Kontoor Brands – Wrangler & Lee Driving Wholesale
Growth – 13 October 2021
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Specialist: Mike Lettera (ML)
Title:
Moderator: Nyree Hinton (NH), Third Bridge Sector Analyst
Former VP, Sales, Speciality, Department Stores & Digital at Kontoor Brands Inc
Agenda:
1. Kontoor Brands' (NYSE: KTB) portfolio strategy across Wrangler and Lee – opportunities in global
markets such as China and impact of losing distributors for Lee
2. Opportunities for Wrangler’s ATG (All Terrain Gear) brand in outdoor across work and t-shirts and
potential for the brand expansion into non-traditional retailers
3. Wholesale dynamics and risks of overexposure
4. Digital infrastructure investments
Contents
Q: Could you give an overview of the US apparel market as it relates to lifestyle brands? How has this
lifestyle dynamic come into play during your time in the industry?
Q: Could you discuss consumer trends for denim and casual apparel? You mentioned lifestyle brands have
become important for consumers in light of the pandemic. You also noted Levi is leading growth in denim.
Could you discuss Levi’s design and quality, and how that compares to players such as Kontoor and
Wrangler?
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Q: Could you give an overview of Kontoor’s category positioning and how that’s changed over the years? Is it
losing or gaining market share in denim? How strong is the brand and its positioning throughout channels? 5
Q: How well do you think Kontoor has managed Wrangler and Lee together? Do you think it focused too
much on Wrangler? How did the company think about its channel positioning? It seems Lee has almost
fallen off a cliff in terms of losing distribution partners and being able to successfully scale such as Wrangler.
5
How are you considering that performance dynamic? It seems Wrangler is outperforming.
Q: Could you give an overview of Kontoor’s wholesale strategy regarding top brands such as Wrangler and
Lee and why it has been so successful in this wholesale footprint? The company’s other brands such as Coach
or Tapestry have struggled to keep margins healthy in this wholesale environment. Could you discuss some
of the dynamics playing into Wrangler and Lee’s favour?
Q: Kontoor exited 40 of its VF outlets and converted remaining locations into Lee and Wrangler outlets.
Could you discuss what this might mean for shelves, and also the added impact of getting rid of third-party
merchandise? How do you think Kontoor is thinking about this?
Q: How are you thinking about the strength of Kontoor’s D2C capabilities? Is the company weaker on this
end? How is the firm strategically positioning itself? I know it has comitted to increasing D2C sales
significantly, but it seems the 60/40 split hasn’t really changed over the years.
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6
Q: Could you discuss consumer perception of Wrangler and Lee and some of the benefits or disadvantages
each brand may have? Are they competing against themselves? How does that work, when these two brands
are selling in the same categories and in some of the same channels?
7
Q: How do you think the competitive dynamic between Wrangler and Lee has changed with the big push to
digital? Has it made it easier for a brand such as Lee to get more brand recognition, or solidified the message
7
it’s trying to send towards its targeted consumer?
Q: What do you think the digital push does for pricing for some of these manufacturers or brands, especially
8
as consumers shop across channels and search for the best price?
Q: Could you discuss how promotionally driven denim was historically compared to other types of apparel
such as t-shirts or outerwear? Has denim proved more resilient? How are you thinking about promotional
activity now?
Q: How well do you think Kontoor can expand into adjacent categories throughout the Lee and Wrangler
brands? How have its categories performed outside denim, whether it’s t-shirts or outdoor apparel?
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Q: What trends in Kontoor’s performance have you noticed throughout different channels for sub-categories
such as t-shirts and outdoor apparel? Are tees performing better on the digital front or D2C front, and then
denim performing well in traditional wholesale channels?
9
Q: How hard of a time did you have expanding distribution of other categories to some of these retailers?
When searching for a new distribution space throughout either Lee or Wrangler, is it better to push
outdoors?
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Q: What do you think are the pros or cons of Kontoor’s May 2019 spin-off from VF? Is the potential lack of
capital one of the cons? What has that done for the brand so it could reinvest and, as you mentioned earlier,
spend more time expanding out Lee?
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Q: Could you discuss Kontoor’s performance in China or across the globe and how that relates to Lee? As
you mentioned, Lee is doing so well internationally. Could you discuss some of the dynamics playing into
that? Is losing big wholesale accounts in the US distorting the numbers? Why do you think Lee is strongly
positioned across the globe?
