V.F. Corp's CEO Hosts VF & Vans Investor Meeting (Transcript)

| About: V.F. Corporation (VFC)

VF Corporation (NYSE:VFC)

VF & Vans Investor Meeting

June 14, 2012 2:45 pm ET

Executives

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

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

Kevin D. Bailey - Former Vice President of Retail Store Operations

Doug Palladini

Rick Wood

Aidan O'Meara - President of Asia Pacific

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

Analysts

Michael Binetti - UBS Investment Bank, Research Division

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

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

Taposh Bari - Jefferies & Company, Inc., Research Division

Christian Buss - Crédit Suisse AG, Research Division

Joseph Parkhill - Morgan Stanley, Research Division

Eric C. Wiseman

[Presentation]

Good afternoon, everybody. Before this gentleman gets too far -- this is Ray Barbee, and he's been a skater for Vans for decades and he is a gifted musician, as you just heard. And would you appreciate him one more time, because he's the real deal.

Thank you for being with us, Ray. That was outstanding.

Welcome to the House of Vans. This is a -- if there was a place called the playground of Vans, this would be what it would look like. This is exactly what Vans should have, a place to celebrate what their brand is all about, and they're going to share that with you today.

But before we get to that, I'm Eric Wiseman, Chairman and CEO of VF, you know that. And this is our Safe Harbor statement, which I'm obligated to share with you at this time, both online and in person. So if you'll take a minute to observe that.

And with that, there's a detail behind us. We're thrilled that you're here with us today. We're really anxious to share with you the story of the future of Vans. Most of you know the story of the recent past of Vans, so you'll go a little bit deeper into that history today.

VF Corporation has been -- has owned Vans, it's going to be 8 years, actually, on June 30, since we acquired this fine business and this outstanding brand and group of leaders. Since that time, the business has flourished. It has more than tripled in size. It has gotten more global. It's expanded in distribution all around the world. And our team today is going to share that with you and talk, more importantly, about what the next 5 years look like. And that journey is going to be even more exciting and better for our shareholders than the last 8 years has been.

So to introduce all that topic, I'm going to introduce Steve Rendle, who is the Group President of VF Corporation and President of our Outdoor and Action Sports business.

Steve, would you take the stage?

Steven E. Rendle

Good afternoon, everybody. Welcome -- let's go to plan B. Here we go. Good afternoon, everybody. Welcome to the House of the Vans. We could not be more excited to have you here with us today to share our global growth strategies for this great Vans brand.

And as you can see from the venue you're here at, we've really put together an exciting program to really engage and take you into the heart and soul of the Vans brand. We'll walk you through our growth strategies broken out from a region -- each of our regions and how it rolls up into a global number.

But more importantly, you got a little bit of time, but we'll spend more time afterwards, really get you into our product and the product teams who are responsible for creating the great product that had made brand -- Vans so famous. We're also going to connect you into some of our digital marketing expertise that Doug will walk you through in his presentation.

But more importantly, you're going to get to meet and interact with the Vans employees, and that is what's make this brand so special. And we're really fortunate to have them all here with us today.

So what I want to start and give you a little bit of context around, VF outdoor and action sports. VF outdoor and action sports has been a significant growth engine for VF over the last umpteen years.

In 2005, we were approximately $1.5 billion worth of VF's total sales, about 25% of total revenue. In 2010, we achieved sales of $3.2 billion, making up about 42% of VF's total sales. And we talked to you a lot about this in our March 2011 Analyst Day and walked you through the growth strategy that gave us confidence to come out and say we would add an additional $3 billion, going to $6.2 billion by 2015, making up 50% of VF's total revenue.

If you were to fast forward to today, a lot has changed. We've added Timberland and SmartWool to this portfolio. And we're going to talk to you about a very successful brand and some very exciting growth strategies today that are giving us confidence that -- changing that percent of total of 50% to now we're projecting it to be 60% of VF's total revenue by the end of 2015. A significant change, but really driven off of the success of our portfolio and the brands that we have.

So we are here to talk about Vans. Today is about sharing our global growth strategies for this great business. But what we have in VF outdoor and action sports is a portfolio of global activity-based lifestyle brands that are really anchored into core activities across outdoor action sports and now into some of the performance categories.

And sitting within this portfolio are 3 of VF's 5 $1 billion brands. And why that's important is the size and scale of this portfolio and now the size and scale of our big brands, we're able to leverage that expertise and those skills not just within the individual brands but across this portfolio. And in many ways, really, affect a much -- bring a much larger business unit into a competitive nature as opposed to us competing as individual brands.

Our brands have a very, very deep emotional connection with their core consumers. And that connection has been built over the years through our unique understanding of the activity-based products that these consumers require to do a sports that they love.

It's supported by marketing. Marketing is driven in many ways from an athlete's perspective. It's very authentic. It's absolutely connected to the core activity. And it brings a certain element to our brands as they reach out and communicate to the consumers to drive -- has been a significant part of our growth, and will be a big part of our growth as we look into the future.

This brand is made up of 8 -- or this coalition is made of 8 individual brands. And as we brought these brands into the VF operating model, we've been able to leverage a lot of the historical strengths of VF when combined with these passionate, activity-driven business teams and the historical disciplines of VF's strong financial operating model, our supply chain, brands that we have as individuals could no way possibly access the type of capacity and capability on their own. But being part of VF in this coalition of like brands, we have to really leverage the strength and scales of our supply chain to bring even greater benefit to these businesses.

VF's commitment to talent development, how we look at recruiting and retaining are talent and really developing leaders for the future and international platforms. You've heard us talk a lot about our international platforms. They are important. We're well established in all of the core regions across the world. And these global brands are able to move into these markets, leveraging that scale and capability and seeing much greater success than if they were doing it on their own.

But we thought this portfolio of brands has also brought certain skills and expertises to VF that weren't here historically. And these would be our new commitment around really doing deep dives into our consumer insights and how we use that to really craft our brand management strategies.

And you heard us talk a lot lately about our increased focus around the product innovation platform. That has come in many ways from this outdoor and action sports portfolio. And the commitment that these brands have will be raising awareness within the larger VF.

So over the years, we've had an extremely successful track record with the brands that we've acquired. We've come from in 2000 when -- and actually it was the outdoor coalition, we had no action sports brands at the time. And we were in many ways surrounding the larger VF to 2011, closing at $4.6 billion in sales.

But more importantly is that change in our operating margin contribution, we've gone from 6.5% operating margin to a reported 19% in 2011, including Timberland. But without Timberland and SmartWool, we achieved operating margins of 20%. So very, very significant component to what this portfolio is bringing to the larger VF.

We are a group of brands that are deeply connected to an activity-based consumer, and that the global lifestyle aspect to these brands is what's really enabled us to drive the growth. We are VF's largest and fastest-growing business unit. We are delivering the strongest profitability across the portfolio.

And what you'll hear today, to give you confidence that we will continue to be a major driver of shareholder value. So today, we're here to talk about Vans. And as I said earlier, I mean, we couldn't be more excited than to open up the book and share with you our global growth strategies.

But I would say first and foremost that this brand and this employee base is coming from such a core and authentic place that makes them so unique and so capable to have driven the growth that we've seen historically but gives us really, really strong confidence about where we can go in the future.

So thank you. And we really look forward to sharing our story with you today.

[Video Presentation]

Kevin D. Bailey

Good afternoon. Hopefully that video shared with you a little bit about Vans and how we got here. I'm Kevin Bailey, I'm the President of Vans. And today, we have some pretty exciting stuff to share with you.

I think the things I'd ask you to think about as you take away from that video is this is much more than a skateboard, footwear company. This is about being a youth culture company. That's one of the prime differentiators of Vans in our space. And I think you saw a little bit of that, it was in that story first and foremost.

The other thing I'd ask you to think about is that this brand is about creative self-expression. And several of them spoke to that in terms of how we help them express themselves. And if you think about modern skateboarding, modern surfing, if you think about artists, if you think about musicians, that's what they do, is they express themselves creatively.

