V.F. Corporation, organized in 1899, is a worldwide leader in branded lifestyle apparel and related products. Unless the context indicates otherwise, the terms “VF,” “we,” “us” and “our” used herein refer to V.F. Corporation and its consolidated subsidiaries. Our stated vision is: VF will grow by building lifestyle brands that excite consumers around the world.
For over 100 years, VF has grown by offering consumers high quality, high value branded apparel and related products. In recent years, we have been implementing a growth plan that is transforming VF’s mix of business to include more lifestyle brands. Lifestyle brands are those brands that connect closely with consumers because they are aspirational and inspirational; they reflect consumers’ specific activities and interests. Lifestyle brands generally extend across multiple product categories and have higher than average gross margins. Accordingly, this transformation has included the acquisitions of growing lifestyle brands, such as Vans®, Reef®, Kipling®, Napapijri®, 7 For All Mankind®, Splendid® and Ella Moss®. At the same time, we have continued to invest in our other businesses through product line extensions, geographic expansion particularly in Asia, new retail store openings, product innovation, consumer research and other marketing initiatives. In addition, an important step in VF’s transformation was the sale in 2007 of our women’s imtimate apparel business, which had over $800 million in revenues but lower profit and growth prospects.
VF is a highly diversified apparel company — across brands, product categories, channels of distribution and geographies. VF owns a broad portfolio of brands in the jeanswear, outerwear, packs, footwear, sportswear and occupational apparel categories. These products are marketed to consumers shopping in specialty stores, upscale and traditional department stores, national chains and mass merchants. A growing portion of our revenues, currently 17%, are derived from sales directly to consumers through VF-operated retail stores and internet sites. A global company, VF derives 30% of its revenues from outside the United States, primarily in Europe, Asia, Canada and Latin America. VF products are also sold in some countries through licensees and distributors. To provide many types of products across numerous channels of distribution in different geographic areas, we balance efficient and flexible internally-owned manufacturing with sourcing of finished goods from independent contractors. We utilize state-of-the-art technologies for inventory replenishment that enable us to get consumer-right products, on time, to our customers’ shelves.
VF’s businesses are organized primarily into product categories, and by brands within those categories, for both management and internal financial reporting purposes. These groupings of businesses are called “coalitions” and consist of the following: Outdoor & Action Sports, Jeanswear, Imagewear, Sportswear and Contemporary Brands. These coalitions are our reportable segments for financial reporting purposes. Coalition management has responsibility to build their brands, with certain financial, administrative and systems support and disciplines provided by consolidated functions within VF.
We consider our Outdoor & Action Sports, Sportswear and Contemporary Brands coalitions to be our lifestyle coalitions, with the potential to achieve higher long-term revenue and profit growth than our other businesses. Our Jeanswear and Imagewear coalitions are our heritage businesses where our focus is on maintaining our historically strong levels of profitability and cash flows but with lower revenue growth.
Outdoor & Action Sports Coalition
Our Outdoor & Action Sports Coalition, VF’s fastest growing business, is a group of outdoor and activity-based businesses that represent a collection of lifestyle brands. Product offerings include outerwear, sportswear, footwear, equipment, backpacks, daypacks, luggage and accessories.
The North Face® is our largest Outdoor & Action Sports Coalition brand. Its high performance outdoor apparel, equipment and footwear are sold across North and South America, Europe and Asia. (In Japan and South Korea, The North Face® trademarks are owned by a third party.) The North Face® apparel lines consist of outerwear, snow sports gear and functional sportswear and footwear for men, women and children. Its equipment line consists of tents, sleeping bags, backpacks, daypacks and accessories. Many of The North Face® products are designed for extreme applications, such as high altitude mountaineering and ice and rock climbing, although many consumers also purchase these products because they represent a lifestyle to which they aspire. The North Face® products are marketed through specialty outdoor and premium sporting goods stores in the United States, Canada, Europe and Asia and select department stores in the United States. In addition, these products are sold through over 50 VF-operated full price retail and outlet stores in the United States and Europe and online at www.thenorthface.com. The brand is also sold through over 250 The North Face® retail stores operated by independent third parties dedicated to selling The North Face® products in Europe and Asia.
