Timberland will produce record results this year and grow sales more than 80 percent by the end of 2019, by focusing on “the outdoor lifestyler,” a consumer who looks for style, performance and green in that order, VF Corp. executives said in their first deep dive with investors on the brand, which they acquired in 2011.
In an investor presentation held at Timberland’s headquarters in Stratham, NH, VFC executives laid out a four-pronged, five-year plan to grow Timberlands revenues by $1.4 billion to $3.1 billion, or at an annualized growth rate of 13 percent. The forecast is based on a global segmentation study based on thousands of hours of deep consumer research that included interviewing 18,000 consumers in eight countries over two years.
Over the next five years, VFC expects Timberland to grow sales substantially in all three major geographic regions through product innovation and diversification; consistent channel discipline; expansion of its direct-to-consumer business; and a significant amplification of how Timberland communicates and connects the brand with consumers.
“It’s staggering the potential that this brand has with consumers,” said VFC President, Chairman and CEO Eric Wiseman. “It’s staggering. And we know that because we measure it.”
The presentation provided Wall Street analysts their first deep dive into Timberland’s business since VFC paid $2.3 billion to acquire the company in September, 2011.
Timberland’s sales in the Americas region will grow an average 14 percent a year during the period and account for nearly half of the brand’s anticipated revenue growth. It will be led by the United States, where growth it expected to be balanced across both wholesale and direct-to-consumer channels. In EMEA (Europe/Middle East/Africa), Timberland expects to add $380 million to reach $1 billion in revenues by 2019. With an expected annual revenue growth rate of 10 percent, this region will capitalize on its big businesses in Italy and the United Kingdom to expand further into Germany, Austria and Switzerland. The Asia Pacific (APAC) region is expected to double its business, growing revenues by 15 percent annually to reach $620 million by 2019. Most of the $310 million of projected revenue growth is expected to come from China and South Korea, which are largely untapped markets for the brand.
The outdoor lilfestyler
The growth will come from Timberland’s new focus on “the outdoor lifestyler,” a consumer who looks for style, performance and green, or SPG, in that order. VFC estimates annual spending by these consumers reached $36 billion in just eight of the more than 80 countries where Timberland sells.
Timberlands growth over the next five years is expected to be balanced across both wholesale and direct-to-consumer channels. Wholesale revenues are expected to grow by $825 million to $2 billion, driven by a 13 percent annual growth rate in the Americas region, 8 percent growth in EMEA and 14 percent growth in the APAC region.
Diane Woods, general manager and VP for Timberland North America, said growth will come primarily from existing accounts opening new stores or awarding Timberland more shelf space as it expands its apparel offerings.
“We have a lot of headroom in our existing footprint,” she said.
Direct-to-consumer revenues for Timberland are expected to reach $1.1 billion, representing an additional $570 million in sales, and an annual growth rate of 15 percent over the five-year period. E-commerce is expected to be Timberlands highest percentage growth channel, increasing by 31 percent annually and adding $180 million in revenues over the next five years. The growth will be propelled in part by Europe, where Timberland is just now opening a pan-European e-commerce business after six years of selling online in the United Kingdom. In China, Timberland has only been selling direct on line since spring 2013.
Finally, Timberland plans to add 130 stores to its current base of approximately 230 stores in what will be the single biggest investment of capital VFC makes in the brand over the five-year period.
Slowing down to speed up
Since the acquisition, VFC has used what Wiseman called a “slow down to speed up” approach to surface Timberland’s potential. That included shrinking the brand’s SKU count 27 percent in 2013, only to start rebuilding it this year. VFC also took Timberland’s apparel business back from a licensee and halted distribution in the United States for 18 months so it could reposition the line at a premium price point. Designers at VFC’s global design center in London reworked designs while Costco, Macy’s and other mass merchants were sold through the old line. Timberland reintroduced it at Nordstrom and select specialty retailers, including REI, which is testing the line at a limited number of stores.
“Those things cost us revenue when you first do them,” said Wiseman. “But what you get out of that is you get a team that is focused on doing fewer things, doing them better, and those things should be relevant to the consumers.”
Over the next five years, VFC foresees Timberland’s operating margin from 13 to 19 percent with gains split evenly between gross margin growth and SG&A reductions. Gross margin is expected to rise 200-300 basis points (bps) as the mix of full price to outlet stores rises. SVP and CFO Bob Shearer estimated four-wall profitability at Timberland’s owned stores has improved from 16 percent to the mid-20s since the acquisition and will reach the 30 percent level achieved by VFC’s other outdoor and action sports branded stores. Savings from supply chain improvements have been higher than expected and increased scale will enable Timberland to actually increase marketing spend from 6.0 to 6.5 percent of revenue in coming years even as it lowers its SG&A as a percentage of revenues.
He attributed the smoothness of the process to VFC’s unprecedented decision to send 40 to 50 people to camp out at Timberland’s headquarters during the summer of 2011 to talk about potential synergies prior to closing the deal.
“That, to me, was the biggest difference and why we have made so much progress,” said Wiseman. “And that was part of the model we wanted to teach ourselves so we could use it on other big deals. This was big and complex. And by complex, what I mean is it was the largest international business we had ever acquired. It is the largest direct-to-consumer business we had ever acquired. It was the most complex supply chain integration we have ever attempted.”
The model works
Whether VFC is ready to take on a similarly sized acquisition, Wiseman would not say, but VFC executives argued their success integrating Timberland demonstrates they can deliver on VFC’s value proposition, which revolves around plugging acquired brands into its global consumer research, product development, sourcing, distribution and marketing engines to grow sales and profits.
Being able to tap into VFs powerful platforms has allowed us to realize significant synergies, giving us the tools and resources to invigorate the Timberland brand,” said Patrik Frisk, VF Coalition President, Outdoor Americas and Timberland President. “Across products, channels and geographies-our consumer insights-driven strategy has Timberland squarely positioned to become the largest, most sustainable outdoor lifestyle brand on Earth.