And Vans started there. That's how consumers first put the shoes on their feet to express themselves differently, drew with a big fan on them in math class when they were bored and created the checkerboard pattern years ago. All those things are part of our deep heritage and our deep history. And the most successful brands are authentic. And that's where this brand comes from.

But today, we're here, I want to talk about the future. So let's start a little bit about our growth strategies and what we're going to do.

The big headline is Vans is going to reach $2.2 billion in 2016. We'll add $1 billion in revenues and grow at a 13% compound annual growth rate. We finished 2011 at $1.2 billion and our intention is to add another $1 billion. No one else in our sector can talk this way about this space. Let's look at where this is going to come from.

By geography, all of them will grow. The Americas will add almost half of the $1 billion and grow to 10% compound annual growth rate, our most mature region. The EMEA region will add $350 million, 1/3 of the $1 billion, and grow at 18%. And as you know, from our Q1 call, we're seeing tremendous results right now in 2012. And APAC will grow to $170 million, our newest region, and you'll hear more about the details of that region shortly, but they'll grow the fastest at 22%.

So what does this mean to the shape of the business as we grow? It means that the Americas region reduces in size to 60% while still growing at 10% because of the tremendous growth rates in the EMEA and APAC. APAC grows to 12% of the total and the EMEA region gets close to 30% of the total. This speaks to a really healthy balanced model as you look around the world and the opportunities there.

Looking at it by channel and where this $1 billion is going to come from. Our e-com business, which is still relatively new, exists in the U.S. since the year 2000, will add $100 million. We have a very small e-com business in Asia at this point, but we intend to grow our e-com business around the world. And that will grow by almost 40% compound annual growth rate.

Our direct-to-consumer owned retail stores will be nearly 1/3 of the overall $1 billion, adding $335 million and 12% growth. And our wholesale business will contribute over half of the $1 billion at $565 million and 12% growth.

Things to note now, and you'll hear a little bit more about it, is inside of that wholesale number is also our partner stores in Asia, which you'll hear about our tremendous growth plans there.

The channel mix, pretty much stays pretty consistent. We have a very balanced model. Our direct-to-consumer business is a strategic advantage for this brand. And the ability to have a balanced model gives us a lot of opportunities as we grow.

So wholesale shrinks only slightly as a percent of the total due to the growth in our direct-to-consumer business and especially our growth in e-com.

Looking at it by products. Footwear will contribute nearly 3/4 of the $1 billion and growing at 12%. Apparel grows faster at 18%, with our tremendous footwear results doesn't catch up really that much as a percentage of the total and the mix ultimately ends at about 75% footwear and 25% apparel on global scale.

How are we going to do this? It's through 4 key global growth drivers: deep consumer connectivity, product innovation, our direct-to-consumer model and through geographic expansion. You'll get a lot of details about this both right now and then in our individual regional presentations.

So let's look at the first line and talk for a minute about our deep consumer connectivity. You heard from some of our athletes and musicians and artists about how they connect to the brand. This is a big part of how this brand has grown. And we have 4 brand pillars we speak to around youth culture and why we believe our brand is incredibly successful and much more than a skate brand.

Action sports is our soul. We were adopted as the original skate shoe brand. And through that, modern skateboarding was born. We are active in the surfing world, snowboarding, motocross, BMX. However, it's not the only thing we do. We're just kicking off this weekend our 19th year of the Vans Warped Tour. And that's a huge -- the most successful music festival in the U.S. as it travels around the country every summer and activates youth.

We are active with a number of artists, as you saw Russ Pope in the video, and they participate with us in collaboration in our footwear, as well as our apparel, as well as just generally inspiring us to do what we do. And ultimately street style, a lot of what youth thinks of today is how they appear on the street and what's cool for them. These 4 brand pillars are very important in terms of how we think about setting up our business.

These consumers come from all places. Globally, the world has changed around consumer connectivity. Teams are connecting faster than ever. The web has made it possible for sharing of information quickly, for bringing down borders and for allowing the brands to talk to each other and for these consumers to curate what's cool, and we're happy to talk about how we fit within that. It's very important for us, and you'll learn more about this in terms of how we stay connected to these teams. Doug Palladini will come and share that in a minute.

Our second key global growth driver is product innovation. Who knew that classic footwear, a simple canvas-vulcanized footwear, would become the most dominant skate shoe today? It's a simple shoe at the end of the day. It's canvas. It's a vulcanized bottom. And still today, it's the most popular skate shoe worn by professionals. Do we have other products? Sure. And let's talk about some of those because we've extended beyond that.

Our collaborations with artists, with musicians and what we do there. Looking at the contemporary scene, we saw trends changing. And what we saw happening in core skate, and the opportunities in core skate to think about what was next. So our Stage 4 skate shoe is arguably one of the most technically advanced skate shoes on the market. So here we think about going from the canvas vulcanized product that's highly popular to a highly technical skate shoe in our Stage 4 product. And some of that product is on display that you'll see later on rotations. But skate will always stay true, and we'll continue to innovate in skate.

OTW. Chris mentioned it over -- when we are at the general store today, but we saw a trend happening. We saw consumers looking at this world and starting to adopt a more contemporary fashion styling. For that, Vans looked at our line and from our own DNA, extended ourselves to create the OTW line. OTW stands for Off the Wall, a tagline of ours since the origins. And Off the Wall is just how this line was developed, a little bit left at the center, but curated very carefully. And new materials, new construction, and it appeals to a broader consumer set, that bring in a new consumer to the brand.

Our girls' line, a place where we can always have fun. Girls adopted us early, especially around our classic product. And we've continued to look for ways to make sure that our line, which probably traditionally has been thought of as a skate boy line, has feminine cues and bring the female into our brand.

Some of the most fun stuff we get to do, collaborations around youth culture icons. Most recently, a Yo Gabba Gabba project we did, which brought such widespread appeal. And as we created for the kids, adults came in and said, "We want it too." And we saw that happen across the board. That -- we get to do a lot of fun things like that, from Hello Kitty to Yo Gabba Gabba.

And from that, you go from a fun side to a more technically advanced side and the work we do on our snowboard boots, bringing innovation for this with some of the most recognized boots in the marketplace today, high-performance characteristics built into them, and state-of-the-art boots on the market today.

But it doesn't end with footwear. We do a lot of things in apparel as well. The way we look at innovation crosses over from not just performance aesthetics of the shoe and the performance characteristics, but to the creative aspects as well. A year ago, we got to work with the now late Dennis Hopper and tapped into his art collection, and a true American iconic hero. And we were able to build a line of apparel that was inspired by Dennis Hopper and bring that to the marketplace.

And as well, innovating around board shorts. We have worked carefully with some students on how to think about what board short would really be the best short to bring to the marketplace today. And Vans is doing just that and bringing innovative product into the board short marketplace. Surf is often a place for innovation we've looked at very carefully.

But at the end of the day, it all centers around Vans classics, the largest part of our business, the most successful part of our business and our DNA. And everything we do is grounded in the way we think about our brand from our heritage and how we drive things out of our classics and reach to our consumers carefully, focus on the consumer.

So in focusing on our consumer, let's talk about our third key global growth driver, our direct-to-consumer business. A key strategic advantage for Vans. We can't think of anyone else in our space that compelled the successful direct-to-consumer business that we have.

Looking at the numbers real quickly again as to where this comes from. Adding $100 million out of e-com and $335 million out of our direct-to-consumer owned stores and embed it in the wholesale business is our direct-to-consumer model through our partner stores in Asia. We have a tremendous size in this business and the balance that I mentioned earlier.

As we think about the formats from what you saw at the general store today, we think about how to bring the right presence to the marketplace. We have engaging retail environment through both how we display our product, the breadth of our product, to be able to be displayed in our own retail stores better than anywhere else, and the storytelling we are able to do in the stores is stronger than anywhere else.