VF manufactures and markets Vans® performance and casual footwear and apparel for skateboard, bicycle motocross (“BMX”), surf and snow sports participants and enthusiasts. Products are sold on a wholesale basis through national chain stores in the United States and through skate and surf shops and specialty stores in the United States, Canada, Europe and Asia. The brand’s products are also sold through over 200 owned Vans® full-price retail and outlet stores primarily in the western United States and in key European markets. These retail stores carry a wide variety of Vans® footwear, along with a growing assortment of apparel and accessory items, most of which bear the Vans® trademarks. The Vans® brand is marketed through a 50%-owned joint venture in Mexico. The Vans® brand has been recognized as part of “The Facebook® 50,” a ranking of brands developed by Slate magazine’s The Big Money website that are making the best use of the social networking site, Facebook®. VF is the 70% owner of the Vans Warped Tour® music festival, which presents over 50 alternative rock and heavy metal bands in performances in over 40 cities across North America each summer.
JanSport® backpacks, duffel bags, luggage and accessories are sold through department, office supply and national chain stores, as well as sports specialty stores and college bookstores in the United States. JanSport® daypacks have a leading market share in the United States. A technical line of JanSport® backpacks is sold through outdoor and sporting goods stores. JanSport® fleece and T-shirts imprinted with college logos are sold through college bookstores and department stores in the United States. In Europe, Eastpak® and JanSport® backpacks and a line of Eastpak® clothing are sold primarily through department and specialty stores, where the Eastpak® brand is the leading backpack brand. The JanSport® and Eastpak® brands are also marketed throughout Asia by licensees and distributors. Eagle Creek® adventure travel gear products include luggage, daypacks and accessories sold through specialty luggage stores, outdoor stores and department stores throughout the United States and Europe.
Derived from the Finnish word for Arctic Circle, the Napapijri® brand offers premium-priced performance skiwear and outdoor-inspired casual outerwear, sportswear and accessories for men, women and children. The Napapijri® brand enjoys especially strong consumer awareness in Italy, where it was created, and is expanding across Europe. Products are sold on a wholesale basis primarily to European specialty shops, such as sport stores and fashion boutiques, and through VF-operated and independently-operated retail stores in several countries in Europe. The Napapijri® brand is marketed through a majority-owned joint venture in Japan.
Kipling® handbags, shoulder bags, backpacks, luggage and accessories are stylish, colorful and fun products that are both practical and durable. The brand name comes from the author of The Jungle Book, Rudyard Kipling, and that provides the connection to the Kipling® monkey mascot, which symbolizes fun and adventure. A colorful monkey key ring is attached to every bag, with a different monkey design for each product collection. Products are sold through specialty and department stores in Europe, Asia and South America, as well as through over 30 VF-operated and over 175 independently-operated retail stores. The Kipling® business in North America is managed as part of the Sportswear Coalition.
The Reef® brand of surf-inspired products includes sandals, shoes, swimwear and other casual apparel and accessories for men, women and children. Products are marketed primarily to surf shops, sporting goods and specialty chains, and department stores in the United States, Canada, Europe and Asia. In recent years, we have expanded the Reef® brand’s presence by acquiring rights previously held by independent distributors to market Reef® products in Europe and Canada.
We expect continued long-term growth in our Outdoor & Action Sports Coalition as we extend our brands into new product categories, open additional retail stores, expand geographically and acquire additional outdoor or activity-based lifestyle brands. Also, beginning in 2010, responsibility for the lucy® brand has been moved to this Coalition. Specifically, management of the The North Face® and lucy® business units will work closely together to better leverage VF’s activity-based product development and retail operations experience.
