Hanesbrands – Championing Growth & Past PPE
Demand – 15 April 2021
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Specialist:
Title:
Moderator: Nyree Hinton (NH), Third Bridge Sector Analyst
John Marsh (JM)
Former President, Activewear at Hanesbrands Inc
Agenda:
1. Activewear recovery
2. Champion’s (NYSE: HBI) brand positioning and global expansion prospects
3. Shifting consumer trends
4. Innovation across innerwear and past PPE (personal protective equipment) demand
5. Margin expansion and profit outlook
Contents
Q: Could you give an overview of the athletic and innerwear apparel industry? What are the main drivers
and who are the top competitors?
Q: What were the key trends affecting players such as Hanesbrands pre-coronavirus? How did those trends
change after March 2020?
Q: Could you give an overview of Hanesbrands, the categories it operates in and how that breaks down
geographically?
Q: What are the operating dynamics for activewear and innerwear? What challenges does each segment
face?
Q: Could you describe Hanesbrands’ brand awareness and brand strength? How has Hanesbrands
maintained its brands over the years? What could it have done better?
Q: What are your thoughts on Hanesbrands operating its own manufacturing facilities while many rivals
don’t? Do the advantages of controlling quality offset the costs it could save?
Q: What territories or categories is Hanesbrands expanding into that may have better growth prospects?
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Q: Could you talk about Hanesbrands’ market share within women’s and the challenges it may be facing in
this demographic?
Q: Could you elaborate on Hanesbrands’ new strategic plan? What do you think the company’s goals are?
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Q: When Hanesbrands notices it doesn’t have a presence in a country or area but its brand is being searched
for online, how aggressive is it in trying to get into that market? How important is distribution in getting to
areas where it doesn’t have a presence? How do its products get there? How would you assess Hanesbrands’
risk tolerance and aggressiveness in expanding as much as it can?
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Q: How do you measure consumer perceptions of Champion vs other brands? You mentioned there is still
some risk of falling out of favour with younger consumers. Whereas Nike and Adidas are perceived as very
old brands, but they’re continually reinventing themselves. How does Champion continue to reinvent itself
in activewear?
Q: Could you elaborate on the collaborations between Bape and some of the other well-known streetwear
companies? Is it dropping in a new hoodie and then having Hanesbrands branded on the back or sides?
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Q: Could Champion and Hanesbrands acquire one of the more trendy brands such as Supreme or Bape in a
bid to stay connected with younger consumers?
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Q: What do you think about innovation in activewear and footwear in the US?
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Q: How does the distribution pipeline match up for activewear and innerwear? It seems around 75% of sales
are through wholesales to retailers. Do you think the shift to D2C could be faster or do you think wholesale
distribution is still crucial to Hanesbrands’ overall strategy?
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Q: Is there a specific type of Champion product that you think is its most successful?
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Q: Are there any supply chain issues with the D2C distribution model? Are there higher margins within D2C
or are there higher freight costs? How do you assess the margin profile of Hanesbrands' two operating
channels?
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Q: What is Hanesbrands learning from the new market entrants? How is it adapting to their new strategies?11
Q: Is there anything you think investors should know about Hanesbrands’ management team and their
ability to execute on priorities?
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Hanesbrands – Championing Growth & Past PPE
Demand
Transcription begins at 00:00:00 of the recorded material
NH: Welcome to Third Bridge Forum’s Interview, entitled Hanesbrands – Championing Growth and Past
PPE Demand. I’m Nyree Hinton, and I will be facilitating today’s Interview with Mr John Marsh, former
President, Activewear at Hanesbrands.
John, before we get started with today’s Interview, please state I agree or I disagree to the following statement:
You understand the definition of material non-public information and agree not to disclose any such
information or any other information which is confidential during this Interview.
JM: I agree.
NH: Could you start by giving an overview of your background and various roles held in the industry?
JM: I spent 25 years with Hanesbrands. The last seven years of my career there I was Global President of
Activewear Division that included Champion athletic wear, our college bookstore business, our Hanes cas wear
business, among other businesses, that included our businesses in North America, Asia and Europe. I had
responsibility for all functional areas, sales, marketing, design, distribution, manufacturing, etc. It’s where I
spent my career primarily, and responsibility for all of those areas, and it was a really great time to see the
growth of the Champion brand during that time as well and establish a new direction for the brand.
[00:01:44]
Q: Could you give an overview of the athletic and innerwear apparel industry? What are the main drivers and
who are the top competitors?
