Tough Times at Vans Lead to Revamp
After enjoying a great ride for the past five years, Vans Inc. has hit the skids.
The latest news from the core sport apparel enterprise warned that it would post a deeper loss in the current quarter as it writes down slow-moving inventory and closes a California skatepark.
The company said it expects net sales of between $60 million and $61 million in the quarter ending May 31, down from $85.2 million in the corresponding period last year. Excluding onetime charges of $8.6 million relating to write-downs, the closure of a skatepark in Bakersfield, Calif., and Latin American operations, the company said it would post a loss of about 20 cents per share in the quarter, more than double analysts’ expectations of 9 cents a share.
It’s a 180-degree turn for the Santa Fe Springs, Calif.-based company that saw its business sales double from $161.6 million in 1997 to $341.2 million in 2001.
In response, the company has pared down its expansion strategy and turned its focus to boosting lackluster U.S. wholesale orders and freshening its fashion lineup, said Vans chief executive officer Gary Schoenfeld in a recent conference call.
The company has experienced the most problems with the women’s shoe market. In the third quarter, which ended March 2, sales in Vans’ women’s shoe division—constituting about 25 percent of the firm’s total wholesale revenues—were down 50 percent in the United States and are expected to be down 60 percent to 80 percent in the fourth quarter.
“The teenage girl doesn’t seem to be prevalent on the scene,” said Teresa Meyer, senior research analyst at Lake Oswego, Ore.-based D.A. Davidson and Co.
Following upstarts such as Savier and Clay, Vans hopes to inject more trendy interpretations into its performance-driven footwear product, tapping into new materials and colors, Schoenfeld said.
Todd Dalhausser, Vans’ director of apparel, said he is encouraged by the success of the company’s new junior apparel clothing, consisting of an in-house division and a joint venture with retailer Pacific Sunwear.
“We’re really excited about the visibility we’re getting with the junior market,” he said.
He expects the in-house line to grow from six to 30 stores for the back-to-school season.
Retail is another top priority for Vans, which has witnessed an executive shuffle at company headquarters. Vans announced the resignation of its president of retail, Neal Lyons, effective June 15. Kevin Bailey, formerly the director of retail operations for Golfsmith International Inc., was hired as the vice president of retail store operations.
With same-store sales down 8 percent for the quarter, the company’s onetime bullish expectations of opening 15 stores a year for the next five years have been modified to nine annual store openings, focusing on shopping center units. This year, stores are opening on the East Coast in New Jersey and Massachusetts, in Tucson, Ariz., and in the California cities of Sacramento, Capitola and Downey.
Refining the look at Vans’ 164 stores is another part of the retail equation, said Howard Kreitzman, the company’s vice president and general merchandise manager. Adding fixtures that display Vans shoes’ trademark waffle-sole and allowing more clothing to hang on shoe racks are a few of the design changes planned.
“A shoe company is very different from a total apparel companyhellip;so our goal is to use whatever dead space there is to add to the store presentation,” Kreitzman said.
Until recently, the crown jewel of the retail strategy was opening skateparks, which were generating $2 million to $2.2 million a year each and helping the company branch out beyond hardcore street skaters to kids willing to pay $14 for two hours of skateboarding. Currently, the company has 10 parks, following the closure of the Bakersfield location, which was just one of the parks posting a 20 percent decrease in attendance year-to-date.
In the conference call, Vans said the parks were struggling in communities dependent on technology employment. One example cited was the Milipitas, Calif., location, which saw operating margins plummet to 3 percent to 5 percent in the fourth quarter from 27 percent in the equivalent period last year. As it re-evaluates the skatepark business, Vans has only committed to opening a park in June in a suburb of Detroit and another one in January outside of Sacramento.
Kreitzman also said that the company sees upside from implementing an internal retail-inventory system. The technology will help Vans evaluate sales by color, size and product, allowing it to replenish stock according to demand. He hopes stock replenishment will improve by this fall’s back-to-school season.
Another issue the company is wrestling with is its Web site [www.vans.com], which relaunched last year to sell products. Executives are finding that the skateboarding consumer doesn’t necessarily translate into an e-commerce fan.
“Our best direction with the site is to tell our story and drive the customer to the store,” Kreitzman said.
