VF Corp. will use television advertising during the holidays for the first time this year in a bid to expose people in China and other select overseas markets to The North Face brand, the companys CEO Eric Wiseman said last week at the Telsey Advisory Group investor conference.
The campaign, which will also feature billboards and radio, will be among the initiatives that boost VFs ad spending by $50 million this year. Much of that spending aims to maintain sales momentum in overseas markets for the Vans and The North Face brands.
Not all of our competitors can afford to make the investments we are going to make in our brands, said Wiseman. So we are going to make investments in our brands and see how consumers react this fall. We expect China to grow by about 25% this year. And we are investing disproportionately in China to enable our potential there.
In February, VFC raised its goal for international sales to 40% from 33% of revenue, which reached $7.5 billion last year. Much of that growth is coming through VFs owned-retail stores abroad, which generate better margins than its traditional wholesale model in the U.S.
Wiseman said Europe and China offer its Outdoor and Action Sports coalition with the biggest growth opportunities this year. European sales for The North Face have grown seven-fold in the last ten years. VFC acquired the brand in 2004. VF is in the process of moving The North Faces European hub to Lugano, Switzerland, where it established an office for its Napapijri brand in 2005. European operations for Vans, Reef and 7 for All Mankind are already located there.
VF introduced TNF in China in 2007 and is committed to building up its own retail and e-commerce for the brand there. Vans was introduced to China in 2008 at the suggestion of VFs sales and marketing group in Shanghai.
I will tell you, we are going to sell a lot of Vans shoes to the 1.3 billion people who live in China, and we are just getting started, Wiseman said.
Wiseman said the brands growth in China illustrates the strength of the VF business model, which is to buy growing brands and plug them into its global sourcing, marketing and distribution network. For instance, the company now has 1,000 employees working at its sourcing office in Hong Kong.
We can enter markets at an extraordinarily low cost because we have these platforms, Wiseman said. Its much easier than if youre sitting in Orange County, California trying to figure out how do you get started in China. It’s a daunting thing from that perspective when you dont have a single employee (overseas).
Wiseman said VF has made great strides in reducing counterfeiting in China, in part by pooling resources with other brands like Polo Ralph Lauren to work with local governments.
It’s much, much less of a problem for us today than it was three or four years ago, noted Wiseman. We know it’s important, and we spend millions of dollars a year to prevent it.
On the sourcing side, Wiseman said he did not expect rising labor costs or a revaluation of the Renminbi to impact VFs costs in China until the 2011 season. He noted that only about 25% of VFs product comes out of China, with another 25% coming from the rest of Asia and 25% from the Western Hemisphere, mostly Mexico and Central America. Company CFO Bob Shearer said cost pressures were most acute in cotton-based fabric.
China is the worlds largest producer of cotton, but must still import cotton from the United States and elsewhere to meet its enormous manufacturing needs.
