When Sara Lee Corp. introduced its new Wonderbra in the U.S. in New York last May, after the trendy cleavage-builder took the British market by storm, managers at rival VF Corp. watched closely. Only after American shoppers began snapping up the new bra did VF offer up its own It Must Be Magic version.
But once VF decided to move, it moved. Using state-of-the-art distribution, it surged ahead with a nationwide rollout five months ahead of Sara Lee, which is itself no slouch when it comes to marketing. Now, VF's $23 knockoff is holding its own against its rival's $26 brand-name brassiere.
"LESS RISK." Letting others take the lead may be outre at Paris salons, but it's a winning style at VF. By sticking mostly to timeless apparel staples, finely honing its "second-to-the-market" approach, and bringing high technology to the nitty-gritty details of distribution, VF, based in Wyomissing, Pa., has avoided the financial gyrations that beset many clothing makers. Says VF CEO Lawrence R. Pugh: "Clearly, there is less risk."
Clearly, there's also more reward. Since 1991, VF has boosted income and sales at a compound annual growth rate of nearly 20%, a record few big U.S. companies can match. For 1994, net earnings hit $274.5 million, up 11.4% on sales of $4.97 billion, a 15% rise. Double-digit gains are expected again this year.
As pragmatic and staid as VF's product line, Pugh would rather make money than fashion news. Roughly 51% of VF's sales come from its workaday jeans such as Lee and Wrangler, and an additional 15% from Vanity Fair women's undergarments. Pugh's brands are the bread-and-butter lines for many retailers. "They give the customer what the customer wants," says Tom Cole, logistics chief at Federated Department Stores Inc.
Sounds simple. But making sure customers find what they're looking for has become a high-tech battleground. VF has emerged as a leader in computerized "market-response systems" that keep close tabs on what shoppers buy--allowing VF to rapidly restock stores with popular togs. VF's shelf-stocking strength is helping it beat the pants off of rivals such as $6 billion-a-year Levi Strauss & Co. While it can take up to a month to get in new Levi's, says Cole, VF's jeans generally arrive within three days of an order. "VF is in the vanguard in retailer-vendor partnerships," he says.
It wasn't always so. After Pugh became chairman in 1983, he led VF through a series of aggressive acquisitions. That helped double sales, to $2.5 billion in 1989, but earnings growth lagged--and a failed bid to transform Lee into a more trendy brand forced a $57 million charge in 1990. Yet even as Lee stumbled, sales of Wrangler jeans soared, thanks to an experimental market-response system VF had begun to develop in 1989. Pugh realized that VF would do better sticking to basics and spreading the system to its other lines.
VF began by hooking its own computers up with those of retailers such as Wal-Mart and J.C. Penney. Since VF supplies tens of thousands of retail outlets with hundreds of styles, the task is mind-numbing. VF's computer nerve center looks more like a Star Trek set than the heart of a fashion company; in a bridgelike control room, technicians track data constantly sweeping across 40 terminals running floor to ceiling.
How does the system work? Consider Wal-Mart Stores Inc., which moves millions of Wrangler jeans each year through 2,100 outlets. Every night, Wal-Mart sends sales data collected on its register scanners straight to VF, which then restocks automatically. So if a Wal-Mart customer buys a pair of Wranglers on Tuesday morning, by that evening, records of the sale arrive in VF's central computer. If VF has a replacement pair in stock, it's shipped directly to the store the next day--and by Thursday, Wal-Mart's shelf is replenished. If not, VF's computers automatically order up a replacement--and a new pair of jeans is shipped within a week. That's a big change: Restocking used to take VF up to three months. The system "has enabled us to get merchandise into the stores in a more timely manner, closer to buying decisions by the customer," says Ken Eaton, Wal-Mart's merchandise manager for men's and boys' goods.
To be sure, shortening restocking times is a mantra for many retailers and suppliers these days. But Levi's only recently set plans to cut delivery time by the end of 1996 to within 72 hours of an order. "We don't even classify Levi's as so-called quick-response," says John Freudenthal, executive vice-president of the 59-store Milwaukee-based Carson Pirie Scott & Co.
Speed isn't the only advantage. By taking the guesswork out of reordering, the system ensures that retailers replenish only styles that sell. That has helped Belk Store Services Inc. "We get more sales out of the same amount of inventory, because we now have in stock more of the sizes the customer wants," says Robert Wildrick, merchandising chief for the 280-store chain. Fewer unwanted goods also mean fewer clearance sales.
With about half of VF's U.S. jeans business now handled through the quick-response system, Pugh credits it with solidifying VF's position as the biggest player in the $7.9 billion U.S. jeans market. VF's share, measured in unit sales, has moved from just under 26% in 1989 to 30% in the 12 months ended last November, according to market researchers NPD Group Inc. in Port Washington, N.Y. By contrast, even with its powerhouse brand name, Levi's share has slipped from 21% to just below 17%, in part, say retailers, because of its slowness in replenishing stock. A Levi Strauss spokesman says Levi's continues to post record sales; industry insiders say it is sacrificing volume for price as it concentrates on upscale retailers. Still, Levi's plans to spend heavily upgrading its delivery system.
LOSING AN EDGE? Indeed, quick-response replenishment systems are proliferating among manufacturers. Large retailers are also developing systems. Wal-Mart has one on the drawing board, while Penney has inaugurated its own in-house restocking network. That means Penney will be able to restock Levi's--or its own Arizona label--just as quickly, cutting VF's edge.
Pugh vows to keep ahead of the pack. He says he's working with retailers to move beyond replenishment. By sifting through its sales database, VF's experimental Trendsetter system will track groups of goods--say, jeans and shirts of various sizes, styles, and colors--to find sales patterns that can help retailers forecast ideal supply levels. But as others catch up, it's unclear if VF can hold its lead.
And automated replenishment does have limits. Although it works well with timeless staples, it's of little use for fast-moving styles. That may explain why VF hasn't done as well when dabbled on the frontiers of fashion. Its pricey Girbaud jeans, for example, has misfired so often that VF wrote off $16 million in excess inventory in 1993. New management spent 1994 rebuilding the brand. There may be limits with VF's other lines: Only 25% of shipments of Vanity Fair's constantly changing line of undergarments uses the replenishment system and 10% to 15% at VF's Healthtex Inc. children's line.
Pugh knows he can't take all the risk out of the clothing business. No amount of computer savvy can tell if a new cleavage-enhancing swimsuit from VF's Jantzen Inc. unit--a spinoff from its Magic push-up bra--will sell. But the way VF uses its technology is certainly an uplifting notion in the fashion trade.