JM: The athletic industry is led by the proven brands like Nike, Adidas, Under Armour, Champion and a few
others, and it’s typically driven by those on-field guys, like Nike and Adidas and, to a certain degree, Under
Armour as well, but what we’ve seen in the last several years are new entrants that have come into the space,
and they’ve come from interesting places, whether it’s from yoga or running, brands like Lululemon, even
brands like Lorna Jane, which are yoga-inspired from Australia, Sweaty Betty from the UK, and even like
Rhone, which is a menswear brand based in the US. They have come into the space and really taken advantage
of this trend, this athleisure trend. I remember seeing a study that said that athletic wear is used for its
intended purpose only about 10% of the time, and so these brands, whereas they focus on on-field sports, they
focus on athletic competition, the reality is most people wear this product for usage occasions that are
completely different than what they’re intended for, and so the category has gotten much, much larger and
much more relevant to everyday consumers as the usage occasions have continued to grow. That’s what the
market has evolved to from on-field competition to inspiration for everyday usage occasions. On the
activewear side, that’s where we’re seeing an explosion of the influence of competitive athletic wear into
everyday apparel.
On the innerwear side, what you’re seeing is some very large brands that are everyday basic innerwear brands
like Hanes, Fruit of the Loom. You have some entrants like a Gildan, who have tried to come in and become a
consumer brand but have found that it’s way more difficult than what they had anticipated. You do have some
private label brands in that category that have been there for a very long time and continue to be relevant, but
what you have in this section, in this category in innerwear, also there are brands like new entrants that are
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the online brands, that are the born-digital companies like Mack Weldon, Bombas in socks, Tommy John,
Adore Me. Those are the types of entrants that have come into the market that individually, in and of
themselves, haven’t changed the market. As those brands come in, they’ll maybe reach, and this is my
perspective, my opinion, USD 100m, maybe USD 200m in revenue, and now they have to really move the
market, but taken together as a whole, they can take share and can have an impact on the marketplace. I think
that’s caused some of these big brands to take note and say, “How do we compete with these nascent brands
that have come into the marketplace through digital?” and that sort of thing. That gives you a perspective on,
primarily, the North American market, both within athletic wear, activewear and innerwear.
[00:05:17]
Q: What were the key trends affecting players such as Hanesbrands pre-coronavirus? How did those trends
change after March 2020?
JM: I mentioned one of those trends already, which is this athletic wear becoming a source for everyday wear,
it’s athleisure, that sort of thing, so that trend was happening pre-COVID and it continues to happen now, but
I think that the primary trend that was happening pre-COVID was this, “How do we become omnipresent with
our brands?” and every brand is trying to figure that out. HBI had traditionally been that, or historically had
been that traditional distributor. They sell to retailers, key retailers, who then sell to consumers, etc, but they
were shifting, pre-COVID, very quickly towards being omnipresent and getting their brand where consumers
want to buy it, online, in store, however, whatever that is. That trend, many brands are trying to figure that
out. Do you do it yourself with your own online sites, your own online stores? Do you do it through third
parties like Amazon and others, and what is the role of retail and how is that changing going forward? I think
what happened with COVID is all of that just accelerated, so with the store closures or limitations in stores or
inability to get out as much, that whole consumer shopping online just accelerated dramatically during the
COVID period and continues to be that way.
The question is do we revert to the pre-COVID norm or is this the new norm? I think my impression is there’s
going to be some significant change that will continue based on what’s happened during COVID that we’ve
become accustomed to and appreciate now and like buying our products online. There is a role to be played
about understanding what the brands are and how do we experience the brand if we’re not there to touch it,
feel it, see it. I think that’s the balance that everybody is trying to figure out, is, “How do I get the products to
where consumers want to buy it, but, at the same time, how do I help them understand and experience the
brand in a meaningful way so that we can differentiate the product from our competitors?”
[00:08:18]
Q: Could you give an overview of Hanesbrands, the categories it operates in and how that breaks down
geographically?
JM: The biggest breakdown are innerwear vs activewear. That was the primary breakdown. Innerwear is
really broken down a little further into basics and intimate apparel, and, geographically, the regions are
Europe, and there we have both activewear with the Champion brand, or they have the Champion brand, and
they also have a significant intimate apparel business there. In North America, obviously, we have two big
segments of activewear and innerwear in North America. In Asia, a very, very big Champion business that’s
growing. It was growing very, very quickly with also a foundational element in innerwear, and then in
Australia a very large and important innerwear business with the Bonds brand and bras and things, with a
growing presence of the activewear in that market. Generally, it was broken down between innerwear and
activewear, but internationally, typically, whatever the lead segment was, for example, in Australia, innerwear
is the lead, but they also had responsibility for the activewear business there because they have such a large
presence in the marketplace, and so they would differentiate it by having different people run the business, but
it reported up into innerwear.
