Harris Williams Consumer Update
The Harris Williams Consumer team attended the Summer Outdoor Retailer show in Denver late July, the first summer show (and second overall) since the event was relocated from Salt Lake City where it had resided for many years.
As with any relocation, there seemed to be a breath of fresh air and a rejuvenated buzz infused into the Denver Convention Center, as the show was noticeably well attended by a wide variety of consumer brands, influencers, and investors, more so, it seemed, than in recent years. The gear and accessories were highly impressive, both the durability and technical nature of the manufacturing, but the sheer volume of new products was extraordinary, and provided reassurance that the outdoor sector continues to thrive.
One event that specifically caught our eye was the Demo Experience. The event, staged along the banks of the Platte River and Confluence and Commons Park, provided an accessible, hands-on opportunity to test the latest outdoor products the day before the Summer Market (i.e. the main expo) began. Within the Demo Experience, we visited the Overland Experience, a place where Jeeps and other off-road-ready vehicles were outfitted with the latest overlanding gear by several marquee brands, including Tepui Tents, Goal Zero, and Spot. Overlanding is one of the fastest growing and most popular trends in adventure travel. It’s a style of travel, or rather exploration, that covers long distances, typically in an off-road, motorized vehicle to remote or rugged destinations with the intention of staying overnight or longer. It’s a trend that is gaining traction and popularity with Outdoor Retailer’s traditionally human-powered consumer. The Demo Experience's first education session of the day, "Identify, Understand, and Embrace Overlanding," saw retailers and brand representatives joining overlanding brands to understand the growing, self-reliant adventurer consumer group while asking questions about how they can put their products in front of vehicle-minded consumers. As overlanding brands emerge and the sport grows in popularity, we expect overlanding to continue to find overlap with the Outdoor Retailer audience and mainstream outdoor enthusiasts.
Large Strategics On The Move2
VF Corporation (NYSE: VFC), the holding company for many popular outdoor brands, including The North Face, Eagle Creek, JanSport, and Smartwool, recently announced its intention to separate into two, independent publicly traded companies. One of the two entities will be VF Corp. and will manage apparel and footwear while the other, currently unnamed (NewCo), will manage the jeans and outlet businesses, including Wrangler and Lee.
So what does this mean for the company going forward? The separation will provide the new VF Corp., which has estimated sales of ~$11 billion, with more flexibility to pursue its M&A strategy, while NewCo, with estimated sales of ~$2.5 billion, will be able to unlock significant scale and cost efficiencies by streamlining operations, providing flexibility to pursue strategic acquisitions over time.
“As shown by our recent quarterly results, VF continues to gain momentum on our transformation journey, marked by strong progress on our strategic initiatives and portfolio management,” said Steve Rendle, Chairman, President and Chief Executive Officer. “With these strong foundations in place, we are now ideally positioned to create two independent, leading, global companies. In alignment with our strategic plan, the decision to separate these businesses will allow VF to sharpen its focus as a consumer-centric and retail-minded organization anchored in activity-based lifestyle brands. Our jeans platform is a successful, sustainable business with iconic global brands and a clear path to value creation as a standalone entity. This exciting step forward will mean that both VF and NewCo have the resources, management focus, and financial flexibility to thrive in a dynamic consumer marketplace, creating an even brighter future for both organizations and all of their stakeholders.”
Prior to this announcement, VF had been investing heavily in direct-to-consumer, design, supply chain, and analytics capabilities. Additionally, as noted by Steve Rendle, the company has been performing well, with strong cash generation allowing VF to quickly reduce leverage following the acquisitions of Icebreaker, Altra, and Williamson-Dickie over the last 12 months. M&A will continue to be a top priority for both entities as they search for brands and products that complement their existing portfolios.
Vista Outdoor (NYSE: VSTO), the diversified provider of consumer products in the outdoor sports and recreation markets, is making headlines as the company recently announced its intension to divest its firearms business followed by its sports protection brands. “We’re now turning our eyes and are well into the market on a sale of our Savage firearms business, and that will come before sports protection brands Bell, Giro, and Blackburn, although we’re getting interest in both,” said Chris Metz, Chief Executive Officer. “The Savage firearms business sale is attracting, frankly, very good interest. We’re excited about it, and we want to support it in the same robust manner that we did with eyewear, and we feel like this is the appropriate approach.”