We also have a highly successful e-commerce business. We started in the U.S., as I said, at the end of 1999 as we turned into 2000, from our proprietary custom-shaped skates custom classic shoe program through telling stories to our consumers and activating them around the ability to shop. You'll hear a little bit more about how we intend to merge commerce and content in a stronger way and drive our e-commerce business faster.

So what does it mean to the numbers when I talk about direct-to-consumer? At the end of 2011, we finished with 310 owned retail stores around the world and 460 doors. Those were our partner doors. They're operated by our wholesale partners. We tend to add 200 of our own direct-to-consumer stores and 740 partner stores, finishing 2016 at north of 500 owned retail stores and 1,200 partner stores. Pretty significant growth to our direct-to-consumer business.

When we look at that by region, the Americas, our most mature region, has almost 270 owned retail stores. We intend to add 120 and finish 2016 at 388 doors -- owned retail doors in the Americas.

When we look at the EMEA, 40 doors at the end of 2011, with a plan to add 65 and finish at north of 100 doors that are owned by us.

APAC, our newest region, with 2 owned doors but 460 partner doors in a very short time. We'll add 15 owned retail doors and 740 partner doors to finish at 1,200 partner stores and 17 owned doors. So a tremendous growth plan for our direct-to-consumer business.

That takes us to our fourth global growth driver, geographic expansion. Predominantly a West Coast brand from our birth, this has been a big focus of ours and to say, how do we extend our brand? How do we connect to consumers across the U.S. through South America and around the world? As I shared earlier, this is what the growth looks like by region, so you can see it's consistently growing across all regions at varying growth rates due to our maturity.

But what's important to know about this is, how do we do this? I got asked earlier today, how would Vans be able to be successful in boutiques and down -- and as well down into the mid-tier department stores?

The next piece here, our go-to-market disciplines are a key element of how this brand has been successful. This is a really important model that a lot of people don't execute anywhere near as well as Vans does. We are extremely disciplined about this, to the point of getting in arguments about it on a regular basis, to be honest. But we are very focused on this.

This is a consumer-led model first and foremost. I think a lot of people go to market the wrong way. We start with the consumer. Who is the consumer? Is it the trendsetter consumer that's focused on what's next that's shopping in boutiques, that's shopping in core skate shops and core board shops around the world? The consumer who's thinking about what's happening at Colette, to Fred Segal, to the general store that you saw, or to Jack's surf shop in Huntington Beach? What we do for that consumer is very important because it cascades through the rest of the distribution model.

Then the product is often picked up on by the early adopter, right? The consumer that's often shopping at the mall, who's been following the trends but isn't so close that they're setting them, ultimately, cascading to the emulator.

So we focus on who that consumer is first and foremost. From the consumer we move to what product is best going to meet their needs and how would we serve them with products, what kind of type of product is right for this consumer at this point in time.

And from the products, we move to where to get this distributed. Do they belong in the core shops at the top, those destination locations? Or does it belong off mall, in the mid-tier department stores? And the last element that comes in once we have solved that model and thought about the season is, how do we market to those consumers?

It's constantly consumer-led. And this has been the backbone of why Vans has been successful in this space, more than tripling since our acquisition, and why we're able to exist in top-tier stores, aspirationable accounts, as well is in the mid-tier department stores.

So let's get into a little more detail on this because this consumer-led model is extremely important to understand about our brand from the video on our connection to our consumers to this model and how we approach the marketplace. Consumers are first and foremost in how we look at this.

With that, I'd like to bring up our Vice President of Marketing, Doug Palladini, who's going to share a little bit more about that with you.

Doug Palladini

Thanks, Kevin. "Stories have to be told or they die. And when they die, we can't remember who we are or why we're here." Why did I choose to put this quote from this great American author on the first page? Because this represents Vans marketing strategy. This is the philosophy that we build our strategies upon. The stories that we tell make our brands who we are.

Why do we focus there? We focus there because our heritage and authenticity supply us with a powerful array of stories to tell. Dogtown and the birth of skateboarding; Jeff Spicoli, Fast Times at Ridgemont High. The Vans Warped Tour that Kevin spoke to is the longest running music tour in the United States. These are all our original and authentic stories that we don't make up, they are actually a part of our heritage and a part of what makes us an authentic brand.

The great story that we're telling currently is the story of Vans 20th anniversary of the Half Cab. The Half Cab, arguably the most iconic shoe in the history of skateboarding. Let's take a look at a quick video that tells that story.

[Video Presentation]

We love that story. First, Steve Cavallaro, on our team since 1983. If you look at the next generation of skaters coming up, guys like Curren Caples that you saw on the brand video, he wasn't even born when Steve Cavallaro came onto our team. But his products are still so important to skateboarding that stores like Supreme, which is arguably the most influential skateboard shop in the world, won first dibs on every new Half Cab That comes out. It's great to see. And it's great to see that we're able to leverage our heritage to move the brand forward.

It's not purely retrospective thinking that keeps us locked in the past. Guys like Curren, the next generation of stars, the next Steve Cavallaro who's right on our team because guys like Cab, guys like Ray that you saw appear on stage earlier, they set the stage for these new stars to become part of our program.

In addition to building on heritage and authenticity, Vans marketing strategy focuses on several key components: constant conversation with our fans and extended family; pulling learnings and pushing communication back and forth; telling stories where, when and how our customers want, all feed into the Vans marketing strategy.

Global consistency with local relevancy is how these stories are told. Strong connectivity we have with young people globally is a significant competitive advantage for our brands that comes from several places. We learn from kids and young adults every day. We reach out to our global network of influencers. Live events and communications are going on every week that put us face-to-face with our consumers. We continue to outpace youth culture demand for interactivity.

And finally, as Kevin discussed earlier and as you guys saw at the general store, our retail environments, which are both brick and mortar, partner store, and our virtual environment e-commerce give us incredible platforms upon which to tell our stories.

So let's take a quick dive into some of the strategies, starting with consumer insights, okay? All right. We're in a real-time, rapidly evolving world. We've undertaken the single-largest research initiative in the history of our brand of global initiatives across all of our regions in 12 countries to better understand Vans' stretch and our reach.

This $4 million project, which as you guys have probably heard is part of VF's overall focus on better understanding consumers globally, is the result of a lot of hard work that will begin to pay off as early as 2013.

When you take a look at where we are in the process right now, you'll notice that we're in the quantification stage, where all the numbers start coming in. We're very excited about the new path that this segmentation work will show.

When we talk about our athletes and advocates, what we're talking about is top athletes across all of our action sports: snowboarding, surfing, skateboarding, BMX, motocross, world champions in each of those sports. We're talking about artists that are gifted in what they do. We're talking about musicians, such as Metallica, arguably one of the most popular brands in the world that's playing today.

And what we tabbed with those advocates is we have their minds, their souls and their hearts, and their fan bases. Communicating with these advocates helps make our brands stronger and keeps us authentically connected to what's going on all over the world.

Live and in person and live on the web, Vans events and promotions bring our brand stories to life. From Beijing to Buenos Aires to Brooklyn, where we are today, not a weekend goes by without a Vans activation taking place. There's the House of Vans right there, the Pro-tec Pool Party. Live music in Berlin and documentary filmmaking, which helps us tell our story.

In the past 5 years, Vans has transformed our marketing department from focusing on a traditional advertising model to one in which innovating with interactive experiences is now paramount. We cannot be a youth culture brand connected to our consumers today without a leading role in interactivity. In one of the breakout sessions you guys will go to after this, we'll go in-depth into what some of that interactivity offers us.

With our emerging Offthewall.tv platform, we've leveraged VF's innovation resources to tell a virtual branded television network story, 24/7, 365, across our website, YouTube and Vimeo. And here's a short video to explain what Offthewall.tv is all about.