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[00:10:11]
Q: What are the operating dynamics for activewear and innerwear? What challenges does each segment face?
JM: Speaking to innerwear, the Hanes brand, which is the primary driver of the business in North America, is
virtually everywhere from a distribution perspective and has been for a very long time. Their goal for growth
was about getting new space, about bringing innovation to the marketplace. Their distribution was very
thorough right across channel-to-trade, whether it’s at even the department store through mid tier and into
the mass channel and then online, so their omnipresence, if you will, already, from having been fully or very
well-distributed is a different challenge to make sure that they continue to be relevant to the consumer today.
From an operational perspective, more of their business was done internally with the internal manufacturing.
It fits their business model better, and so a higher percentage of the business would be manufacture internally.
On the activewear side, and speaking to Champion in particular, less of the product was made internally than
the innerwear business, and there were more varied fabrication needs, style needs and some more flexibility
that was needed, and that’s why there was a little bit more flexibility. We thought to do as much as we could
internally, there are advantages to doing that, where it made sense was the right fabrications, the right styles,
but, at the same time, we wanted to make sure we were answering the demands from the marketplace. I would
say in general that the innerwear business, again distributed to kids, women, men, just really great
distribution and incredible brand awareness, and their challenge going forward will be, “How do we make sure
that we’ll continue to be relevant and interesting and make sure that we’re young enough for the new
generation, new consumer?”
[00:12:51]
Q: Could you describe Hanesbrands’ brand awareness and brand strength? How has Hanesbrands maintained
its brands over the years? What could it have done better?
JM: HBI prides itself on controlling their manufacturing so that they can maintain the quality that they want
in their products, but there are also marketers, and they, over decades really, have built their brand. These are
not brands that just started up recently. These are brands that have been in the marketplace for decades, and,
in the case of Hanes, 100 years, over 100 years, and they continue to not just advertise, but to advertise
innovation and newness, and they’ve done a good job with that. That’s not easy to do. You can just ask some of
the other new entrants that have tried to come into that space. They thought, “I have a label, and I’m just going
to get distribution space at retail and I’m just going to build a brand,” and it’s not always that easy. It takes so
much more time to really become relevant in the consumer’s mind. It’s really been something they’ve done
over decades of time, whether it was with the Hanes brand or Playtex or Bali. It’s continued communication
and interaction with the consumer and relevance with product innovation.
[00:14:38]
Q: What are your thoughts on Hanesbrands operating its own manufacturing facilities while many rivals
don’t? Do the advantages of controlling quality offset the costs it could save?
JM: It’s an interesting challenge, because there are, absolutely, savings economically, and some efficiencies
that are gained by doing your own production internally. What it limits is some of your flexibility. You can’t be
all things to everybody when you own your own manufacturing. You can, but there’s a cost to it, and so are you
going to focus on knitwear, and what type of knitwear are you going to focus on? Is it going to be jersey, rib,
interlock, terry, fleece or beyond that? You have these limitations in that, and you also want large platform
styles so that you can really run those plants efficiently, and I think that’s the challenge. There’s no question
that if we could find a style that we could internalise, there would be operating efficiencies and savings to be
had. What that does though is say, “How quickly will the market demand that I change my styles or innovate
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or bring different styles and styling to the marketplace, and does that work within my internal manufacturing
base?” I think that’s the challenge that they face. I think that what they’ve been really good at over the years is
bringing large platform innovation to the marketplace so that they could leverage that supply chain. My guess
is, and again this is my thought, that COVID-19 probably gave them the opening and the opportunity to
modify some of that supply chain to make it more flexible or to streamline it in some cases so that it would
continue to be that competitive advantage but also to address the new market or the market today and going
forward. I think that it’s definitely a cost advantage as long as you can still provide products that the consumer
is demanding and what they desire to have.
[00:17:13]
Q: What territories or categories is Hanesbrands expanding into that may have better growth prospects?
JM: I would say it’s hard to say exactly where their growth prospects will be for sure, but what they have is a
very interesting business model where they have strength in geographies around the world, and what they
have an opportunity to do is to leverage those assets, and they’re not just manufacturing assets, but they’re
design assets, they’re style and brand assets that could be taken and be brought to other markets. I think that’s
one of the biggest opportunities, and we saw that certainly within the Champion brand as well, where we were
leveraging our European design to North America and also to Asia and our Toku design to North America, and
so there’s a leveraging of knowledge, design talent, etc, that can be applied to these other markets. There are
fabrications that can be leveraged. There’s scale within our manufacturing base that can be leveraged globally
as well, and I think that’s what the opportunity is, and there’s just geographic expansion. Champion’s
opportunity in Europe was just expanding from its core base in Italy to the other big four European countries,
just plain geographic expansion. Europe is not always all that exciting from a demographics perspective
because the population is not growing or, etc, but if you don’t have a presence in so many of those markets,
there’s huge market share to be taken because we’re just not there.