Our Jeanswear Coalition markets jeanswear and related casual products in the United States and in many international markets. The largest of these brands, the Lee® and Wrangler® brands, have long-standing traditions as authentic American jeans brands as they were established in 1889 and 1947, respectively, and have strong market positions. Lee® and Wrangler® products are sold in nearly every developed country. Products also include shorts, casual pants, knit and woven tops and outerwear, which are designed to complement the jeanswear products and have helped to extend our brands.
In domestic markets, Lee® products are sold primarily through national chain stores and specialty stores. Wrangler® westernwear is marketed through western specialty stores. The Wrangler Hero®, Rustler® and Riders® brands are marketed to mass merchant and regional discount stores. Based on available data, we believe our key brands have been gaining market share despite significant competitive activity. Including all of its jeanswear brands, we believe that VF has the largest unit market share of jeans in the United States and is one of the largest marketers of jeans in the world. We also market cotton casual pants under the Lee Casuals®, Timber Creek by Wrangler® and Wrangler® Khakis brands.
Our vendor-managed inventory and retail floor space management programs with several of our major retailer customers give us a competitive advantage in our domestic jeanswear business. We receive point-of-sale information from these customers on a daily basis, on an individual store and style-size-color stockkeeping unit (“SKU”) level. We then ship products based on that customer data to ensure their selling floors are appropriately stocked with products that match their shoppers’ needs. Our systems capabilities allow us to analyze our retail customer’s sales, demographic and geographic data to develop product assortment recommendations that maximize the productivity of their jeanswear selling space and minimize their investment in inventory.
Jeanswear in most international markets is more fashion-oriented and has a higher selling price than similar products in the United States. The jeans market internationally is also more fragmented than in the United States, with competitors ranging from global brands to a number of smaller brands marketed in a specific country or region.
VF’s largest international jeanswear business is located in Western Europe. Lee® and Wrangler® jeanswear products are sold through department stores and specialty stores where we employ some of the same retail floor space management programs described above. We also market Lee® and Wrangler® products to mass market and specialty stores in Canada and Mexico, as well as to department stores and specialty stores in Asia and South America. In many international markets, we are expanding our reach through VF-operated retail stores, which are an important vehicle for presenting our brands’ image and marketing message directly to consumers. We are continuing to expand our jeanswear brands in emerging markets, such as China and through our majority-owned joint venture in India. In foreign markets where VF does not have owned operations, Lee® and Wrangler® jeanswear and related products are marketed through distributors, agents or licensees. Lee® and Wrangler® products are sold in over 500 independently operated mostly monobrand retail stores, primarily in Eastern Europe and Asia.
In the United States, we believe our Jeanswear Coalition is growing its jeans market share in the mass market and national chain channels of distribution through superior consumer insight and marketing strategies and continuous product innovation. In our international businesses, growth will be driven by expansion of our existing business in Asia where we have averaged in excess of 25% growth per year over the last three years.
Our Imagewear Coalition consists of the Image division (occupational apparel and uniforms) and the Licensed Sports division (owned and licensed high profile sports and lifestyle apparel). Each division represents approximately one-half of Coalition revenues.
The Image division provides uniforms and career occupational apparel for workers in North America and internationally, primarily in Europe, under the Red Kap® brand (a premium workwear brand with more than 75 years of history), the Bulwark® brand (flame resistant and protective apparel primarily for the petrochemical, utility and mining industries), the The Force® brand (apparel for law enforcement and public safety personnel) and the Chef Designstm brand (apparel for restaurant and food service staff). Products include work pants, slacks, work shirts, overalls, jackets and smocks. Image division revenues are significantly affected by the overall level of U.S. industrial and service employment, which has been declining for the last two years. Approximately two-thirds of Image division sales are to industrial laundries, resellers and distributors that in turn supply customized workwear to employers for on-the-job wear by production, service and white-collar personnel. Since industrial laundries and uniform distributors maintain minimal inventories of work clothes, VF’s ability to offer rapid delivery of products in a broad range of sizes is an important factor in this market. Our commitment to customer service, supported by an automated central distribution center with several satellite locations, enables customer orders to be filled within 24 to 48 hours of receipt and has helped the Red Kap® and Bulwark® brands obtain a significant share of uniform apparel sold to laundries, resellers and other distributors.