Q: How do you think retailers or brands will be able to source products for the upcoming holiday season
demand? As you mentioned, there seem to be tons of sourcing issues, such as Nike facilities in Vietnam
being shut down. How are you considering apparel’s preparation for the season, especially with shipping
containers still unable to dock?
Q: What do you think investors are overlooking regarding Kontoor and its brands?
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Kontoor Brands – Wrangler & Lee Driving Wholesale
Growth
Transcription begins at 00:00:01 of the recorded material
NH: Welcome to Third Bridge Forum’s Interview on Kontoor Brands - Wrangler & Lee Driving Wholesale
Growth. I’m Nyree Hinton and I will be facilitating today’s Interview with Mr Mike Lettera, former VP, Sales,
Speciality, Department Stores & Digital at Kontoor Brands Inc.
Mike, 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.
ML: I agree.
NH: Could you give an introduction to your background and roles you’ve held in the industry?
ML: I’m a 35-year VF, Kontoor sales leadership executive, predominantly focused in the sales and marketing
strategic roles. I’ve crossed over multiple tiers of distribution, from big box to the digital players to clubs,
regional, department stores, small-time boutiques. I pretty much have covered most of those businesses along
my career path, while managing teams of people. I feel like I’ve had a very successful career, and have been a
positive influence on VF’s business and Kontoor’s. I’ve continued my career and I’m working with a company
called Sun Trade, where I also have a position as VP of Sales, and I’m in the process of introducing new brands
in the market through relationships and contacts that I have in the market. I continue to be an active force in
the retail industry.
[00:01:56]
Q: Could you give an overview of the US apparel market as it relates to lifestyle brands? How has this lifestyle
dynamic come into play during your time in the industry?
ML: Just to give you an overview, I think the big statement there is, “As it relates to lifestyle brands,” and the
biggest thing that’s going on for consumers is how a brand impacts their lifestyle or a wear occasion, where
they’re wearing it, who they’re wearing it with. I think it’s been so much more elevated over the last 10 years
than anything we’ve seen, but if you really want to look at the last 18 months, lifestyle brands have become
really important. People have had this chance to be in their houses, and it’s changing how they’re doing their
part with work, where they work, how they are engaging social situations, so a lifestyle brand more than
anything else has become really important. In terms of the overview of the overall US apparel market, I call it
this yin and yang. There’s a tremendous amount of nervousness in the people that I talk to in the industry,
because they’re not 100% sure where this is going. What scenario is going to play out? The worst scenario, or
possibly is it going to improve? They’re totally nervous about not knowing. Retailers like to pride themselves
when they know exactly where things are going and they have a good handle on the consumer and the
conditions that they’re faced with, so there’s a nervousness.
Digital is pulling people along faster than they probably wanted to. The supply chain is being impacted.
Obviously, we’re all reading about that, but the last couple of months, this is really showing itself. Inflation is
happening. Price increases are going to be put in place. There’s this total nervousness, offset by a tremendous
amount of optimism, and the optimism is based on some really interesting facts. I’ll just give you some generic
numbers. Maybe this’ll help ground everybody on how I see the market, but it’s not unusual. Most people are
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throwing out 2020 comps to 2021, since the pandemic, and those numbers are so absurd, it’s almost crazy.
The report of 60% or 50% or 40% increase, it’s not really how they’re looking at their business. What I see is
that they’re comparing it to 2019. What’s happening is it’s compared to 2019, and what we’re hearing is that
the good news, and why there’s optimism, is that people are seeing sales increases in the high single digits to
the low teens. If somebody is up 10% over 2019, that’s a great thing to report. 2019 wasn’t a bad year, but
they’re doing it on a lot less inventory. I’m hearing that inventories have dropped from 20% to 30%.
Better news is that, because there’s less inventory, people have raised their AURs, because you can’t sell out of
an empty wagon when you want to promote. One of the defaults is, “We’re going to keep our prices up. We’re
not going to promote as much.” Most people came out of H1 2021 with less seasonal markdowns. There was
less inventory, they sold through what they had and they came out a lot cleaner, so more money was made.
The basis point margin increases have been anywhere from 500 to 900 points of basis margin improvement.
