Can a Turn to Luxury Boost Vans?

 Vans’ “premiumization” was this week’s biggest story. 

Instead of turning to the kids breaking into abandoned pools to skate, Vans looks to shrug off its ailing business by looking to the runways for its revival. The question is whether luxury brands and what VF Corp. President and CEO Bracken Darrell repeatedly referred to as a more premium offering will set the Costa Mesa-based business up for growth. 

“Premium today is a small part of Vans, but this shows how sensitive this business is to new products,” Darrell said during the company’s quarterly earnings update this week. “We don’t have enough new products in the premium or the mainline yet…. New products are coming.” 

Tweaks to the supply chain are expected to help churn out new styles faster. In the case of luxury, Vans has its collaboration with Valentino due out in the fall, with buzz building since the link between the two was revealed earlier this year. 

What’s giving VF the confidence that pricier styles will help is what it’s seen in some of its re-tooled company-owned stores. 

In London, the company’s “elevated” store, drove revenue that was 15 percent higher than the rest of Vans locations in the Europe, Middle East and Africa region. That run was aided by higher average selling prices due to premium styles. 

A similar story can be had with the company’s Fifth Avenue store, which has an assortment that’s about 35 percent premium product. That store has seen several changes, including more new styles in a revamped merchandising strategy. Fifth Avenue, as a result, saw sales increase on a comparable basis in the quarter ended June 28, which made it a top performer domestically. 

“Based on these early successes, we’ll be rolling out our new retail playbook to improve assortment, curation and navigation to other regions,” Darrell said. 

VF sees the London and New York store performances as a show of “how much upside there is” in upscale product.  

Starting from the Top

In Vans’ history, collaborations with high-end brands is not new. 

The company’s partnered with Gucci Continuum to use deadstock fabrics on some of its classic styles. It has also collaborated with Proenza Schouler, Vivienne Westwood, Rhude and Comme des Garçons. 

Those partnerships generated buzz and were largely one-off marketing plays. They were never part of a significant strategy to lift revenue for a sustained period of time. 

Darrell thinks the brand and business are made for such an approach and from a gross margin standpoint make sense. 

“Vans is a brand that has the ability to stretch across such a wide range of price points,” he said. “And generally speaking as you go up in price points, you have higher gross margins. And we’re barely touching the tip of the iceberg in terms of the premium mix that we can sell.” 

Vans, like any other business, has had its ebbs and flows. In fact, its former parent, Van Doren Rubber Co., emerged from Chapter 11 bankruptcy in 1985, despite the run-up in the business before the reorganization that was fueled by “Fast Times at Ridgemont High” character Spicoli donning the company’s checkerboard shoes. 

Vans and pop culture go hand in hand. So do Vans and surf and skate. But, what about fashion? 

Since Darrell’s arrival to VF two years ago, he’s trying to make a strong case for the latter. The logic being to build an aspirational product that’s higher priced and higher margin, prompting demand to trickle down. 

How do you sell that strategy for a shoe that has long run opposite to that trend line? Kids wearing Vans while pitting at backyard shows or skating abandoned pools has at times influenced high fashion when luxury brands get the itch to dip into punk and other subcultures.

“Trends start in the luxury market,” Darrell pitched to investors. 

Market editors may have noted more “skate-inspired silhouettes” on the Paris Fashion Week runways earlier this year and Darrell and company are looking to capitalize on that and what some might see as a more mainstream play. 

Vans Slide

To understand how Vans got itself into its most recent rut, one need only go back to just a few years prior to the pandemic when its sales trajectory came courtesy of more mainstream shoppers. 

The footwear brand gained broader success when wearing Vans was trendy. When pant styles turned to wide leg silhouettes and more premium athletic footwear brands such as Hoka emerged, demand shifted.

As a side note, look at Vans’ sister brand Altra. That business has quietly plugged away and grown revenue from $60 million in 2018 when VF acquired the business, to $250 million today. It’s benefitting from a trend and the more sustained growth of the outdoor segment.

When tastes shifted, Vans fell out of favor and its sales took a similar turn. Who’s to say that doesn’t happen again? Vans is looking to capitalize on a rising trend.

Management may not care so long as it has a growth story to sell investors and analysts in the near- to medium-term. 

“It’s been two years of resetting the table and soon, we too will move to growth as we did in every turnaround I’ve been a part of,” Darrell promised analysts as he pointed out turnarounds almost always start with declines before things flatline with stabilization and then notch gains. 

Vans might enjoy riding the fashion wave and sales will see a boost, but it might not be sustained once tastes change. They always eventually do.