This comes on the heels of Vista’s announcement in early July in which the company agreed to divest some of its eyewear brands, including Bollé, Cébé, and Serengeti, to an entity controlled by a significant European private equity fund for a reported $158 million. The sale is part of Vista’s dual strategy to focus on core outdoor consumers (namely hunting and shooting accessories, hydration bottles and packs, and outdoor cooking products) and reduce debt leverage. While company sales were down 7% for the first quarter ended July 1 from the prior-year quarter largely driven by declines in sports protection, hydration, hunting, and shooting accessories, the company did see 25% growth in outdoor cooking (Camp Chef), 14% growth in golf, and 34% growth in DTC sales at CamelBak.
With their transformation plan in full-swing, acquisitions will likely remain on the backburner for Vista in the near-term.
Staying Connected With The Consumer3
A flood of DTC outdoor brands have emerged in recent years that are, at least partially, responsible for the downfall of the traditional sports retail chains, including Sports Authority and Sports Chalet. For DTC brands, customer relationship management (CRM), targeted marketing, and social media have emerged as crucial daily business functions in order to maintain touch-points leading to a more authentic relationship with customers compared to traditional outdoor retailers. Not surprisingly, consumers today place significant value on a strong social media presence and are exceedingly susceptible to lifestyle branding. The number of Instagram followers, as millennial-focused as it sounds, has become a key benchmarking tool as it demonstrates a brands reach to a wide variety of customers in current and potentially new geographies and demographics. However, reaching out to, and staying connected with, the consumer has gone beyond social media, as many of these DTC companies have built new, personalized customer relationship strategies that are responsive to every consumer interaction. These new CRM programs (compared to legacy initiatives) are designed and run to focus squarely on growth-oriented objectives like revenue and customer experience, and are using customer relationships to drive key metrics, including new customer acquisition, customer engagement, cross-selling, upselling, customer lifetime value, and net promoter scores.
These customer relationship marketing programs and initiatives will be key for outdoor and enthusiast brands going forward as they continue to find ways to expand their reach to new customers across the country and overseas. Ryan Budlong, a Managing Director in Harris Williams’ Consumer Group explains: “Now, more than ever, it is imperative that brands across the outdoor sector stay connected with their consumers through social media content and find ways for new opportunity through targeted marketing programs. Many of our clients, both past and present, have done a fantastic job with this, and we expect more brands to continue to follow suit.”
Public Markets Overview
Key Trading Statistics1
Public Company Sector Performance (12-month % change in stock price)1
Consumer And Retail Industry Stock Performance1
Recent Equity Offerings1
Announced Consumer And Retail M&A1
Consumer And Retail M&A Trends1
Trading Multiples And Announced Private Equity M&A Activity1
Recent North American Consumer M&A1
2. Mergermarket, PR Newswire, MarketWatch, and SGB Media
3. CMS Wire
The information and views contained in this report were prepared by Harris Williams LLC (“Harris Williams”). It is not a research report, as such term is defined by applicable law and regulations, and is provided for informational purposes only. It is not to be construed as an offer to buy or sell or a solicitation of an offer to buy or sell any securities or financial instruments or to participate in any particular trading strategy. The information contained herein is believed by Harris Williams to be reliable but Harris Williams makes no representation as to the accuracy or completeness of such information. Harris Williams and/or its affiliates may be market makers or specialists in, act as advisers or lenders to, have positions in and effect transactions in securities of companies mentioned herein and also may provide, may have provided, or may seek to provide investment banking services for those companies. In addition, Harris Williams and/or its affiliates or their respective officers, directors and employees may hold long or short positions in the securities, options thereon or other related financial products of companies discussed herein. Opinions, estimates and projections in this report constitute Harris Williams’ judgment and are subject to change without notice. The securities and financial instruments discussed in this report may not be suitable for all investors and investors must make their own investment decisions using their own independent advisors as they believe necessary and based upon their specific financial situations and investment objectives. Also, past performance is not necessarily indicative of future results. No part of this material may be copied or duplicated in any form or by any means, or redistributed, without Harris Williams’ prior written consent.
Investment banking services are provided by Harris Williams LLC, a registered broker-dealer and member of FINRA and SIPC, and Harris Williams & Co. Ltd, which is a private limited company incorporated under English law with its registered office at 5th Floor, 6 St. Andrew Street, London EC4A 3AE, UK, registered with the Registrar of Companies for England and Wales (registration number 07078852). Harris Williams & Co. Ltd is authorized and regulated by the Financial Conduct Authority. Harris Williams is a trade name under which Harris Williams LLC and Harris Williams & Co. Ltd conduct business.