There’s this yin and yang of nervousness and optimism, and in all honesty, the consumer is actually changing
right before their ever eyes [sic]. They’re seeing a consumer that’s more in control, wants more convenience
and they want companies to be more transparent, so retailers are trying to make adjustments on how they
communicate to the consumers based on those major factors.
If you look at who’s driving business, I will give some examples. I think Levi right now is a brand that kind of
has all things working in there favour. They have all the three Gs. They have gender, meaning male and female
is truly strong. Generationally, they’re attracting old vs young, and secondly [sic] they have great goods, good
design. They’re meaningful, they’re relevant and they’re leading the pack, in my opinion. They’re having a
great run. Nike understandably made some big decisions about exiting, but footwear is extremely important.
Their innovation, who they show off and who wears their product, their influencers are all on fire. Both Levi
and Nike are definitely leading. Retailers like a Lululemon, which is a speciality retailer, they’re taking full
advantage of that whole athleisure and how people are wearing products in their home. Quick snapshot of the
overall market.
[00:07:37]
Q: Could you discuss consumer trends for denim and casual apparel? You mentioned lifestyle brands have
become important for consumers in light of the pandemic. You also noted Levi is leading growth in denim.
Could you discuss Levi’s design and quality, and how that compares to players such as Kontoor and Wrangler?
ML: It’s interesting. One of the roles I had at Kontoor was I was responsible for opening new distribution, and
I was doing that through our higher-end brands. Pre-pandemic, one of the trends was brand interest, going
back to authentic brands. Brands that are trusted, brands that are tried and true to who they were, was
definitely a conversation in every meeting I had with retailers. Looking at the Free People, the Urban
Outfitters, the Buckles of the world, Specialty House, Nordstrom, they were looking for authentic brands. Levi,
authentic, Wrangler, authentic, 70-plus years. Lee, 130 years. That trend was happening. That trend is
continuing. From a wear occasion standpoint, one of the shifts that was going on, and you can think about
this, how many people I’ve seen skinny jeans on, people’s bodies from female to male, lean, skinny, close to the
body, a lot of stretch. Obviously, there’s a shift going on, and it started to happen pre-pandemic, where the
easing of the silhouette gave people more comfort. As an example, I have a daughter who’s at Hofstra. I’m on
that campus, and I look at what people are wearing. There’s an easing of the silhouette. It’s getting away from
the body. That was happening pre-pandemic. It’s continuing on, which opens up the market for cotton fabrics
over stretch fabrics.
Think of this. You have the Zoom style, which is your neckline up, so your upper body. People have been
wearing sweatpants, shorts, whatever, when they’re on a Zoom call. I think, now that things are opening
socially again, denim has always been a universally well-worn fabric, and people want to get back in their
jeans. They’re looking at their closet and there’s definitely a change going on, so I think denim has a really
healthy outlook over the course of the next two or three years, based on people refurbishing their assortments.
I will say the other thing is performance in fabric. It’s not just stretch. We were seeing this evolving. Does it do
more than that? Is it anti-microbial, anti-odour? Is it helpful from the standpoint of anti-fatigue? I think some
of the fabric’s performance, as long as it’s just available within the garment and it’s styled right, that
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opportunity is definitely there, but because it’s going to cotton because of the eased silhouette, I see a great
opportunity emerging for denim.
[00:11:20]
Q: Could you give an overview of Kontoor’s category positioning and how that’s changed over the years? Is it
losing or gaining market share in denim? How strong is the brand and its positioning throughout channels?
ML: Some of this has to do with if you’re looking at dollars or you’re looking at units in terms of market share.
Based on retail distribution and retail distribution changes, that’s impacted category positioning. I don’t have
the exact numbers, I haven’t seen NPD data in a while, but Levi and Wrangler actually compete with each
other as the number two and one brands, Wrangler obviously being very heavily penetrated in the mass
market and Levi a little differently. There’s a number one position for Wrangler, and I see Wrangler not
changing. If anything, Wrangler is picking up speed. If you looked at it from a global point of view, Lee has
rivalled with Levi over in the Asian area of the world as the number one or number two.
