In his first address to Wall Street since taking as general manager, Americas, The North Face, Arne Arens admitted that the brand’s growth has “slowed somewhat” over the last two years from its historic double-digit growth due to some missed opportunities by the brand.
While some external issues, such as the spate of bankruptcies, weather challenges and the overall promotional retail climate, impacted results, one internal challenge was a “rate of newness and innovation slow down, especially in our core outerwear business,” Arens said at VF Corp’s Investor Day recently held in Boston.
Footwear and sportswear apparel also “haven’t fully lived up to the expectations” and the brand hasn’t capitalized on its international opportunities. But Arens expects the brand to rejuvenate its top-line growth by tapping the opportunities presented by its consumer territory model. The model is designed to position to brand to best address four consumer segments: Mountain Sports, Mountain Athletics, Mountain Lifestyle and Urban Exploration.
Mountain Sports, its core category, has a $22 billion market opportunity and is the brand’s largest category but still has “many opportunities for growth.”
Arens said the brand first needs to “reinforce our leadership position in the outdoor specialty channel” and “make ourselves the preferred brand of choice for our Mountain Sports consumer.”
Of the $22 billion potential that VF sees globally for the Mountain Sports category, outdoor footwear represents a third while only 10 percent of North Face’s mix consists of footwear. Said Arens, “This lays out the path for growth and through a heightened focus on design and innovation, we believe that we can grab share in this category.”
Finally, North Face has the opportunity the accelerate growth in the Mountain Sports category in the EMEA and Asia Pacific regions.
Mountain Athletics, which addresses the training needs of athletes, is seen as a $63 billion worldwide opportunity across fitness-oriented apparel and footwear. Said Arens, “We currently hold a less than 1 percent share in this category, so we are relentlessly
focused on driving our training and running proposition going forward.”
Mountain Lifestyle, addressing “pre and post activity adventures” and a more-youthful consumer, is seen as a $25 billion global opportunity. North Face currently has a low-single digit share in this category.
Finally, Urban Exploration is seen as a $72 billion market globally and basically reflects the opportunity to reach the over half the world’s population that are now living in cities.
“We are the original urban outerwear brand and consumers have embraced us in this space for years through our authenticity and our heritage,” said Arens. ”So, we believe by focusing on premium apparel and footwear and capitalizing on the strengths that made our brand into what it is today, we are going to capture major market share across the globe in this category.”
The Urban Exploration opportunity is particularly big in Asia-Pacific, where the company has already introduced a few specific Urban Exploration store concepts and plans an additional 100 doors through 2021.
Arens noted that last year, TNF reorganized its product team to be more aligned with the territory model while “significantly” investing in design and creative talent “to make sure that we bring each of these territories to life in a unique way across all the different touch points.”
North Face plans to enable its growth and tap its territory model first though a focus on innovation. Three-year product pipelines have been set up by territory across footwear, apparel and equipment to drive innovation. Arens offered the Apex Flex jacket that’s part of its Mountain Sports territory as a recent success. He said, “It’s very strong out of the blocks, strong sell-through in the first couple of weeks, and this is one of the examples of the technology platforms that will drive over the next couple of years through its very powerful value proposition.”
A second enabler is direct-to-consumer, which includes having its website experience “be more aligned with the different consumer territories” and developing related one-on-one connections.
At retail, while the brand will continue to have “major hub stores in major urban markets” to showcase the full range of its product, it will also have “more specific one territory spoke stores that connect due to consumer in that location on a very local curated and personal way.” An Urban Exploration store recently opened in Jackson Square in San Francisco and he suggested that Mountain Athletic stores opening nearby running and training communities would be likely.
A third enabler is expanding wholesale distribution, which includes “enhancing year-round productivity” and “thoughtful account expansion.”
Year-round productivity is focused on “the outdoor specialty channel, making our products special there, making that the destination of choice for our Mountain Sports consumer. Within this channel, we also have an opportunity to become more relevant year-round through Mountain Athletics and Mountain Lifestyle.”
Greater efforts on segmentation, which has particularly supported the brand’s turnaround in the EMEA region, will be critical, as well as working with key retail partners to “allow us to show our complete brand full-year all year round.” Inroads with Mountain Athletics and Mountain Lifestyle are expected to help North Face become more of a spring/summer brand.
“Thoughtful account expansion” involves opportunities to sell to athletic specialty and sporting goods stores with its efforts around its Mountain Sports and Mountain Athletics territories as well as to select lifestyle distribution created by its Mountain Lifestyle and Urban Exploration pushes. Online retail also remains an avenue to reach a consumer looking for convenience.
Said Arens, “Through these segmentation efforts, we will build a differentiated consumer experience across channels and across tiers, maximizing revenues but also assuring a premium positioning across the entire spectrum of distribution.”
The final enabler is authentic storytelling and experiences. While North Face already reaches the consumer through the personal stories of its athletes, it plans to link those outreach efforts even closer to the consumer’s personal experiences.
“We know that consumers today require more experience, not just product, and when they do buy a product, they want to see a meaningful connection between that product and the experience that they’re seeking,” said Arens. “And our consumer territory model provides us ample opportunities to build these experiential platforms as we go forward.”
Never Stop communities, clubs for local outdoor enthusiasts, were successfully launched in four key European cities last year and will be expanded to 10 key cities in Europe this year. Said Arens, “We’ll leverage these learnings across the globe as each region is building out those experiential platforms.”
Overall, North Face is expected to generate 6 to 8 percent compound annual growth (CAGR) over the five-year period from 2016 to 2021.
North Face’s fastest regional growth over the next five years is expected to be in APAC, up 8 to 10 percent on a CAGR basis. That’s followed by EMEA and non-U.S. Americas, both at 7 to 9 percent; and the U.S., 4 to 6 percent.
Among its consumer territories, the highest five-year CAGR is expected from Mountain Athletics, up 11 to 13 percent; followed by Urban Exploration, 9 to 11 percent; and Mountain Lifestyle, 8 to 10 percent. Its core Mountain Sports area is expected to grow at a CAGR of 4 to 6 percent. In 2016, Mountain Sports accounted for 61 percent of North Face’s sales; Mountain Lifestyle, 19 percent; Urban Exploration, 13 percent; and Mountain Athletic, 7 percent.
By channel, DTC (digital) is expected by lead the way for North Face with a five-year CAGR of 18 to 20 percent. DTC (stores) is expected to expand at a 7 to 9 percent rate on average while wholesale is expected to grow 2 to 4 percent on average.
In 2016, the U.S. was by far its largest market at 63 percent, followed by EMEA, 22 percent; APAC, 10 percent; and non-U.S. Americas, 5 percent. Wholesale made up 62 percent of North Face’s sales versus 29 percent for DTC (stores), and 9 percent for DTC (digital).
Photo courtesy The North Face
