Sunday, August 2, 2015

VF Corporation and The Coherence Premium

Analysts seem to think that the VF Corporation1 is looking for a new acquisition, and once again Puma is being mentioned.2   I think that VF may very well be in a position to expand though additional M&A, but I think Puma is the wrong sort of target for them to be looking at.  To date, VFC has focused on lifestyle brands ‘that excite consumers around the world.’  These brands include Timberland (their last acquisition in 2012), Lee, Vans, Wrangler, Nautica, and a number of others.  Puma doesn’t really fit into this portfolio.  VFC has done very well for itself focusing on lifestyle brands that may or may not be tangentially sporting related.  Puma, on the other hand, is first and foremost a sporting equipment brand, and is a direct competitor to Nike, Reebok, and the like.  These sporting apparel companies, though at the most basic level are still apparel companies, operate in a very different market aimed at a different segment of consumers. 

VFC’s ‘coherence premium’ is centered on the marketing of the lifestyle they’ve associated with their brands.  This varies from Vans and Reef’s surfer and skater culture, to Wrangler’s western culture, to Nautica’s watersport culture, but in each case the advertised lifestyle promotes the brand as a worthwhile premium product.  Combining this world class marketing with VFC’s supply chain management successes and design departments neatly encapsulate the VFC coherence that has led to so many successful years.

Now I’m not trying to suggest that VFC and Puma *can’t* work.  Perhaps VFC can and will develop the new core competencies required to compete in the sportswear market.  Certainly this is a much more reasonable M&A target than Sara Lee’s acquisition of Hanes, for example.  But, if VFC does acquire Puma, I think it represents a shift in VFC’s long term strategy away from their currently demonstrated successes.  It’s a big risk, and will require the development of new core competencies to compete in this new, quite crowded and quite competitive market.   


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