I see Kontoor as stable brands, Wrangler not getting weaker, if anything getting stronger. I think Lee has been
impacted by its share of being a number three brand, but they’ve been impacted domestically here because of
the retail distributions that they had who have now struggled. Sears no longer exists. It used to be a major
distribution point. JCPenney used to be probably a major distribution point. They’ve struggled, so no
disrespect to Lee, but the people who they’ve been aligned with have had declines, and that, in effect, impacts
their positioning. Is there a means of that coming back? Absolutely. I think Kontoor’s strategy is to try to get
placement of the Lee brand in new distribution. Again, it was one of my roles and responsibilities. Definitely,
they’re the leading two or three, or if you want to look at it from a unit vs dollars, it could be number one for
Wrangler.
[00:13:55]
Q: How well do you think Kontoor has managed Wrangler and Lee together? Do you think it focused too much
on Wrangler? How did the company think about its channel positioning? It seems Lee has almost fallen off a
cliff in terms of losing distribution partners and being able to successfully scale such as Wrangler. How are you
considering that performance dynamic? It seems Wrangler is outperforming.
ML: I don’t think I’m going to speak out of turn here. I think Chris Waldeck has actually quoted this, and I
remember him quoting it in some of his statements. Under the VF umbrella, between Wrangler and Lee, what
we did see is that the investment in Lee was second to Wrangler. That was a strategic decision. I’m not saying
that we didn’t get support, and predominantly my career was with Lee Jeans, but I will say we struggled a little
bit with the support that we were getting. That’s really marketing to help drive the brand, that could be
through investment on innovation, but I think that has changed. I think Kontoor sees Lee, because of its
strong position in Asia and Europe and the desire to change the distribution path, hopefully that’s been
equalled out. I think that’s what it’s going to take. You can see it for yourself. Their new commercials out there
are meant to elevate how Lee looks to consumers, trying to bring back a connection for the brand for the street
to maybe an urban consumer, a younger consumer. It needs a shot in the arm, and if the marketing
expenditure is there, that should help them.
[00:16:11]
Q: Could you give an overview of Kontoor’s wholesale strategy regarding top brands such as Wrangler and Lee
and why it has been so successful in this wholesale footprint? The company’s other brands such as Coach or
Tapestry have struggled to keep margins healthy in this wholesale environment. Could you discuss some of the
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dynamics playing into Wrangler and Lee’s favour?
ML: It’s embedded in the culture there that they’re going to win with winning retailers. If you look at the
winning retailers where buying is done, you have the Walmart, the Amazon, the Target, the Kohl’s of the
world. Those particular places where they’re going to go and win are those retailers. There are other
distributions they want to open up. I’m going to say that there’s a terminology that we were using, and
Kontoor uses it, that it’s the quality of the sale, so the focus to be on healthy margin businesses vs businesses
that would be a drain to the overall health of the company. They’ve made some strategic decisions, in my
opinion, to move away from those businesses that are a drain, because they want quality sales. Kontoor is
going to align themselves with retailers that they feel could be a winning relationship, and the ones I quoted a
probably the most important at this point. I do think that it’s important for them, though, to have visibility in a
Nordstrom. It’s good for the brand’s halo. It makes them look elevated.
There are other retailers that they can continue to grow their business. The biggest thing that might happen,
and I don’t know where they’re going to go, is, I think, changing the category of retail and opening up new
categories of retail. I’m making this up, but if Home Depot and Lowe’s, the home improvement chains, decide
to make an investment in apparel, how does Kontoor fit in those strategies? I think those are the kinds of
changes or advancements, placements, that change really the brand’s importance and expansion of its lifestyle
position in the marketplace. Now you’re talking about opening up work hardware. It changes the aesthetics of
the brand. I think that’s important for Kontoor as they continue to increase their expansion through new retail
distribution, that is not so much traditional core apparel.
[00:19:49]
Q: Kontoor exited 40 of its VF outlets and converted remaining locations into Lee and Wrangler outlets. Could
you discuss what this might mean for shelves, and also the added impact of getting rid of third-party
merchandise? How do you think Kontoor is thinking about this?