[Video Presentation]

Doug Palladini

So in 1.5 years, since we launched Offthewall.tv to tell our brand stories, we've been able to produce more than 300 original episodes that have yielded more than 10 million views today. We really see this content, this rich storytelling, being a big part of Vans' marketing going forward.

Interactivity also talks to delivering consumers what they want, where they want, how they want it. And a great example is our suite of mobile applications, some of which you guys will see later. This is the House of Vans app. The House of Vans app is a real-time product locator that allows you to find the store closest to you carrying the Vans product that you're interested in. And it uses augmented reality to help you see what stores around you are carrying those Vans products.

We also really believe that webcasting our events live is critical. It shares our brand experience pretty much without borders and in very compelling numbers. The 2011 Vans Triple Crown of Surfing, which you see here, yielded 10.4 million webcast streams, making it the most-watched action sports event in history, irregardless of medium, so a really compelling story and some really compelling numbers to back it up.

Speaking of really compelling numbers, we will talk about our Facebook page, seems like Facebook likes are in everybody's talking points these days. We're quite proud of ours. 5.9 million is the number that we passed. You'll see it's different than what's on the screen because I got sick of just changing my fly. I couldn't keep up with the number of likes that we had. And Nikki and Katie can give you an update when you get over to the interactive area later. I'm sure it's gone up again since then. Great to see.

To me what's almost more important than the likes, though, is that we have more than 112,000 of our consumers, our fans on Facebook talking about our brand in real time at any given time. So yes, it's a lot of likes, but it's also a very robust base of consumers that are proselytizing the Vans message out into the interactive realm day in and day out.

Again in terms of results, Vans consistently ranks among the top 5 most trafficked sports brands. All right? So we are not the little skateboarding company anymore, hopefully you guys get that from the numbers you saw from Kevin. But we are one of the most compelling sports brands in the world today. We think these numbers share that information.

Global environments that tell our stories in retail. E-commerce, brick and mortar, partner stores are all part of that important strategy. New store concepts, in-store storytelling devices, we are activating our storytelling in stores at a very aggressive pace. Pop-up shops, partner stores, new formats, new merchandising mixes and embedding technology in our stores are all in play.

Okay. So we talk about consumer engagement. What are we talking about? What we're talking about is loyalty. And for Vans, it's our ability to move consumers from awareness to loyalty ranks among the best of all brands out there competing today. A few examples for you. The tattoos, the haircuts, the Instagram posts. How about the wedding party footwear requests that we're inundated with constantly. These are all ongoing reminders of the loyalty that we're able to engage our consumers in.

Another great example that's very current right now is our iPhone case. Now there's -- you guys know there's 4,000 -- you walk down Canal Street, there's 4,000 iPhone cases out there right now. What would make somebody want to run to the store to get this as fast as they can? Right now, we cannot make these fast enough. We can't keep them in stock. And they're showing up on eBay for up to $150 a pop as a result.

So I think that says something about the demand for our brand. So it's beyond just the phone case to representing what you stand for through our brand. And on your phone is not a bad a place for us to be.

The results. When you take a look at the loyalty funnels show that loyalty among fans of our brand ranks among the highest of all brands out there. Research International who helps us measure our brand health globally tells us, if they go out and look among the restaurant industry, the service industry, the packaged goods industry, that this kind of funnel, awareness, to purchases bought, to buy most often, is a rarity among all brands. It's great to see that from Vans.

At the end of the day, what does all this mean? Two key messages to leave you with today, to drive home. Vans is a global leader in action sports. Vans is a global leader in youth culture.

So now that I've shared some of our toolset detail with you, I'd like to turn your focus to how these assets are being used in some of our key regions. We're going to start off with EMEA, and we'll kick that off with a brief video. Thank you.

[Video Presentation]

Rick Wood

I hope you enjoyed that. Well, there's some regional activations and some of the marketing messages that Doug spoke to a few minutes ago, I have to say there's nothing like following up after the marketing guy and getting up here and speaking numbers.

So let's talk a little bit about Europe. Well, we have a robust Vans business in the EMEA today. We expect to grow by $350 million or an 18% compound annual growth rate by 2016. This will add more than 1/3 of the $1 billion that Kevin referenced earlier.

Of the $350 million, $250 million will come from footwear, while $100 million will come from apparel and accessories. This continue to broaden our product assortments, particularly important in our model brand and DTC businesses.

By channel, our wholesale partners are planning to contribute $225 million. While with 65 new doors, retail will add $85 million. And despite the fact that we have yet to directly sell a single pair of shoes online as of today, e-commerce should contribute $40 million to our revenues by 2016. In the next 60 days, Vans e-commerce will go live in 6 major European markets.

On top of the powerful brand and consumer strategies we employ globally, the team in the EMEA have developed a robust go-to-market initiative that's been employed over the past 24 months to accelerate our Vans business in the United Kingdom.

Three years ago, Germany was a larger market for Vans than the U.K. Today, despite double-digit compound annual growth in Germany, U.K. is now 3x its size. Here's how we did it and how we have planned to replicate that success elsewhere.

Our U.K. go-to-market strategy employs 3 key aspects: educating the consumer, protecting the core, and elevating our key account support.

Educating the consumer spans a broad range of activations. From events like the Downtown Showdown, providing a marketing reach of more than 71 million impressions to driving our social media presence on sites such as Facebook, where Vans has increased its fan base from 2,000 fans in year 2010 to 300,000 in 2012. Images you're seeing also show some key outdoor advertising activation, as well as examples of coverage in major U.K. media.

Model brand stores, both owned and partnership, also represent another key aspect of educating our consumers. These controlled spaces give us an ideal opportunity to tell the Vans story and extend the meaning of our brand to consumers. This image shows one of our most recent store openings in London on Camden Street.

Despite Vans being available on a wide variety of stores very near this store, consumers line up overnight to be the first in the door. As part of our U.K. initiative, we've opened a cluster of stores ensuring consumers have a broad range of shops in which to access the brand.

If the original action sports footwear and apparel brands supporting the core consumer and community is critical to our long-term success. In the United Kingdom, we started our investments with the core through in-store build-outs in retailers, such as Slam City Skates, similar to what you saw earlier today if you visited DQM, to culturally relevant events, such as skate competitions in downtown London. These efforts have led to continued strong demand from our core customers in all key channels.

The third aspect of our U.K. growth initiative is elevating our support for key accounts, including business management, assortment planning and customize marketing investment. These efforts have resulted in the growth of our 2 largest U.K. key accounts, outpacing the overall market more than fourfold over the last 24 months. Here you can see some images of these activations.

The results we've seen in these efforts in the U.K., along with the resulting ripple effect across the broader European market, give us tremendous confidence in rolling this strategy out to additional territories.

Here you can see 4 additional markets where we plan to deploy this strategy over the next 5 years. Germany, France, Italy and Scandinavia, all represent tremendous growth opportunities for us before we even begin to move and concentrate our efforts further East.

In closing, I'm confident in our ability to bring in additional $350 million in Vans revenue from EMEA by 2016, driving an 18% compound annual growth rate.

Now I'm pleased to introduce Aidan O'Meara, who will walk you through our growth plans for Asia Pacific.

[Presentation]

Aidan O'Meara

Thank you, Rick. Good afternoon, everybody. Vans has been in Asia for more than a decade, initially in 3 markets where the brand was particularly well established in the Japanese market. But our real growth story began in 2007 when we established a regional office in Hong Kong with 2 main objectives. The first one was to launch Vans into the Chinese market. We saw that as a wonderful opportunity, post-Olympics, that Vans would represent a great alternative for youth, to be ubiquitous sports brand.

The second objective was to make sure that our distribution network throughout the region was very, very well established. We think there was great medium-term potential in a lot of these youthful Southeast Asian markets, which will help drive our growth in the coming years.

Both of those objectives have been successfully achieved. I'm pleased to say that our sales in the region have grown fivefold in the intervening period, which makes us very confident in our ability to be able to deliver our share of the $1 billion growth target that has been announced previously. That is $170 million with a CAGR of about 22% over the next 5 years.