The Image division also develops and manages uniform programs through custom-designed websites for major business customers (e.g., FedEx Corporation, AT&T, Air Canada, Continental Airlines and American Airlines) and governmental organizations (e.g., U.S. Customs and Border Protection, Fire Department of New York City, Transportation Security Administration, National Park Service and New York City Transit Authority). These websites give employees of these customers the convenience of shopping for their work and career apparel via the internet. This division is the nation’s largest supplier of nonmilitary apparel to the U.S. government.
In the Licensed Sports division, we design and market sports apparel and fanwear under licenses granted by the major sports leagues, individual athletes and related organizations, including Major League Baseball, the National Football League, the National Basketball Association, the National Hockey League, NASCAR, MLB Players Association, and many major colleges and universities. Under license from Major League Baseball, Majestic® brand uniforms are worn exclusively on-field by all 30 major league teams. Majestic® brand adult and youth-size authentic, replica jersey and casual fanwear are sold through sporting goods and athletic specialty stores, department stores and major league stadiums. Adult and youth sports apparel products marketed under other licensed labels are distributed through department, mass market, sporting goods and athletic specialty stores. In addition, the Licensed Sports division is a major supplier of licensed Harley-Davidson® apparel marketed to Harley-Davidson dealerships. With the exception of the Major League Baseball license, loss of any license would not have a material effect on the Imagewear Coalition.
The opportunities to grow our Imagewear Coalition revenues include (i) extension of its product and service capabilities into new industrial and service apparel markets, (ii) growth of its Majestic® brand for Major League Baseball and growth of our National Football League business through rights for additional apparel categories and new channels of distribution, (iii) market share gains in key licensed categories and (iv) extension of VF’s floor space management and replenishment capabilities to more retail doors, placing product-right assortments on the sales floor in each geographic market.
The Nautica® brand is the principal lifestyle brand of the Sportswear Coalition. Nautica® men’s sportswear, noted for its classic styling, is marketed through department stores and VF-operated outlet stores in better outlet centers. The Nautica Jeans Company® line features fashionable jeanswear and related tops for younger male consumers. We believe the Nautica® brand is the number two men’s sportswear collection brand in department stores. This retail channel has undergone significant consolidation in the last few years, resulting in numerous store closings, which has negatively impacted sales of Nautica® brand products. Other Nautica® product lines include men’s outerwear, underwear and swimwear and men’s and women’s sleepwear. Nautica® women’s sportswear is marketed in the United States at most Nautica® outlet stores and at www.nautica.com.
The Sportswear Coalition operates over 100 Nautica® retail outlet stores in better outlet malls across the United States. These stores carry Nautica® merchandise for men, women, boys, girls and infants. The product styles sold in the outlet stores are different from the Nautica® styles sold to department and specialty store wholesale customers. These outlet stores also carry Nautica® merchandise from licensees to complete their product assortment. In addition, independent licensees operate over 150 Nautica® brand retail stores across the world.
The Nautica® brand is licensed to independent parties in the United States for apparel categories not produced by VF (e.g., tailored clothing, dress shirts, neckwear, women’s swimwear, children’s clothing, and accessories such as fragrances, watches and eyewear) and for nonapparel categories (e.g., bed and bath linens and accessories). Nautica® products are licensed for sale in over 60 countries outside the United States. Our licensees’ wholesale sales of Nautica® licensed products total approximately $400 million annually.