ML: From my opinion, when you had VF outlet stores and they were buying third-party merchandise, it was
like competing against ourselves. I know the reason why we would do that, is more brands or third-party
merchandise bring other customers into your store, but it felt like a self-competing strategy. What’s hard to get
your arms around is how big the VF outlet business was, and what its return on investment was to the overall
portfolio. I do believe this. I do think that quality of sales, a strategy of focusing more on earnings and profit vs
revenue, maybe answers the question, “Was the outlet producing what it needed to to fit into the strategy of
the company?” It feels like maybe there was something there that says there was weakness, and they’re
trimming their sales and they’re going to make smart decisions about exiting and taking those resources and
putting them in other places. I don’t think the amount of sales that is being generated from that distribution is
that big to the total portfolio.
[00:22:03]
Q: How are you thinking about the strength of Kontoor’s D2C capabilities? Is the company weaker on this
end? How is the firm strategically positioning itself? I know it has comitted to increasing D2C sales
significantly, but it seems the 60/40 split hasn’t really changed over the years.
ML: I personally believe that they feel that the future is that they have to have retail distribution domestically
and internationally, which is where their direct-to-consumer position is best displayed. I think what you learn
from their positioning in Europe and Asia is that those relationships in a retail format, they get to show the
brand at its best. I would tell you, as a comparison, I don’t think an outlet store shows the brand at its best. My
thinking is that as they evolve through their ownership, leading Kontoor away from VF, and they have an
opportunity to invest in their image in the marketplace, I don’t know if it’s this year, next year, but it’s going to
be on the horizon strategy plan that they have to figure that out. They have to figure out how to show their
brand in the best light, because it’s their store. I don’t think they needed to take over their relationship or
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disturb their relationship with their retail partners. If anything, it would be a marketing opportunity to show
the best of the brand, which helps support their retail distribution strategy. Somewhere along the line, the
thing has got to change, and I think that there should be a commitment from them. That’s my personal belief,
because if you are able to see how the brand shows up in stores in Europe, it’s beautiful. It’s a wonderful
shopping experience. It makes you want to interact in making a purchase of Lee and Wrangler.
[00:24:41]
Q: Could you discuss consumer perception of Wrangler and Lee and some of the benefits or disadvantages
each brand may have? Are they competing against themselves? How does that work, when these two brands
are selling in the same categories and in some of the same channels?
ML: I probably had that intellectual debate in some internal meetings. I do think they compete against each
other, because of where they are today. That distribution, if it changes, I think, as they evolve the brands, there
could be a place where they’re not competing against each other. As far as denim resources being the one, two
or three brands, there is some competition for denim floor space. Think of it this way, too. Retailers have
realigned where they have space allocated, so activewear and footwear are growing categories. Where does it
come from? Some people have take space from denim positions. That’s not a good thing, because to sell denim
and to represent those brands, it takes carrying inventory. Fast-turning activewear, footwear, there’s been a
trade-off.
In terms of how Wrangler is positioned vs a Lee, we used to say Wrangler was the cool cowboy. You could take
that and drive it down to the mass side of it, you could take it and drive it to the western side of it, you could
take it and drive it to the tractor supply side of it. Wrangler has a cool factor, and if you want to associate
cowboy or outdoor, Wrangler has been very solid there. On the other hand, Lee, and I represented the brand
for a long time, their cool factor was more it had a city or urban feel to it, but also it’s a work jean. The value of
Lee was great jean for under USD 30. You can wear it to work, but we also offered some style, so we had a little
more crossover on how we positioned ourselves. The fact that Wrangler can own cowboy cool, what Lee would
own, we used to say it had a very down-to-earth, authentic feel to itself. Those two things are totally different.
You would say, “Why do those compete with each other?” Again, it goes back to pure space. You put both
brands on the floor together with a Levi, there are some decisions to be made. Wrangler being a little stronger
in terms of the penetration in the market, it’s better penetrated in terms of their brand awareness.
[00:28:18]
Q: How do you think the competitive dynamic between Wrangler and Lee has changed with the big push to
digital? Has it made it easier for a brand such as Lee to get more brand recognition, or solidified the message
it’s trying to send towards its targeted consumer?
ML: One of the values of digital, as I said earlier, digital is pulling brands along. Digital is pulling companies.
The one thing about digital is you do get an opportunity in a visual way on how to tell your story. Digital going
back five years felt very transactional. I came to the space, I bought something, I got off of it. Now, with
everybody home as much as they are, as much as technology is put in front of a consumer, the transactional
has gone to something that you would call, maybe, a consumer-adaptive experience. They’re not in the store.