Our model is very much driven on a retail model. I'll speak to that in a few more minutes. But what that means is that we expect growth across all product categories, but particularly apparel. We have the opportunity to show a complete lifestyle presentation of the Vans brand. So we expect our apparel to grow at 35% and our footwear to grow around 20% per year over the next 5 years.

Let me speak a little bit about the channel because I think there's differences in Asia compared to the rest of the world. The wholesale number that you see of $150 million and the 700 new doors, they are almost exclusively single-brand presentations. It's great to have the opportunity to be able to show you a brand year-round typically in spaces between 800 and 1,200 square feet. And we expect to add, as you heard, 700 doors to our total, which was close to 500 at the back end of last year.

We'll supplement that with opening stores in key reference cities. The focus of that will be mainly cities like Hong Kong, Shanghai, Beijing and Seoul in Korea. So we'll add about 15 stores to our current total today and about $10 million in sales.

We also started our e-commerce in China at the back end of last year. We're very pleased with the results today. It's a very small business. We don't know how big it's going to be. We have projected around $10 million here. But it's got off to a good start, and we're getting great learnings that we will use to expand that important platform for the future.

While we have been establishing our offices, our organization, our operating infrastructure, we've also spent a lot of time and energy trying to make sure that we understand our consumers. Doug referred earlier to the global segmentation study. And we'll have a regional perspective when we get all of the findings from that. But in the meantime and over the last year in particular, we've been digging really deep into the young Chinese consumer to better understand how the global values of the Vans brand connect with our consumer.

I think you all know that prosperity in China has been growing at a pretty phenomenal rate in recent years. And there's a lot of discussion, which you're also well aware of, about how the growth momentum in China can be maintained. And the importance of consumption to that model, increasing the proportion of consumption.

I think if it were all about the younger generation that would be a much easier conversation. Because this generation, which is a target for the Vans brand, they know how to spend. They are products of the one-child policy, which means that apart from a set of parents, they've got 2 sets of grandparents who are very much focused on that child. And that child is typically very well protected and indulged.

They are able to spend and they have very different attitudes to spending than even their predecessors from even a decade beforehand. This represents great opportunity for us.

They are also very cognizant of what's going on in the world. They follow Japanese fashion. They watch Korean soap operas and Taiwanese soap operas, Western music. They're aware of all of those trends, and all those trends influence them. It's amazing to watch when we launched Vans at the back end of 2008, how high the levels of awareness for a brand that had never been in the market. And we attribute a lot of that to the influence, for example in this instance, of Japan.

They also have a voice like their previous generations never had, and they use that. The environment, as many of you will know, is different from the Western world. It's restricted. But forums like Sina Weibo and Renren are as vibrant, and in many ways, more influential than they are in their Western counterparts.

It's also interesting to see how a lot of Chinese youths even build businesses on the web. A lot of e-commerce today in China has been driven from a C-to-C perspective. A lot of young entrepreneurs, thousands and thousands establishing businesses on Taobao, and we just joined that by doing our own site on 3 models I mentioned earlier on.

But it's not all necessarily rosy. There's a lot of newness going on, a lot of different perspective than they have in the past. But a lot of the traditional values are also very important. The importance of family. The importance of community. Respect for other generations. So there's a huge tension between the new world that all these consumers have been exposed to and the expectations of their family.

I love this illustration here, which reflects what I said earlier on about how the one-child policy, the impact that's had. But as you think about it, as these children get older, that will flip, the parents and grandparents dependent on that child. So you got a sense of tension and pressure that is probably also unprecedented. And all of this comes to bear in a constant balancing act that all of this youth has to bear in mind. They are expected to achieve academically, to build careers, to achieve the overt symbols of success.

And this is where we see the opportunity. Because when we think about the Vans brand by this, which you've heard a lot about today, the one of self-expression. And they're looking to express themselves. The Internet is the most obvious way in which to do that. Community, how important community is to the youth of China. And you combine those with the Vans brand values, I think it's very, very powerful.

We are very interested on Sina Weibo, which is the equivalent to Twitter, to hear consumers talk about Vans as big brother. If you think about that, that's the brother they never had. Because again, they did not grow up with any siblings. So this is the unique connect point that we've just started to begin to work with and to understand.

We have begun to activate the brand -- but we have been activating the brand over the last number of years. You can see some of our advertising here. Our -- this is the Midi festival in Beijing, which we were present at.

We have built a business beyond what we expected when we set out on this journey, and are very confident that the Vans brand is putting down very, very firm roots, which we should be able to exploit in the coming years.

You've also heard -- learned about the importance of retail. And as I said, a lot of our retail is dedicated retail. And we're thinking about that of that as a forum for storytelling, as well as compelling merchandising. And opportunities, again, to interact more deeply with the brand.

All of these factors combined lead me to be very confident about our ability to achieve our growth target. China, and building on the very solid foundations and traction that we have today, will be fundamental to achieving our goals. We are going to selectively expand our own businesses into other markets. We began with India last year where we launched Vans into our VF subsidiary. And we're looking at doing the same in Korea in the coming months.

And finally, and as I mentioned earlier on, we see tremendous opportunity in the youth for Southeast Asian markets, which are very, very young populations, and where we see the Vans brand values will also resonate.

This should help us deliver our $170 million. Hopefully, a bit more, and the 22% CAGR that we have planned.

With that, I'll hand over back to Kevin Bailey, who'll bring you to the Americas.

Kevin D. Bailey

All right. Bringing it home, last region. The Americas, where the brand started, where the brand is the most mature and, ultimately, of course, where the brand is the largest today. We could see tremendous success but it's not without a great amount of opportunity. I'm going to share some of that with you.

As we referenced earlier, the Americas will make up almost half of the $1 billion and increase revenues we expect by 2016 and grow to 10% CAGR. That will be made up of $360 million. Nearly 1/3 of that will come from footwear in the Americas, and $120 million in apparel. Apparel, again, growing a little bit faster, a lot of that due to our own retail. And from a channel perspective, e-com will add $50 million to a base of just under $25 million today and grow at 26%.

Wholesale will add almost $200 million and grow at 8%. And then our direct-to-consumer business, our own retail businesses, will add nearly 1/4 of $1 billion and growth 10%, adding 120 stores across the Americas region.

It's important to remember what we do, and this disciplined model I showed you before has been very dominant in the Americas where we've -- this model first came from in terms of focusing on what we do on mid-tier department stores all the way to the top of the pyramid, because this has been very impactful in helping us do what we've done in the last several years in terms of growth and activating the growth.

Today, you got a quick glimpse of that by getting to see the DQM store and you also see this amazing event facility we have here in Brooklyn, and our ability to use that as we tackle our market. And as we look at how we approach market, how we approach extending our brand from our Western California -- Southern California base, it became important to think about how best to activate markets, how best to tell the stories of this brand in the markets.

So we went about thinking about the Americas from a strategic approach to market expansion. And it started by us saying it's time to tackle New York.

So we opened these 2 new locations, as I referenced a minute ago, and thought about what they might do. And the effect they have on the marketplace, the effect that they have in terms of getting the message out. And once that started happening, we started adding retail stores.

So strategically, we've positioned our own retail stores in major malls around the metro area and tackling the suburban consumer who's the earlier adopter. Carefully putting them out in the right places has helped us ensure an incredible amount of success as we tackle this market.

So what that looks like, how we tell the stories, is a big part of how we activated New York and really got the brand going on the East Coast in a stronger way than ever before. And you heard the way Chris spoke today at DQM about his connection with the brand, how the brand works in the market.

So we've carefully tailored these boutique partner stores to the right markets, having the DQM general here in New York. We have a surf partner that we use, one of the most aspirational surf market -- surf retailers in the world, in Laguna Beach. We have a partner store with -- there called Vans by Thalia Street. And then we've also opened a store called Off the Hook in Montréal, to focus on the Canadian consumer, and starting to activate that market.