The Sportswear Coalition also includes the Kipling® business in North America. Products include Kipling® brand handbags, luggage, backpacks, totes and accessories. Beginning in 2010, Kipling® handbags and accessories in the department store channel in the United States will be sold exclusively through Macy’s department stores. In addition, all product categories are sold in the United States through specialty luggage and bag stores, VF-operated retail stores and www.kipling.com and in Canada through specialty and department stores. About two-thirds of products sold in the United States are the same as those sold in Europe and other parts of the world, with the remainder designed for the U.S. market only.
We believe there is potential to improve Nautica® brand revenue and profit performance through more accessible price points, store growth in existing Nautica® retail outlet stores, growth in our online business and expansion of the licensed business internationally, particularly in Asia. There is also potential for expansion of our Kipling® brand through our handbags and accessories relationship with Macy’s, Inc.
Contemporary Brands Coalition
Our Contemporary Brands Coalition is focused on premium-priced lifestyle brands. Formed in August 2007, the coalition was originally composed of the 7 For All Mankind® and lucy® brands. During 2009, the Coalition was expanded to include the John Varvatos® brand (previously part of the Sportswear Coalition), which shares many product, customer and supply chain characteristics of the other Contemporary Brands businesses, and the Splendid® and Ella Moss® brands, which were acquired during the year.
7 For All Mankind® is a Los Angeles-based brand of contemporary denim jeans and related products — knit and woven tops, sweaters, jackets and accessories — for women and men. Products are noted for their fit and for innovation in design, fabric and finish. We believe the 7 For All Mankind® brand is the leading premium jeans brand in the United States, with the premium segment defined as jeans retailing for $150 or more. Retail price points for the brand’s core jeans range from $150 - $199 for basics, with higher price points for more fashion-forward products. In December 2009, Advertising Age magazine selected the 7 For All Mankind® brand as one of its top ten new products of the decade, recognizing the brand for introducing premium denim to the American market and changing the way that consumers shop for jeans. With over two-thirds of its sales in the United States, the brand is marketed through premium department stores, such as Bloomingdale’s, Macy’s, Neiman Marcus, Nordstrom and Saks, and through specialty stores. In addition, we opened 13 retail stores in the United States during 2009, bringing the total to 28 stores in the United States. Internationally, sales are through department stores, such as Harrods, and specialty stores, plus several VF-operated retail stores. We are pursuing growth opportunities in several areas — additional direct-to-consumer expansion through company-operated and partnership retail stores, e-commerce, additional sportswear product offerings, further geographic expansion in Europe and Asia, and licensing.
The John Varvatos® brand is a luxury apparel and accessories collection for men, including tailored clothing, sportswear, footwear and accessories. The John Varvatos * USA® line of tailored clothing, sportswear, footwear and accessories is designed to appeal to a younger consumer at somewhat more accessible price points. Products are sold through upscale department and specialty stores, primarily in the United States, several VF-operated John Varvatos® retail locations and online at www.johnvarvatos.com. This business is 80% owned by VF, with the balance owned by Mr. John Varvatos.
In March 2009, VF completed the acquisition of Mo Industries Holdings, Inc., owner of the Splendid® and Ella Moss® brands of women’s premium sportswear. These brands are marketed to upscale department and specialty stores primarily in the United States. VF had acquired one-third of the outstanding equity of Mo Industries in June 2008. The first Splendid® retail store was opened in 2009. A limited number of Splendid® and Ella Moss® stores are planned for 2010, along with several new shop-in-shops in major retail accounts.
The lucy® brand of women’s lifestyle apparel is marketed through approximately 60 lucy® branded retail stores across the United States and via the internet at www.lucy.com. lucy® is an authentic activewear brand designed for versatility, comfort and fit that can be worn by today’s active woman from workout to weekend. The lucy® retail stores emphasize the brand’s four core types of activity-based apparel — yoga, gym, running and outdoor adventure. Over 90% of the products in the lucy® retail stores are lucy® branded, with most of the balance being complementary VF brands, including a limited selection of The North Face® apparel. Beginning in 2010, the lucy® business unit will become part of the Outdoor & Action Sports Coalition. The lucy® brand shares attributes of our outdoor brands and will benefit from shared expertise in technical performance fabrics and product innovation.
