Vans Investor Day: Can They Really Do This-$3 Billion to $5 billion in Five Years? Maybe They Can.

On September 12, VF’s management team made a lengthy presentation to the investment community outlining Van’s expected future growth. In the accompanying press release they stated, “Over the next five years, the Vans® brand expects diversified and balanced growth across all product categories, channels of distribution and geographies, driven by disciplined execution and investment to continue to fuel growth.”

They expect to grow footwear “…at a five-year compounded annual growth rate (CAGR) between 10 percent and 12 percent.”  The CAGR for apparel and accessories is projected to be between 13% and 15%.  Direct to consumer is expected to be between 13% and 16% including digital growth of 30% to 35%.

Wow.  Just “WOW!”

Just so you know, I’m working from the presentation slides, press release, and some miscellaneous comments I found.  I couldn’t listen to it live and so far, there’s no transcript available, though the press release says it will eventually be.

Certainly, VF has done a fantastic job with Vans since acquiring it in 2004, growing it, we’re told, at a 17% compounded annual rate until it’s reached $3 billion in revenue.  VF President and CEO Steve Rendle says, “I am confident in the Vans team’s ability to deliver on a bold $5 billion revenue target which will be a key driver of VF’s plan to deliver superior total return to shareholders over the next five years.”  (I added the emphasis).

In writing about VF and Vans, I’ve made three main points.

First, that I have tremendous respect for VF’s systems and procedures, discipline, and portfolio management talents.

Second, echoing CEO Rendle, VF has a dependence on Vans for its overall corporate results.

Third, that I’ve never seen a brand that could grow forever without hitting some form of roadblock.

Will Vans, at least for five more years, be the exception to the rule?  In the immortal words of Rocky Rococo, “Maybe yes, maybe no.”  Let’s look at both cases.

Maybe No

The case for “no” isn’t hard to state.  Vans make’s shoes, apparel and accessories that aren’t functionally different from other brand’s shoes, apparel and accessories.  Differentiation is based largely on marketing (though that means something different from what it used to mean).  The products are already widely distributed (JC Penney, Kohls, Sears.com, Walmart for example) in a market where creating differentiation from functionally identical products has required some caution in distribution bordering, at times, on scarcity.

Where is all this new revenue going to come from?  Who are the new customers? In the presentation David Gold, Vans Vice President for Business Strategy tells us that Vans has only 6% of a $41 billion market opportunity.  For apparel it’s 1% of a $46 billion opportunity.

Vans describes itself as a skateboard-based brand.  “Skateboarding is a core differentiator for Vans,” they say.  Just to go old school for a minute, we’re seen an awful lot of brands in our industry get into trouble when they tried too hard to expand beyond their core.  In the past, I’ve written about, nay warned, to be cautious in expanding beyond the point where your potential new customers can identify with the brand because your brand strength is your main point of differentiation.

Vans sounds like they are extrapolating from the past into the future- perhaps an over simplification.  There’s no discussion in the slides of, for example, the possibility (near certainty?) of a recession in the next five years or of some other unexpected geopolitical or financial inconvenience.  And the idea that the growth will happen across all product categories, channels and geographies with nary a negative surprise does not reflect my business experience.

The presentation (download it here) is full of warm and fuzzy affirmations.  Here’s one: “VANS REMAINS AUTHENTIC TO OUR CORE CONSUMERS AND WELCOMING TO ALL.”  Can they do that?  Is it really a source of growth of the magnitude they project?  I’ve just been writing above (and in many articles over the years) about how destructive to brands that approach can be.  Go page through the presentation and see for yourself.  Are they/will they/can they all be true?  I don’t know.  When we get to the “Maybe Yes” discussion below, I’ll tell you why they might be.

The presentation is like a list of all the things all brands and retailers need to do.  I’d say it’s an accurate list.  Vans sustainable competitive advantage, then, is in its ability to do more of these things better than everybody else with more flexibility, and to develop more actionable insights.  Are they really able to execute that much better than their competitors?

The “Maybe No” case is simple to sum up.  Despite the superlative job VF has done in managing the Vans brand, where are they going to find the additional customers and revenue in an already over supplied market facing a probable recession with product that’s not fundamentally different from their competitors without damaging the brand?  Is doing the same stuff everybody else needs to do only better the source of a sustainable competitive advantage?

Maybe Yes

Let’s start by addressing the recession issue.  It’s not that a recession wouldn’t impact Vans and VF.  It will impact everybody.  But somewhere in the depth of VF (And, I can tell you, in other companies) there is recognition that the next recession will probably be the way the retail consolidation plays out.  I know things are looking better at retail right now, and let’s hope it continues.  Longer term (I’m always looking longer term) the consumer’s ability to demand more for less, the cost of providing what they demand, the continuing evolution of ecommerce, and the advantages of being a large brand or retailer suggest consolidation isn’t over.  VF and Vans will be a winner in that scenario.

Size matters.  As I’ve written about our market in general there is an advantage to being large and having a strong balance sheet.

Vans and VF have those advantages and discuss them in the presentation.  In a slide titled “Power of VF” they point to the leverage the size and sophistication of VF gives Vans.  These include:

• Deep and complex consumer research
• Expert-led innovation
• Geographically diverse, efficient supply chain
• International and DTC platforms
• Access to capital

I suspect some of those advantages will decline over time.  Right now, they are significant.

The most interesting part of the “Maybe Yes” case is the implication that distribution doesn’t matter the way is used to.  I scoffed at brands a few years ago that said, “Don’t worry- we’re going to be in Walmart but it won’t hurt our brand.”

Vans will be thoughtful about distribution.  More importantly, they are saying that their research, resources, flexibility, brand power, speed of reaction and process of connecting to the carefully segmented consumer through surprises and experiences obviates some of the traditional concerns about distribution.  They believe they can do these things better than most of their competitors.  If so, brand perception and attractiveness will be determined more by Vans actions and less by brick and mortar retailers (Except of course for Vans own retail stores).

Finally, they’ve got the Vans brand to work with.  It’s powerful, established, and a broad range of customers feel connected to it.  Not a bad place to start.

Those are the “yes” and “no” cases in simplified form.  Vans is well into an experiment to see if a truly “omnichannel” approach to branding and customer engagement change some of the rules for growing a brand.  Because Vans is so critical to VF’s overall performance, they need to make it happen.