VF Corp. is bracing for big price increases at its denim business, which contributes about 30 percent of its sales globally, according to comments by VF President and CEO Eric Wiseman at the Piper Jaffray conference.
VFC expects to eat 350 gross margin points in its U.S. jeans business this year rather than pass the entire cost of higher cotton prices on to its customers in the mass retailer and mid-tier department store channels. At The North Face and its other outdoor and action sports brands, however, it will be able to pass along more costs because of the pace of innovation.
Most of The North Face products that youre going to see this winter havent been sold before, Wiseman said. Most of the outerwear that were going to make is going to be brand-new styles. So, if last year or two years ago, you bought a $245 jacket, and you go into a store this year and you see a $260 jacket. It’s going to be technologically better. It will have different materials and a different look to it. Is there inflation in this new product? Yes, there is. That may be why it costs that, but everything else about it is different, too, so it’s really hard for consumers to see that. We think that’s a big advantage.
As a result, VFC expects total gross margins will only erode about 100 points this year. Wiseman said he remains confident it can grow overall gross margins from 13.3 percent in 2010 to 15 percent by 2015 because of its growing direct-to-consumer and international sales.
By 2015, VF Corp. will derive 40 percent of sales from outside of the United States, up from 30 percent today.
VFC also expects to increase its direct-to-consumer sales from 18 to 22 percent of sales by growing the number of stores it owns and operates from 800 to 1,500. Most of those will be overseas.
Much of the growth will be in China, where VFC expects its sales in China to reach $300 million this year, up from $220 million last year thanks in part to the introduction of The North Face Vans and Kipling brands since 2008.
VFs Outdoor and Action Sports Coalition continues to hunt for acquisitions among brands with existing international and direct-to-consumer platforms. While VFC has identified many such candidates it has so far been unable to come to terms on price with sellers.