I think there are lots of elements that could be learned from what has happened in Australia. Australia is not a
huge market, but it’s a developed market, it’s a mature market, and the companies that were acquired there
over the last several years, Bonds in particular, have gone through a cycle where the retail market went to a
highly private label market. Bonds had to adjust and react and recreate themselves to be relevant in the
marketplace again, to become more direct with the consumer, to tell their story in a more effective way, and
they not only have survived, but they’ve flourished in that market. There’s a lot that can be learned from what
happened there as we come to the Americas and say, “Yes, there are a lot of retailers who want to introduce
their own brand. That happened in Australia. What did we learn from it and how can we leverage that?” I
think one of the interesting moves that they’ve made recently is they had a designer for innerwear in Australia
to be the Global Innerwear Designer based in New York for all of innerwear. What I’ve just talked about is
probably some of the insight around that, because not only did they do it already, but she’s also very, very
good. She’s very talented and she can leverage that knowledge from what happened in that marketplace to
these other markets, so I think it’s about leveraging the strengths and the asset base, the knowledge and the
talent on a global basis to really drive this business forward.
[00:21:04]
Q: Could you talk about Hanesbrands’ market share within women’s and the challenges it may be facing in
this demographic?
JM: Again this is my perspective on this, so as I already mentioned, they have these incredible brands. I think
if you were you say, “Would you rather have a new start-up or would you rather have these stable and credible
brands that have been in the market for a long time?” you might say, “I’ll take those brands that have been
there forever,” because they’ve already got this very firm foundation in the marketplace, they have a very loyal
consumer base, whether it’s with Hanes or Bali or Playtex, etc. Their challenge is going to be, because that
demographic is so loyal, but that demographic is ageing, so they’ve got to attract a younger consumer. This is
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not a new challenge, but it’s one, as time goes by, it becomes that much more critical to solve, so their
challenge is, say, “How do I get younger? How does Hanes become interesting to a teenage consumer? How
does Bali become interesting? How does Playtex become interesting?” where they’ve been positioned for that
mature consumer. I think that’s the biggest challenge they’re going to have. The question is can you do it with
those brands, or do you need to introduce sub-labels or do you need to acquire somebody that’s already
addressing that and then bring to that brand your strength of manufacturing capability, your branding
capability, and leverage that and bring it to the market that way.
Like I already mentioned, I think Bonds did that very well, where they’re relevant at all ages, but they’re also
sexy, they’re interesting, it’s attractive, all those things, and there’s a lot to be learned. I’m not saying that
brand should be brought to the US, maybe, I don’t know, but it’s a good case study, but I think that’s going to
be the challenge, is how do you take a brand that’s very stable, very strong, but is fighting off these new
entrants in the marketplace, these born-digital brands, and how do I become relevant to that younger
consumer? That’s going to be their biggest challenge, or I think it is one of their biggest challenges.
[00:23:48]
Q: Could you elaborate on Hanesbrands’ new strategic plan? What do you think the company’s goals are?
JM: I’ve read through their full potential plan. It’s very high level at this point. I think they’re going to share
much more detail next month, but I can give my perspective on this. I’d say, overall, I think it’s right on, and
again, from my experience and my knowledge, I think that they’re hitting on the right areas. What’s interesting
is, starting with the first aspect of it, which is grow Champion globally, this has historically been a company
that it’s Hanesbrands. It’s based on the Hanes innerwear brand primarily, and to say that your number-one
pillar of your full potential plan is to grow Champion globally is very interesting, is a big shift for this company,
but why is that? Champion is really the only true global brand they have. Innerwear brands are very regionally
focused, so each country even, many times, has a brand that is the number-one market share player, whether
it be Australia or Europe or North America, but they don’t tend to go across geographic boundaries easily, so
that’s an interesting challenge for the innerwear side, but on activewear, Champion is truly a global brand. I’ll
tell you just an insight that I had. At one point we were talking to the guys at Google and just asked them to do
a search for the Champion brand, and they typed in Champion and what they were able to show is people
around the globe who were, at that moment, searching something regarding the Champion brand. They
brought a map up globally, and it showed lights just lit up all around the world and in some places where we
didn’t even have distribution, so it helped us make decisions about where we wanted to go next.