And when we think about the Americas and the opportunities, really, we're still pretty well untapped in the Americas in terms of opportunity. The stores on this map represent where we have partner stores and where we started this approach to being more strategic about activating the consumer and engaging them in a marketplace to tell the stories and adopt to where we have a deep assembly of retail stores, of our owned retail stores. There's a lot of opportunity on this map.

As you can see, we got a couple stores scattered in our Chile market. And I'm happy to report that we're going to open our first store through our distributor in Brazil this year. So it's a really exciting time in terms of opportunity for us.

And really the only places we're getting a lot of noise out of are starting to come out of places like California, New York and with our acquisition of Mexico about 2 years ago and what we're starting to do in Mexico City. There's still a great deal of potential in taking this model that we now used in New York and extending it.

Now are we going to put Houses of Vans everywhere? Of course not. This is too significant of a facility to put in every market around the world. But we're going to carefully look at how do we use partner retail in an aspirational way, to strategically place owned retail around the market and market to that consumer in the proper way to activate them, as Doug shared, around events, activities and things that make sure that consumer connects to the brand correctly, the stories get told and the noise builds, and the brand succeeds.

That's our big focus in the Americas because we think there's a ton of opportunities still remaining, particularly as we tackle South America -- Central and South America.

So that leaves me very confident that the way we can deliver nearly half of the $1 billion, $480 million and a 10% compounded annual growth rate in the Americas region over the course of the next 5 years.

I want to switch gears for a second now, though. We've talked a bit about what we've been doing and what we plan to do around the Vans brand as you know it today. Well, I'm here today to share that there's a big change in our minds going on.

You clearly can see that we're -- we've spent a lot of time connecting to our consumer and understanding what that consumers' needs are: How does that consumer connect to the space; what are their influences; how we communicate back and forth with them, particularly around social media. And what we've watched as a shift occur in the consumer base, we see a change occurring in the consumers and youth culture that our brand resonates with. And we're going to introduce that to you today. We're going to start by sharing a little video.

[Video Presentation]

Kevin D. Bailey

LXVI, Vans newest introduction into the footwear marketplace is going to launch in 2 weeks. This is a new product in the marketplace that the marketplace hasn't seen before. This is an extension of our brand that we've carefully watched and curated as we brought this to marketplace. We've seen a big shift. By now you know that we stay very connected to our consumer base. Our ability to connect with action sports -- our action sports athletes throughout our history for 46 years has kept us understanding what the needs of that action sports athlete are.

However, what's happening in the marketplace is a changing in consumer's connection to action sports. There's a mainstreaming going on of consumers in action sports. Youth culture is evolving. It's time for action sports not be viewed as a rebellious activity in a small subset of culture anymore. What you see today are kids who grew up playing traditional sports that are adopting various aspects of action sports as part of their everyday lives.

I take piano lessons, I play soccer and I snowboard. They don't say, I'm an action sports athlete. They don't think about it as an alternative subculture item. It's part of their lives now. It's grown up in some ways.

So what does this mean? This means a more mainstream consumer is adopting this. They don't use the word "action sports" anymore in a normal way, of kids in school. They just do these things. It's just who they are.

So when we've connected to that through both connecting to our consumers and because we have employees inside our company who live in these worlds, we've carefully watched what that means. And it means a number of different things.

First and foremost, this kid grew up wearing traditional athletic shoes. They grew up wearing a shoe that felt lightweight, comfortable and performance-driven, had performance characteristics do it. That was what they grew up with. Those kids are now taking part in actions sports activities.

So we've taken a twist on our line. We've carefully managed who this consumer is and looked at them and looked at how do we engage this new emerging consumer and bring them into our brand to share our story and help them understand why they should connect to the original action sports footwear company out there.

And to do that, we felt the right thing to do was focus in on, again, what does the consumer need, what does this consumer want. So this line of footwear brings in 6 performance aspects into the footwear model in action sports that have never been seen before in the marketplace.

From simple things, like slightly raising the heel lift and giving an action fit to the shoe that feels more like a traditional running shoe that enables you to feel like you're wearing a traditional athletic shoe by giving you a slight lift in the heel to more complex things like no-sew, seamless construction that are true innovation in the marketplace.

And even going so far as to reinvent our trademark waffle sole pattern to add flexibility to the sole and create a more dynamic fit. These shoes are lightweight, they're flexible, and they are incredibly comfortable.

They're new in the marketplace and no one else has ever done this before. We view this as a huge opportunity for the brand to bring a new consumer into us and introduce them to our brand and those deep, rich stories of heritage that we have.

This kid, again, has played traditional sports, whether he played footfall and rode a BMX bike home, whether he plays basketball and skateboards home, whether he plays soccer and puts it -- puts the ball and cleats away when the snow comes and pulls out his snowboard. This consumer connects to action sports in his own unique way because he's trying to express himself and his individuality. And LXVI is just the line to do that. Represented as LXVI, the roman numerals to connotate '66, the year the company was founded. A throwback to our heritage, but a look to the future and what new performance footwear may look like in action sports and we believe will connect to the consumer in a big way. So this product will hit the market in exactly 2 weeks.

Now I shared before, we have a very disciplined segmentation model, right? So thinking about the consumer first, thinking about the product to give them that leads us to that third piece of that pyramid, which is, so where do you sell it? Where's the right place to distribute this product? Well, not only do we have new product, but we're also looking at this new consumer, new product, new distribution.

So Vans in 2 weeks will launch this product globally at select Foot Locker doors, select lifestyle specialty accounts, and select sporting goods stores. We're going to look to beyond our traditional partners that we partner with around our classics footwear and our core skate footwear and bring new partners into the fold to embrace where that consumer goes, because that's where he goes to pick up his athletic shoes.

So this sport lifestyle that's occurred in the marketplace is blending in sport culture, we're positioned in exactly the right place, at exactly the right time to engage this new consumer and bring them into the brand. And this is something that we are very confident, on a global scale, will be a major growth driver for the brand.

So with that, I want to bring it to a close and remind you of a couple of key points. First, Vans has 4 key global growth drivers that will help us achieve this plan: our deep consumer connectivity that we shared with you; our product innovation, with things like LXVI; our direct-to-consumer model, a strategic advantage for this brand in the marketplace today on a global scale; and finally, the opportunities we have to continue to expand this brand on a global basis as these consumers become more and more connected and the borders come down between countries for these kids.

All of those things I'm confident will ensure that we track towards adding $1 billion to the brand by 2016, growing at a 13% CAGR, and reaching $2.2 billion in business for the Vans brand on a global scale.

So with that, I want to thank you for the time you spent listening to us talk up here. And invite Eric, Bob and Steve up, and we're going to do a little Q&A for a little while before we break out any activities. Thank you.

[Presentation]

Question-and-Answer Session

Kevin D. Bailey

Few mics are on the floor. And for the sake of the webcast, we'll ask that you -- when you have a question, let us get you a mic, so that we can make sure that we get that onto the webcast. Thank you.

Unknown Analyst

[indiscernible] I just had a couple of questions with regards to the financial goals you've laid out today for Vans and how it fits into the numbers you gave us last year in your overall growth plan. And how do you think about the profitability for Vans and where it's going forward with your international expansion?

Kevin D. Bailey

Sure. Well, the growth rate is consistent, what we shared last year at 13% compound annual growth rate. We finished 2011 with a little bit higher base. I think we shared at that time in terms of where we thought we'd be. So it's essentially consistent with our growth rate. LXVI and the potential for it, is something that's still a little bit unsure in terms of we haven't fully gauged the size of the potential for that, it doesn't hit the marketplace for 2 weeks. We are launching in 350 Foot Locker doors in the U.S. and 50 Foot Action, spread across the geographies. So I think this room knows pretty well how may doors Foot Locker has. So we believe there's a great opportunity here to continue to grow that and add to the business from that.