During 2009, premium apparel sales were severely impacted by the recession, with many consumers significantly reducing spending for luxury goods, which has led to sharply lower same store sales comparisons in the upscale department store channel and the closing of a significant number of specialty shops. In 2010, we expect to see our Contemporary Brands businesses grow their revenues through additional retail and international expansion and product line extensions.
VF-operated retail stores are an integral part of our strategy for growing VF’s brands, particularly our lifestyle brands. Our full price retail stores allow us to showcase a brand’s full line of current season products, with fixtures and imagery that support the brand’s positioning. These stores provide high visibility for our brands and products and enable us to stay close to the needs and preferences of consumers. The proper presentation of products in our retail stores also helps to increase consumer purchases of VF products sold through our wholesale customers. VF-operated full price retail stores generally provide operating margins that are equal to or above VF averages and a return on investment above VF averages. In addition, VF operates outlet stores in both upscale outlet malls and in more traditional value-based locations. These outlet stores serve an important role in our overall inventory management by allowing VF to effectively sell a significant portion of excess, discontinued and out-of-season products at better prices than are otherwise available from outside parties, while maintaining the integrity of our brands.
Our growing global retail operations include 757 stores at the end of 2009. Of that total, there are 681 monobrand stores (i.e., primarily one brand’s products offered in each store) that sell The North Face®, Vans®, Nautica®, 7 For All Mankind®, lucy®, Lee®, Wrangler® and other products. Approximately three-fourths of these stores offer products at full price, with the remainder being outlet locations offering excess, discontinued and out-of-season products at discounted prices. In addition to the monobrand retail and outlet stores, we operate 76 VF Outlet stores across the United States that sell a broad selection of excess quantities of VF-branded products, as well as women’s intimate apparel, childrenswear, other apparel and accessories. Approximately three-fourths of the VF-operated retail stores are located in the United States. The remaining stores are located in Europe, Latin America and Asia.
Across the globe, internet sales (i.e., e-commerce) comprise a small but growing portion of total retail sales of apparel, footwear and accessories. E-commerce sales of apparel and footwear have become the second largest category of e-commerce purchases in the United States (behind travel purchases). At VF, e-commerce is a growing portion of our revenues as we currently market The North Face®, Vans®, Lee®, 7 For All Mankind®, lucy®, Nautica®, Kipling® and other brands online in the United States, plus The North Face® and other brands across Europe. Additional e-commerce sites will be rolled out for consumers in 2010.
Total retail store and e-commerce sales accounted for 17% of VF’s consolidated Total Revenues in 2009 and 16% in 2008. We expect our direct-to-consumer business to continue to grow at a faster pace than VF’s overall growth rate as we continue opening retail stores and expanding our e-commerce presence for our lifestyle brands. During 2009, we opened 90 retail stores. For 2010, capital investments of approximately $60 million are planned for leasehold improvements, fixtures and equipment for approximately 80-90 new retail locations, concentrated where we see higher growth potential — Vans®, The North Face®, 7 For All Mankind® and international.
In addition to the direct-to-consumer venues operated by VF, our licensees, distributors and other independent parties operate over 1,300 primarily monobrand retail stores dedicated to our brands. These stores — located primarily in Eastern Europe and Asia and focused on The North Face®, Kipling®, Nautica®, Lee® and Wrangler® brands — have the appearance of VF-operated retail stores.
VF employed approximately 45,700 men and women at the end of 2009, of which approximately 19,600 were located in the United States. Approximately 800 employees in the United States are covered by collective bargaining agreements. In international markets, a significant percentage of employees are covered by trade-sponsored or governmental bargaining arrangements. Employee relations are considered to be good.