This was several years ago, and it just solidified the fact that this is global brand, so as we invest in that, it will
respond not only in a particular market but around the world. What we saw is that when you do something in
Europe, Asia sees it. When you do something in the Americas, Asia sees it, Europe see it, so it has truly become
a global phenomenon, and so a lot of the collaborations that we did and partnerships were not just for a
certain market. They had impact around the world. People saw it immediately because of social media.
Whether it was paid or unpaid, they were able to see that, so that strategy resonates with me because of just
the geographic expansion, how you can leverage that brand because it’s relevant already in those countries,
whether it’s Japan, South Korea, China or whether it’s North America or whether it’s Europe. The omni
growth there makes a lot of sense too. We already have a lot of our own stores in eight parts of Asia, we have
them in Europe, we just started doing some of those a few years ago in the US, and, frankly, that’s what helped
to tell the story of the brand in a more powerful way, because the consumer got to see, in a very bold way, in a
full story way, what the brand represented, and that caused more demand from other retailers to say, “We get
it now. We get what Champion stands for. We want to allocate more space in our stores and tell that story in a
more powerful way.” I think that’s going to continue. Whether it’s through other retailers, whether it’s through
collaboration, or whether it’s through their own stores or online, that Champion brand globally makes a lot of
sense to me, and there are a lot of importers around the globe who want to help tell that story.
Driving growth in innerwear with brands and products that appeal to younger consumers, I talked about that
earlier. That is the key for those brands. These are core brands that are so meaningful today, but if they don’t
adjust and if they don’t attract the younger consumers, they will have market share be taken from them a cut
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at a time, and, like I said, some of these new entrants, these born-digital brands, one of them, in and of itself,
won’t do much, but when you put 10 of them together, it starts to add up and it can have an impact. They have
this strong consumer base and they’ve got to be able to maintain that core, but they need to find out how to
reach that younger consumer, and that’s what that strategy is all about. Again, I think they can leverage the
story, the success in Australia, to help them figure that out, and so I think that’s right on as well. Build e-
commerce across channels, it’s sort of like, “Yes, absolutely, everybody needs to address that.” One thing that
HBI has done in the past is they’ve organised for these key initiatives, and I believe as they continue to
organise and put the right people in place, from the board members on down to key players, that they will
address this, but they’ve got to be able to compete here and be where the consumer wants to buy their product,
so I think it’s a case right on. Then streamlining global portfolio, they’ve already signalled that they want to
assess the intimate business in Europe. I saw that. I think they just want to determine where they want to put
their resources and which ones are going to have the highest return on investment, so I think that that, not
knowing any more about that, it seems like a prudent thing to do.
I think what’s going to be, really, more interesting is, as they present in May, they talked about 20 initiatives,
particular initiatives underneath each of these areas that will show how they are going to do this, but, from my
perspective on a high level, they seem to be right on. They’re focused on the true global brand that can go
across geographies. They recognise this powerful thing within innerwear, but how they make sure they get
younger, I think they’ve got to be able to deliver the products in the way the consumer wants to buy through e-
commerce, so it seems to resonate with me.
[00:31:03]
Q: When Hanesbrands notices it doesn’t have a presence in a country or area but its brand is being searched
for online, how aggressive is it in trying to get into that market? How important is distribution in getting to
areas where it doesn’t have a presence? How do its products get there? How would you assess Hanesbrands’
risk tolerance and aggressiveness in expanding as much as it can?
JM: As that pertains to, going back to your first part of the question around Champion, I don’t that at that
time we were being conservative at all. We recognised an opportunity to be aggressive. Within all those
markets that lit up on the board that said, “These are people who are looking for your brand,” we didn’t treat
them all equally. We went where the biggest market opportunity was, where we could find, in some cases,
partnerships to go in there in a more aggressive way. We did that in Asia, I’ll say that, to great success. Within
a very short amount of time, we had a much bigger presence in Asia than we had had prior to that and I think
would have grown even faster without COVID. Going to be interesting to see how that continues now, post-
COVID, but I think there are certain markets where demand is clear, and we had demand signals beyond that
Google experience. It’s just an example. Like I said, we had other sources of data information to help us
understand where demand was coming from, and that’s where we put our investments, where we put our
money, and it paid back really well. Not all those markets had the same return on investment, or, like you said,
maybe a higher-risk investment, and so we prioritised where we wanted to be first, but, ultimately, you’ll get to
all those markets.