Robert K. Shearer

Okay. I'll just add to the profitably piece. We expect the profitability to be very consistent with what it is today. Vans is a very integral part of the 20% operating margin that we see in the Outdoor & Action Sports, and we expect the profitability to hold to that period of time.

Unknown Analyst

I had a question about the new product. How is that consumer different than the bottom of the pyramid, the emulators that you already have?

Kevin D. Bailey

Sure. As we look at the -- as we think about the emulators, that's the consumer who -- who tend to driving around a more value-driven proposition, they tend to want product that looks traditional Vans product, that looks like our classics product in a big way or looks like some of our core skate products, but they want it a value price. So that's who tends to pick it up at the bottom of the pyramid. This is more about a customer who's more in the middle of the pyramid. A consumer who is shopping more in the mall. He's a fairly and early adopter, he's a bit of a sneakerhead. He's probably lived off of thinking about chasing around basketball shoe launches or wearing the latest running shoe trend or the lightweight running shoe trends that have been out there. So he's more activated by current trends, but he's looking for something new and a way to stand out. So a little bit more aspirational than that emulator consumer.

Michael Binetti - UBS Investment Bank, Research Division

Michael Binetti with UBS. So on the -- you mentioned that you'd be turning on the Vans e-commerce sites in Europe, I think, in the next 60 days. Will any of that be turned on in the fiscal second quarter?

Kevin D. Bailey

I think so. Rick, no?

Steven E. Rendle

Yes, we planned on -- and Rick wave me down if I get this wrong. But I think we announced in the first quarter earnings release that we are hoping to activate 7 websites in New York, 7 e-commerce sites for Vans in New York, in the second quarter. It's been a little bit more difficult than we thought, a little more complicated. There will be some that will be switched on, some are going live right now. It's pretty late in the second quarter right now. I think we think we're going to have all of them done by the end of July. Rick, is that -- I can see -- is that the right timing for now?

Rick Wood

Yes. [indiscernible]

Steven E. Rendle

All 6, we had to drop one from our original plan for 7, just to do some web domain issues we're going to have. It will come live 30 or 60 days later. But 6 sites will all go live week 3 of July, all simultaneously. So none in the second quarter. And that's largely been due to a platform change we've been working on in Europe and some work we had to do on these other brands.

Michael Binetti - UBS Investment Bank, Research Division

That's actually a good lead into this follow-up question was, I believe that most of the heavy lifting for the e-commerce business in Europe was established prior to North Face launching over there. So is it safe to assume we have some front-loaded costs with that business that you leverage as each brand gets turned on in Europe?

Rick Wood

Yes -- no, from a standpoint of our platform, that's a big part of it. So yes, there are some costs in terms of integrations that are a lot easier now that we've already activated the North Face.

Steven E. Rendle

Yes, I would add to that. Part of the geographic platforms that we talk a lot about would be absolutely captured here in the digital space. As we look at the back-end support, the e-commerce part, the content management system that holds all the content, those are all how it's within the VF operating model, and our brands were able to access that as we've -- as we really prove out their ability to scale into the market that they're launched at.

Michael Binetti - UBS Investment Bank, Research Division

With similar DCs, similar order fulfillment functionality?

Rick Wood

Yes.

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

This is Scott Krasik, BB&T. Of the new Asian partner stores, how much control or influence do you have over merchandising those and designing the layouts? And could you or would you ever want to own those?

Kevin D. Bailey

Well, the model for pretty much everyone in Asia, particularly if you think about China, really, is truly working with a partner to run the stores for you. That's the way the market works today. So I don't see us looking to try and own the 1,000 stores that will be out there. Which, again, that's what we plan for '16, and it will continue to grow beyond that. In terms of control, it's very disciplined. Those stores look as much like a mall store in the U.S. as you could imagine. We very much control what the image of those stores are and what the merchandise mix of those stores are. So that's curated inside of our own organization in China.

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

Yes, Mitch Kummetz, Robert Baird. I guess I have kind of a line of questions. Maybe starting with Europe. I think you guys said that U.K. is your largest market in Europe, or at least it sounds like it's your largest market in Europe, but you're rolling out the strategy across 4 other markets. Could you maybe talk a little bit about, are those 4 other markets your other largest markets now? Kind of how much of that do you expect to contribute to the overall growth of Europe? And can you maybe even see how big the U.K. is at this point?

Steven E. Rendle

I don't think we've disclosed how big the U.K. is. I will tell you that we've picked a market to test our thoughts about how we could thoughtfully build out the brand and really help activate its potential. As you've seen in the last couple of quarters, Vans is doing very, very well in Europe, driven largely by our success in the U.K. Rick commented on the fact that the U.K. used to be smaller than Germany, it's now 3x the size. But we know in those other markets, in France, in Scandinavia and in Germany, the brand is not being introduced there, it is there. So we've been able to get a feel for how confident are we that if we make the same investments that they will activate in a similar way. And because the brand is there and because we've been working on those markets, we're really confident that, that will work.

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

And then on Asia. Can you take the same sort of theory from the U.K. and apply that to Asia as well? And can you say how big China is? I mean I think we'd all love to know how big China is for Vans. And then as you grow $170 million in Asia, is there -- I would assume China would be nearly the biggest driver of that growth? Can you talk about maybe what 2 and 3 would be in terms of getting the additional $170 million?

Steven E. Rendle

Okay, I think that was 3 questions. The China, India, and as Aidan said, we're exploring how to get at the Korean market, and actively exploring, and I think Aidan said in the next few months, I hope to be kind of talking about what our plans are for that market. Can we use the same model in China? Not really. The model in China is really about partner stores, whether it's inside the department store or free stand, so it's really about partner stores. And the U.K. model is about some owned and operated stores really elevating the performance of a few core wholesale customers of ours, so it is a different model. So China is not quite the same. And I'm sorry, I can't remember your third question. Now that I said it, I know there were 3.

Robert K. Shearer

What countries followed behind the China in terms of...

Steven E. Rendle

India and Korea are the 2 behind China.

Kevin D. Bailey

Yes. I think and to add to that. The techniques are similar to what we're doing here in the Americas, here in New York, to what Rick shared that he's doing in the U.K. However, the balance is not quite the same. So shoe action sports retailers in China are few and far between. They're very, very few. You can imagine the one-child law country that it's very -- viewed as a hazardous activity, really, to be skateboarding. So there's a smaller amount of core shops out there. There are some shops a lot like DQM that are boutiques, that are sneakerhead boutiques, that are influenced by skate. So there are a few, but there's so few given the size of that population. So we do want to make sure that we land in there because that lands our authenticity. But it's really about the lifestyle play in our own retail or partner store play in that market...

Steven E. Rendle

And what's important is it's a consistent approach. It is about grass-roots activation around small events. And you saw some of that in the video introducing the Asian region. And it's about big music events even, that one of the slides that Doug showed in his presentation showed the giant stage in the dark with thousands and thousands of kids. That was in Beijing. So we're using the same model, same kind of activations, because the youth culture has its nuances from region to region but there are some things that are common. And one of the things that's common is music, art is another. So we played that to be -- have a consistent global brand positioning, customized for the local market.

Taposh Bari - Jefferies & Company, Inc., Research Division

Taposh Bari with Jefferies. So maybe you can talk about the competitive environment in general, if you can, by geography. DC entering some new accounts, big competitor of yours. And then you talked about the lines being less defined, so TOMS, Sanuk, some new up-and-coming brands out there. You're getting some athletic brands trying to get more into actions sports. If you can just talk about that.

