now, and what are your concerns?

Eric C. Wiseman

Yes, we look at our 5-year plan by brand and we don't see saturation happening in having any market with any brand. The -- and it's because we have so few stores. The North Face has 101 stores worldwide. So we don't think that we're anywhere near saturation. We do think about the impact of where we place our stores. At the end of the day, if we achieve these numbers, we're going to be 75% a wholesaler and 25% a retailer. So we never forget the fact that the biggest piece of our business is being a great partner to our wholesale partners. I'm going to ask you to comment some on how your group thinks about store placement and also segmentation because Vans has a product segmentation strategy.

Stephen F. Dull

So where we'd place B2C in the contrast to our wholesale business, it's something each of our businesses watch very carefully, it's embedded in our 5-year plan. And we think, first, about our wholesale partners. Where are -- who are they, what are their expansion plans compared to where they are today, where can we use our store to build awareness and in essence help them build their opportunities as well? But it's a brand by brand, and it's really looking very carefully first from the wholesale partners where will our stores ad value. And then to Eric's point on segmentation, we build our products lines with channel segmentation in mind, thinking about the partner, like where -- what part of a consumer group is entering that channel to purchase and really being mindful around placing of the right products in those right points of sale and balancing our stores to really support and build awareness.

Eric C. Wiseman

Are there any? David, yes?

David J. Glick - The Buckingham Research Group Incorporated

David Glick from Buckingham Research Group. I'm wondering, as I look at your plans in Jeanswear, maybe you're being a little bit conservative given the headwinds you've been facing in the mid-tier department store channel and you described some tests in the channel above that within department stores that seem to be pretty encouraging. And I'm just wondering if perhaps you're in your turning point in that overall department store channel, given some of the changes that are happening at the moment?

Eric C. Wiseman

So I'd be happy to have Scott talk about his conservative plans.

Scott H. Baxter

David, you put me in a better spot. I think you're right David, I think we are seeing a little bit of a change. I think it really started though with the innovation in the products that we're bringing to the market. So it's really product-right, it's market-right, it's customer-right, so that's a really big headwind for us. But in addition, you mentioned the mid-tier channel, and we kind of went through a bad period of time with the mid-tier channel, went through a bad period of time with the mass national, both seem to have been navigating out of that in a really positive way. Very happy with what I've seen in the mid-tier channel over the last 60 to 90 days and where it's going and some of the stuff that you probably see, too. So I do think we're heading into a really good stage and maybe a little bit conservative, but you have to remember where we're coming from, so I do want to get too far ahead of ourselves. And as we build this momentum, I want to keep on track and keep it rolling.

Eric C. Wiseman

Is that it? It's hard for us to see. Okay. So if there are no more questions, I just want to thank all of you for your time and attention today. We're very excited and encouraged about the future of our company. I hope you heard from our management team that we're not only committed to this. We think we have the capabilities in place to get done what we promised to get done today. When we lay out a plan, we promise it ourselves and we promise it to all the VF associates, and we promise it to you, that we're going to do whatever it takes to bring those plans to life and we have pretty good track record at doing that and it looks like we have pretty good opportunities. We haven't assumed any help in that plan from macroeconomic situations. We've assumed a pretty sluggish global economy and us outperforming everyone in our space as we take these brands to market and connect with consumers through the sciences we have. I think, at this point, are we going upstairs after this? Yes.

Unknown Executive


Eric C. Wiseman

Yes. So if you didn't hear that, we're going to all head upstair. The management is going to head upstairs. If you'd like to join us to have some further discussions, we'd welcome that. Thank you so much for your time and attention.

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