We have commercial bases in Asia, North America and Europe, so we can reach virtually any market we want
to from those commercial bases and leverage the design, the products, the sourcing, the manufacturing from
those regions into those markets. I think they have the opportunity to continue that. I don’t know. I’ve been
away for a couple of years, but they have an opportunity to continue to satisfy that demand. As far as the
comparisons with Nike, it’s more difficult to say. What I like that I hear is some of the streamline in that last
portion of the strategy from HBI is that part of the streamline is so they can free up resources, so that they can
find more efficiencies to be able to reinvest in these brands, whether it be through interaction with the
consumer in advertising or whether it’s, to your point, aggressively going into some of these markets where we
know the demand is. I think that’s what that’s about, recognising that piece of it.
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[00:35:35]
Q: How do you measure consumer perceptions of Champion vs other brands? You mentioned there is still
some risk of falling out of favour with younger consumers. Whereas Nike and Adidas are perceived as very old
brands, but they’re continually reinventing themselves. How does Champion continue to reinvent itself in
activewear?
JM: I think one of the biggest changes that we made when I was there was the realisation that we didn’t need
to be or want to be a mini-me, a mini Nike, a mini Adidas, that we had our North Star, it was there, we just
needed to be true to it, and that North Star was authentic American athletic apparel. That was authenticity and
it was truly American, and, for a long period of time, that’s where the authenticity came, that we were the on-
field brand for a long time, that we had a heritage of innovation that was uniquely ours, and it was different
than Under Armour, different than Adidas and different than Nike, and, once we became true to that, it
changed everything around the way that we designed, the styles that we brought to market, etc, and that’s
what resonated with consumers and with influencers. That’s what changed everything. It wasn’t just, “We have
some great styles this year.” It was just, “No, this is who we are,” and once the consumer sees that you’re being
authentic and that they can trust you, they see, “That’s what I can count on them for,” they will go with you on
that, and that was something that we realised, and once we started telling that story, it became a global story.
Frankly, online distribution and online advertising or social media was the biggest blessing for us because we
could compete that way. Competing in the old way, traditionally, and looking for space at some of the
traditional retailers with more challenges until we were able to tell our own story in a powerful way.
Once we opened up our stores in the US and globally, people started to see that story about authentic athletic
American apparel. That story changed everything, and so now the challenge they have is, “How do we continue
to be relevant with that story? How do we take that authenticity, but bring innovation and bring newness and
relevance to continue to…” because they are getting that young consumer, they are attracting that young
consumer, but they’ve got to continue to be relevant. I think some of the partnerships that they’re doing are
their attempt to be relevant, and some of the collaborations they’re continuing to do. You don’t get those
collaborations that we had over the years without being authentic and without those other partners saying,
“We think that brand is cool. We want to be associated with that brand.” Some of those guys have been
working with us for many, many years because they see that trueness, but again, for any brand, they’ve got to
continue to make sure that they’re relevant, that they’re bringing innovation to the marketplace. I think that’s
what they need to do, but remember, these collaborations that we did, whether it was with Kith or Upwide or
Vetements, A Bathing Ape, even Todd Snyder that we were working with for a very long time, this tells
everybody the brand is relevant in the consumer’s mind and is fashionable. I think now they just need to figure
out, “How do I continue to be relevant in this space?”
[00:39:59]
Q: Could you elaborate on the collaborations between Bape and some of the other well-known streetwear
companies? Is it dropping in a new hoodie and then having Hanesbrands branded on the back or sides?
JM: No, it’s our design team working with their design team, so it’s something that takes some time to do, so
it’s not that every style is right for everybody, but it could be a design element on a hoodie or it could be the
type of hoodie or it could be a completely different style, different silhouette, but it’s working over time with
them to say, “How do we want to come to market in a unique way that represents both our brands?” and it
needs to be unique. There’s no reason do to the same thing that somebody else is doing. It’s something that’s
been developing, and we had a lot more people who wanted to do collaborations with us than we could do,
because not all of them were brand right, so we were selective, but it takes time. It falls into that design
timeline as we look at them to bring that product to market.
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[00:41:28]
Q: Could Champion and Hanesbrands acquire one of the more trendy brands such as Supreme or Bape in a
bid to stay connected with younger consumers?
JM: Possibly. You could always say you should always have those types of things on your evaluation set. I
would say that there’s so much raw potential still with the Champion brand from unsatisfied geographies,
from a breadth of a line. There’s so much time to grow with the Champion brand. You need to focus your
resource on that growth. That’s where I would be from my opinion, me personally. It’s an interesting question
though around how do you continue to be relevant and stay young, and can you do it through the
collaborations, or do you need to actually buy one of those guys? I’d just say in the near term to mid-term,
where there’s so much growth potential for the brand, I’d be focused on the brand itself and continue to do
some of these collaborations with some of these other brands.
