Footwear Giant Adds Apparel

December 22, 2006
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ROCKFORD — Wolverine World Wide intends to build some of its major footwear brands into full "lifestyle" brands by adding coordinating apparel lines, thereby transforming the company from a leading multi-branded global footwear business into a leading multi-branded global footwear, apparel and accessories business.

It's all part of a long-term-strategy the company hopes will help it grow two to three times the average industry growth rate of 2.5 to 3 percent. Last Monday company officials outlined for analysts their plans for achieving that goal and reaching the $2 billion in annual revenue mark over the next seven to nine years.

Chairman and CEO Timothy J. O'Donovan said Wolverine had anticipated surpassing the $1 billion revenue mark in 2006 but actually hit that mark in 2005. That got the management team talking about how Wolverine was going to achieve the next $1 billion in growth, he said. The planning process that began 18 months ago culminated in a strategy called "Project 2.0" and a new company vision, he said: "To excite consumers around the world with innovative footwear and apparel that brings style to purpose." The goal is to create strong, multi-dimensional global brands "that touch more than one element" of consumers' lifestyles.

Leading that charge will be President and COO Blake Krueger, who will succeed O'Donovan as CEO in April. Krueger has been a director of the company since last July and had previously served as president of Wolverine's Heritage Brands and as an executive vice president and officer. O'Donovan will continue as chairman of the company and work with Krueger to further develop Wolverine's growth initiatives.

Krueger discussed four of the most significant growth initiatives underlining Project 2.0. He said Wolverine's top priority is to continue the focus on its core businesses. The company's Hush Puppies brand is enjoying its fourth consecutive year of growth around the world, he pointed out. The Caterpillar brand is a strong global lifestyle brand that has had great momentum the past two to three years, particularly in Europe and several of the company's international markets. The Harley Davidson business is concentrated in the United States but has a growing network around the world, especially via the Harley dealer network, Krueger said. Additionally, the Wolverine brand has attained the No. 1 position in the U.S. work boot market, and the Sebago brand is starting to pick up steam domestically as well as internationally now that the product line has been revamped.

"We have a pretty diverse portfolio of businesses, and we're continually looking at those businesses to see which ones meet our financial metrics. We're going to adjust some of those businesses in 2007," Krueger.

Merrell, the industry's star performer over the last several years, is by far Wolverine's fastest growth driver as witnessed by a string of double-digit sales increases over the last eight years, he said. Next up: a Merrell apparel line that will launch in fall 2007.

"We continue to be very excited about Merrell apparel and the opportunity we think that Merrell as a brand can play in the outdoor apparel arena — the same way it played in and redefined the outdoor footwear arena," Krueger said. "Merrell apparel and the continued momentum in the Merrell footwear business, domestically and internationally, has led us to believe that this could be our first true billion-dollar brand. It's not going to happen by 2010, but the opportunity here for Merrell is big."

Next year Wolverine is going to exit the Hush Puppies slipper business, which is trading below management's "stated norm and stated goal," he explained. Wolverine also is going to phase out of the private label footwear business, which is in decline. The U.S. Department of Defense, for example, is reducing its number of private label orders by about $12 million in the coming year, he said.

Krueger said that in Wolverine's core businesses, the company is shooting for organic growth totals in the 5-to-8-percent range for the first four years of Project 2.0. Growth is expected to be a little bit less in North America due to greater market concentration, and a little bit higher in Europe where Wolverine brands are underrepresented, he explained. Using the midpoint growth range of 6.5 percent, the company would expect to reach about $1.45 billion in revenue by 2010, he added. By that time, the company also anticipates that about 40 percent of its sales will be derived from European and international operations.

Last year, Wolverine entered into a long-term global licensing agreement to produce Patagonia footwear. The first Patagonia footwear will be introduced at the retail level this coming spring and will be prominently featured on the Patagonia Web site and in Patagonia catalogues and retail stores.

"When we look at the Merrell and Patagonia growth initiatives over the next four years, we think they're going to add about $100 million to our top line sales over that period," Krueger remarked. "And over that four-year period, when we view our core businesses coupled with these two growth initiatives, we're at about an 8.2 percent annual growth rate."

The third major focus of Project 2.0 is on "operational excellence," he said, and the intent is to rid the company of any pockets of inefficiencies that exist in manufacturing, distribution and product development. The objective is for Wolverine to become "better, faster and less expensive" in everything it does, Krueger said.

He said the fourth priority is to make sales happen on the retail floor. Studies in the United States indicate that 70 percent of all "buy" and "no buy" decisions on footwear are made when the consumer is standing within three feet of a footwear display, Krueger said.

"It's imperative that all of our brands look as good as possible at the retail level around the world," he said.    

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