VF CFO: ‘Aggressively’ Cutting Costs Key to Optimizing Distribution
Add VF Corp. as another company looking to optimize its distribution network by cutting costs.
In Tuesday’s first-quarter earnings call, Matt Puckett, executive vice president and chief financial officer, VF Corp. said the Vans and The North Face parent would “continue to reduce cost aggressively if it’s not adding value for the consumer.”
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Puckett said that the portfolio company is “aggressively optimizing our distribution capacity” and other areas “where revenue is under pressure,” saying that VF is pausing some longer-term projects to focus on near-term initiatives.
Sourcing Journal reached out to VF Corp. for more detail on the distribution network optimization, but there is no indication it will close any industrial real estate facilities.
The firm also aims to rein in technology spending that does not face or impact the consumer, as well as halt discretionary spending—particularly on roles that are not critical to revenue-driving activities and brand-building strategies. Additionally, the apparel conglomerate is considering reducing unit sales volumes.
The company is making these commitments with a new CEO and president in place as it looks to turn around the fortunes of Vans. Bracken Darrell, the former CEO of computer products manufacturer Logitech, officially stepped into the VF CEO role on July 17.
During the company’s February earnings call, Benno Dorer, then-interim president and CEO of VF Corp., suggested that the Supreme and Timberland brand owner could cut costs by moving product through fewer distribution centers.
“We are working on peak warehousing capacity planning, so we don’t have to use as many external facilities, which gives you inflexibility and also gives you higher costs,” Dorer said at the time. “We need greater agility to react to short-term changes.”
The company recently opened a new 1.2-million-square-foot distribution center in Ontario, Calif., its “most highly automated facility that will allow us to more efficiently service orders” and save money when it’s fully up to speed, Puckett said.
At the time of the launch, Cameron Bailey, executive vice president of global supply chain, VF Corp., said the facility was designed to “get our product to our consumer faster using technologically advanced equipment, which results in reduced lead times and increased efficiency in meeting consumer demands.”
The distribution center can ship up to 76 million units a year, and will initially handle fulfillment for Vans and The North Face, with other brands to follow. According to the company, the California DC operates with double the processing capacity of a traditional VF fulfillment center. Consumers in California, Nevada, Arizona and southern Utah can get their orders shipped the next day.
While the new facility can employ as many as 550 people during peak season, the automation capabilities will simplify worker tasks. VF Corp. is retrofitting all of its 46 distribution facilities with Locus Robotics technology to pick and move product. The California warehouse includes 38 robotic cranes, 304 robotic shuttles for product storage, 28 goods-to-person stations, and five high-speed e-commerce lanes.
The investments seem to be paying off. In the quarter, VF reported selling, general and administrative (SG&A) expenses—which include logistics and distribution costs—that declined 3.9 percent year over year to $1.11 billion.
The distribution network changes have improved product flow as well. After experiencing elevated lead times throughout the Covid-19 pandemic that impacted the company’s planning and buying calendar into 2023, first-quarter lead times are back to normal across VF brands, Puckett said. On-time performance and in-stock percentages were also back in line with the company’s targets.
For the quarter, revenue at VF Corp. declined 8 percent to $2.1 billion, weighed down by Vans’ 22 percent revenue plunge to $737.5 million. Wholesale in the Americas region for the “Off the Wall” footwear brand plummeted 39 percent as “key partners maintain a more cautious stance on forward orders,”
VF’s earnings came out shortly after Amazon touted how well it managed to scale same-day delivery despite also cutting costs.
The e-commerce giant’s pivot to an eight-region fulfillment network has been so successful that its same-day facilities average just 11 minutes to pick and pack customer orders, more than an hour faster than traditional fulfillment centers.
Amazon plans to double the number of same-day delivery sites “in the coming years,” said Doug Herrington, CEO of Worldwide Amazon Stores.