[00:43:07]
Q: What do you think about innovation in activewear and footwear in the US?
JM: Let me back up and talk about innovation first within HBI and the way I think that they approach things,
and it becomes apparent in the marketplace, but they like large platform innovation that can go across styles
and even across brands, and they don’t always have to be the first in the innovation, but they could still own it
in a consumer’s mind. I think one of the great examples over decades past was the tagless tee. Hanes wasn’t
the first to bring the tagless tee to marketplace, but, in the consumer’s mind, they were the first because they
owned it in telling that story. Then ComfortSoft waistband, another great example in the last several years
where they were able to leverage that across several brands. Again, large innovation platforms that they could
apply across brands and across styles and even categories. I think that’s how they look at it, is it’s not to just
bring a small idea to the marketplace, but it’s big enough that I can tell the story around it, spend around it
and really leverage, and that’s typically how they think about things, and again, I’m not saying anything out of
order, because I think it’s evidence in what they brought to the marketplace and how do they do that.
From a footwear perspective, jumping over to that, in Champion, I think they need to be in footwear. The
question is what type of footwear? Today, they’re in more fashion, heritage-inspired footwear, but I think it’s
doing well for them, and I think it’s a good, no pun intended, first step in that category. They brought in a
partner to help them do that so that they do it right, so that they bring products to the marketplace that are the
quality they need to have that represents the brand in that way. Their first entrée is the fashion and heritage
authenticity and bringing that reinterpretation of some brands that they’ve had in the marketplace in the past.
[00:46:02]
Q: How does the distribution pipeline match up for activewear and innerwear? It seems around 75% of sales
are through wholesales to retailers. Do you think the shift to D2C could be faster or do you think wholesale
distribution is still crucial to Hanesbrands’ overall strategy?
JM: I can’t speak to where exactly they are today. It was growing very quickly when I was there, albeit, to your
point, from a smaller base. My guess is that it’s still growing very quickly and accelerating. I think it’s just
going to continue to be a focus so they can own that experience with the consumer and always have an outlet
for the consumer to buy their product in the form that they want. I think that they are willing to sell their
product. As long as it’s the right type of distribution that represents the brand well, they’re willing to sell.
There’s still a demand for that traditional distributorship, whether it’s through Dick’s Sporting Goods or other
sporting goods guys or through Nordstrom, etc, you want to be there. Those are strong retail influencers.
There’s still a lot of foot traffic there, but, at the same time, you need to be growing very aggressively, continue
to grow your omnipresence, and that’s whether its own site or whether it’s through third parties. They’re doing
both, and they just need to grow as quickly as they can, but there’s going to be a balance, find a balance. I don’t
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think retail is going to go away entirely, so they’ve just got to find that balance of that distribution, and the
interesting thing is the better they do online with their own sites and with their own stores that they have, the
greater the demand is from those traditional distributors and wholesalers to put their product on their shelves,
so it’s an interesting, again, as you’re successful in one, you’re going to pull back to the traditional as well.
[00:48:33]
Q: Is there a specific type of Champion product that you think is its most successful?
JM: Yes. No question, Champion is the king of sweats. Their reverse-weave sweatshirt continues to be a
primary core driver globally, and it’s just unique in the marketplace, continues to be. Not a whole lot of people
have had success and been able to replicate that, but they’re just known for that, and so it’s one of the core
items that you build around with your assortment for sure.
[00:49:43]
Q: Are there any supply chain issues with the D2C distribution model? Are there higher margins within D2C
or are there higher freight costs? How do you assess the margin profile of Hanesbrands' two operating
channels?
JM: I’m not going to speak directly to the margin piece there. I think that everybody who’s in e-commerce
knows that there’s a certain level, a sales number target, that you want to hit in order to be profitable or to
cover your shipping costs, and I’ll think you’ll see if you shop on Amazon, shop anywhere, there are certain
levels that you’re hitting in order to get your free shipping or whatever. I think everybody faces that. It’s not
unique to HBI on that, but there are certain thresholds that you want to hit. Whether you’re looking for, in
innerwear, higher pack sizes to get your price point up, or whether you’re just in activewear selling items that
are higher price points, it’s always going to be a better online transaction in margin enhancers, but that’s
always the key for e-commerce, is there are certain thresholds or minimums that you want to hit, whether
you’re bundling or whether you’re just trying to get to a higher price point on a single item. These are things on
Amazon you can’t buy one or two of, you’ve got to buy a dozen or two dozen off for those exact reasons, so I
think everybody is trying to figure those things out. I thing one of the things they had going for them at HBI is
that they’ve had this direct-to-consumer business for decades where they were selling online direct-to-
consumer, so they’ve already had a distribution process set up. Now they’ve have had to, “How do we make
that better? How do we make it easier to order, etc?” but it wasn’t a completely new phenomenon for them. It
was, “We’re already doing this, and it’s great that we have this base to leverage and figure out how to do more
of,” and I think they have to grow that and accelerate that transition to do more of that direct-to-consumer
sales, but they had a base already for it.