Kevin D. Bailey

Yes, sure. It is a big changing landscape in action sports today. A lot of the -- where Vans is positioned relative to the traditional competitive skate shoe brands, for instance, there's a pretty big gap now between Vans and the #2 brand in that space. So if the rest of those brands are a little more fragmented, maybe some consolidation effect going on at this point, the marketplace has changed. The ability to activate where we're blessed to have a large parent company that's able to activate a number of things from consumer research to innovation engines and help us grow faster than everyone else. So that's a big plus. And you're right, traditional athletic has targeted action sports and has come in from the Nikes of the world to Addidas's spoken statement that they want to have a bigger role in action sports. So there are other brands in this space for sure. In terms of how that all shapes up, the competition is relatively consistent globally. It's the same set. Some of those brands have more connection depending on the region. So what you see sort of the nucleus, at the epicenter of where action sports comes from is Southern California, is you see a brand like Vans being extremely strong and some of the older, more traditional action sports brands fading out a little bit as some of these larger brands have come in and seize some share. However, you do see some of those brands that are still traditional action sports still having some traction further away, where some of the forward thinking that goes on inside of product, inside of consumers' heads isn't -- hasn't reached yet fully, so you do still see some there. But in terms of them coming in action sports, it is what it is today. And it's sort of a gap now between us and the #2 traditional action sports player and then some of the new traditional athletic players coming in. I do want to correct one thing, which is Vans isn't really getting into athletic. This is particularly a play that we believe is an extension out of action sports that's still consistent with our brand DNA and our heritage, but it's what we're seeing the consumer be a part of. No intention of making running shoes, basketball shoes, et cetera, and extending that far out. This is just an extension of the lifestyle consumer that comes from action sports and is inspired by action sports.

Taposh Bari - Jefferies & Company, Inc., Research Division

And just the other question I wanted to ask separately was, if we kind of fast forward to 2016 and you look back at this plan, you obviously gave a lot of detail by geography, by channel. What would surprise you the most, if you look back? And I'm assuming you're hoping to beat these brands, where would you be -- kind of be surprised if you beat those brands?

Kevin D. Bailey

Gosh, be surprised to beat the brands. Well, I'm pretty confident in the potential of LXVI. That's a big one. Because I really believe that our monitoring of this consumer -- this has been about a 2-year process to bring LXVI to market, by beginning to really study that consumer and some of the shifts we are seeing. And then the product development was probably about an 18-month cycle. And I'm really pleased with how the product team took this challenge and kept the brand DNA, but stepped away from it. So I think what I'll be hopefully most surprised with is what the overall potential of LXVI ends up being.

Christian Buss - Crédit Suisse AG, Research Division

Christian Buss from Credit Suisse. I'm wondering if you could talk a little bit about the productivity of your retail stores, and how you expect that to evolve over time?

Kevin D. Bailey

Sure. We don't share a ton of information on our retail stores. But I can say that we are currently growing in the mid-single digits in our retail business domestically. And then in our European business, a little bit faster than that. That's sort of, I think, what we've shared at this point. We -- I can tell you that our direct-to-consumer business, and this can't be said by many retailers, we just completed our eighth consecutive year of comp store gains. So our retail business has been highly successful. Malls seek us here in the U.S. to add to their mix, and they are accretive profitably-wise to the brand. So we're very happy with the performance of our owned retail doors.

Unknown Executive

All right, guys. You only have 2 more questions.

Unknown Analyst

I was wondering if you could talk a little bit about how you conceptualize the apparel growth expansion. And second of all, in your stores and e-commerce, how you plan to sort of integrate them. I know you have store pickup now in certain places, but if you could go a little further.

Kevin D. Bailey

Sure. First on the apparel side, it's funny, I was talking to someone earlier and said, sometimes we challenge ourselves that we're not going apparel fast enough. But if you look at apparel is 25% of our $1.2 billion, that's a pretty darn big apparel company at this point in the marketplace. And I think sometimes, because of how big footwear is, we challenge ourselves that apparel isn't big enough yet. We believe there's still a ton of potential in our apparel business out there. And our apparel team has really taken on some new ideas over the last several years and really extended itself through things like the collaborations I shared or the new technology we shared. Our own retail stores are a huge driver of apparel business. Clearly, it's an ability for us to control what's shown in those places and put out on the floors for the consumer's access, and a large portion of the selling space is dedicated to apparel and, of course, at a highly profitable model, because it's at our own cost. So we believe apparel continues to have a great opportunity. And as you saw at DQM today, we have a slight mix of key apparel placed into aspirational retailers, to give the line aspiration. It's the same model we follow with the rest. And the second question, I just blanked.

Unknown Analyst

E-commerce and retail.

Kevin D. Bailey

Thank you. E-commerce and retail. Thanks. We actually have had for some time the ability to create custom shoes in our owned retail stores. However, I'd argue that we are undertaking, as we look at '13, we are undertaking a massive project to really bring a much more dynamic shopping experience to our stores and marrying up both the digital space and the brick-and-mortar space. So I think you'll see some pretty big changes there. You'll see at the -- one of the breakout sessions what we're doing in e-commerce. But for the first time, we're doing some new things in terms of how we're increasing content in commerce and really marrying them together to grow e-commerce. And we believe that there's a big opportunity to bring that to our consumer better in our store environments than we do today. Again, our consumers are heavily digital and mobiley activated. So the ability to bring that in a more forward-looking way to the consumer, we tested a few things over the last 2 years, some successfully and some less successfully. But that's the joy of trying to create and innovate in this space. So we have a big focus, both in Vans and across VF, to think about this omni-channel approach to the marketplace, to think about how consumers -- it's an endless aisle approach, right, buy what I need -- what I need, when I need it, wherever I can get it. So as Doug said, with things like store locator to our e-commerce platform, we have some plans in place for the next several years to activate that in a stronger way.

Unknown Executive

Last question?

Joseph Parkhill - Morgan Stanley, Research Division

It's Joe Parkhill from Morgan Stanley. Just wanted to ask, I think internationally, you kind of conceptualized growing the brand by reaching more and more consumers since you're not as penetrated there. But maybe if you could just talk a little bit more about North America, 10% is still a pretty big number. How do you get there? Is it just gaining more traction with current customers, gaining new customers?

Kevin D. Bailey

Sure. No, I think we definitely have seen continued opportunity here. Again, very dominant West Coast brand. What we have is a pretty heavy saturation in Southern California around retail business. However, we really took this focus on New York -- one of our consumers, sorry. We took this focus on New York to try and look at how we can do this more successfully and penetrate new markets. So this focus on New York was a big part of that. We've extended retail and have a presence now. We opened stores in Atlanta recently and are seeing really good success with those. And so we're starting to connect to the East Coast, where we started Florida and now have a stronger beachhead here in New York and connect the coast. And then now that leaves us really focusing on the middle of the country at some point. So we've got a very targeted plan of how we will activate different markets over the next 5 years as part of our retail strategy. I don't want to share too many specifics about where because that affects, of course, deals, et cetera. But we will continue to expand as we think there's still a lot of potential. It's not hard to think about the math between other retail concepts and how many stores we have and what that might mean.

Steven E. Rendle

And the 10% growth was an Americas number. And we recently opened a subsidiary 2 years ago in Mexico, so we're just really getting started there. So we have other -- other than the region the Americas, we have a lot more geography to get at in addition to the regional expansion in the U.S. And Kevin's earlier comment, the XLVI line has more potential, we think, than we know how to sign up for. We're getting it launched in a few weeks, and we'll see where that goes, and be much more informed when we talk about it next year.

Kevin D. Bailey

The 2 things that I'd add to that is that in acquiring Mexico, we picked up 15 retail stores that we operate now that are owned retail stores in Mexico, and we're adding to that mix. And we're actually about to open our first store -- first owned retail stores in Canada this year. So we'll start tapping those marketplaces. And XLVI, which I failed to mention, so I apologize for this, but XLVI will also be distributed through select Vans direct-to-consumer retail stores, as well as our .com site. So besides the wholesale partners I mentioned, it will also be distributed that way.

Eric C. Wiseman

So we're going to let that conclude the questions and answers. That also concludes our formal comments. I thank you all for being here today. We have a workshop to do here in just a minute. But before we get to that, I'm going to now conclude the webcast.

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