[00:52:14]
Q: What is Hanesbrands learning from the new market entrants? How is it adapting to their new strategies?
JM: It’s an interesting challenge, and I think just to use maybe an example in a completely different market,
and it’s not even one that I know a whole lot about, but I’ve certainly studied a little bit, is the beer market.
You had the big, major players and then you had all of these craft breweries and microbreweries coming up all
around the country, and, individually, they wouldn’t have taken much share from the big guys, but when you
add them all up, it’s meaningful. What has happened since then, so you see, some of those big guys starting to
buy some of those smaller guys, but they can’t buy all of them, so what do you do? You also see that they’ve
introduced a lot more styles and offerings that reflect some of those smaller market brands, and so I think that
maybe there’s something to be learned about that here as well. You have these digital-born entrants into the
marketplace, and when they’re successful, they’re USD 100m or USD 200m. That’s not enough to really move
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the market, but again, if you get 10 of those guys, it’s moving the market. Do you make an acquisition to one of
these guys that puts you in a place to take what you know and leverage your asset base to grow that in a more
aggressive way, and then to add your brands into that, or do you introduce other styling that are relevant to
the younger consumer that will counter that, or do you do some of both? I think the competitive landscape is
really more around that, is how do you deal with these smaller entrants that some get big, but most stay
medium-sized, but, again, when your roll them up, it can be meaningful? How do I make sure that that isn’t
just taking from me in small increments over time?
I think that’s going to be the biggest challenge, and they’ve got to evaluate are there one or two of those that
should be acquired or brought into the fold, or can we bring one of our own brands or one of their own brands
from around the world into different markets, but again, that’s an expensive initiative as well to tell the
consumer about these new brands. None of them are easy solved, but that’s what I think the biggest challenge
is, is can you become one of those new brands, and whether it’s under a new name, and again, I think that not
knowing, we’ll know more next month, but I think a lot of those resources they’re trying to free up by
streamlining and maybe exiting a few segments, I just hope they can do those things. They can support the
existing brands in a certain way, but, quite possibly, to get into new channel distribution via acquisition in an
important way.
[00:55:51]
Q: Is there anything you think investors should know about Hanesbrands’ management team and their ability
to execute on priorities?
JM: Yes. HBI has a lot of great veterans there, a lot of them who I know and have known for many, many
years and are great friends and have just incredible knowledge and experience, capabilities. They’ve also
brought in a lot of new teams with the new leadership. I don’t know those guys as well, and, in some cases, not
at all, but I think that they’ve got the brand base and they have the resources to do some really great things if
they employ those resources in the right way, but they’ve got the manufacturing base, they’ve got the brands,
they know how to integrate new brands. It’s actually a core competence of HBI to be able to take a brand in
acquisition and integrate it. It’s not an easy thing to do. Most companies fail at doing that. They’re really good
at that. They can do that as well. Again, I think from my perspective at a higher level, I like the full potential
plan. I think it’s focused on the right things. I’m really eager to see what those details are to find out how
they’re going to get to that younger consumer, to see how they’re going to continue to leverage the Champion
brand globally, but I think we’ve got to give them that opportunity.
They’re bringing in, I think, the right type of talent, and I think that’s a good sign as well, but, obviously, the
proof is going to be in the result. I think this year, the next six months, 12 months, innerwear will actually see
more nice growth just by getting back on shelves coming out of COVID. That’ll be some positive indicators. As
stores open back up, both third party and their own stores, that’ll be a positive comp, but I think near term, as
we come out of COVID, we should see some positive signs, and then as they restructure and focus on these
strategic priorities will prove out whether those things work out as well, but it’ll be exciting to see how it works
out.
[00:58:11]
NH: Let me close by saying thank you, John, for your input. Clients, if you would like to speak to John in a
private call or meeting, please let your relationship manager know. Thank you again for joining Third Bridge
Forum's Interview today, this now concludes our meeting. Goodbye.
JM: Thank you.
Transcription ends at 00:58:26 of the recorded material
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