They’ve got it in front of them. They have it in front of their screen. They’re able to read, they’re able to run
videos, they’re able to have influencers talk about product. You have the attention of a consumer vs we used to
joke about in retail you have five seconds, if that, to get somebody’s attention if they walk by. How do you do
that? With a computer screen in front of you, a computer screen or a handheld, they’re able to virtually spend
some time.
If the presentation is done properly and you can get their attention, you have a captive audience, and the
consumer wants that. I look at it this way. The consumer with their handheld or on the computer, they’re in
control. They have convenience, the convenience of, “I can push the button when I want to buy it, I can
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continue to look at multiple things, and I haven’t even left my sofa.” Couple that with a brand being able to
communicate its message, there’s a transparency for the brand that they’re able to display great videos, great
material. I think digital is very powerful, and everybody is experiencing growth in digital. I know there’s a little
bit of a drop-off on sales, comparatively speaking, from quarter to quarter because of things opening up at
retail again, but I think they’ve jumped, leapfrogged, at this point on how important they will be going
forward. If a company said, “I only do 10% online,” and they’re now doing 30% or 40%, they were able to go
and get their retail business online to improve that much, if it adjusts down to 20%, they just doubled
something that they were struggling with trying to figure out. This is what’s pulling them through.
[00:31:42]
Q: What do you think the digital push does for pricing for some of these manufacturers or brands, especially
as consumers shop across channels and search for the best price?
ML: There are a couple of factors. First of all, and this is not Kontoor but just in general, as I represent
brands, there is an inflationary moment in time happening for 2022. Pricing-wise, I think you’re going to see
prices go up. Secondly, freight costs have gone up. It doesn’t matter if it’s on the road, if it’s across the ocean,
freight costs have gone up. Material costs have gone up, freight costs have gone up, and all those factors are
going to come into play. I think the moment in time I was talking about earlier, about AUR being improved,
the retailer, if they were smart, had to make adjustments. There’s been less promotional activity. I don’t know
how all the people on this call shop themselves, but I go to malls to shop, I go to see what’s going on. I’m
seeing less sales. I see more selective sales. I see different timelines of when things are marked down. People
are getting smarter.
I think there’s going to continue to be a stress on the supply chain. I think it’ll continue to be supply and
demand. The supply is tight. You’ve got to be careful. You can’t sell out of an empty wagon. I think digital plays
into it, and I think Kontoor is doing a good job of this, by the way. If you go to their website and you look at
what they’re doing, talking about being just a transactional experience to more of an experience, they’re doing
a good job in putting out in front of people what the brands are. If they’re doing it in a good way and the value
is there from the consumer’s perception, that only helps elevate, raise the average unit retail price. I think the
consumer is going to pay more, and I think they’re almost getting more comfortable paying more. They might
not like it, but I think they’re going to pay more.
[00:34:31]
Q: Could you discuss how promotionally driven denim was historically compared to other types of apparel
such as t-shirts or outerwear? Has denim proved more resilient? How are you thinking about promotional
activity now?
ML: Historically, denim as a commodity, when times were tough, always seemed to do well, but it also was a
commodity that was promotional. I’m trying to get my arms around the year we had a price increase, but when
we had our last price increase in the industry, I think we went up 5-7%. That was another moment in time
where, as representatives of Lee and Wrangler, we said, “We’re going to increase our minimum advertised
price, our MAP pricing, our SRP price, suggested retail pricing,” and there was a lot of pushback from it, but
what we were doing at the time was there was more built into the product. We were telling people, “We’re
giving you more built into this garment.” If it was stretch criteria or it was a waistband function, whatever it
was, we said, “Along with this price increase comes better product. You should be able to be paying more.” I
think a little bit of that is going on. In product production, companies have gotten smart. They’re trying to do
more with less, so there’s not a wide collection, there’s a more focused collection, on functional improvements.
The consumer recognises, “I’m getting a good value from my garment. My fabric is wearing well. The function
of the fabric is comfortable, the waist function.”
There are things that help support raising the average unit retail sales and I think that’s what we’re going to
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see in 2022. I think people are going to deal with paying more for products, but I think they’re going to get a
great product because of what companies have built into their garments. By the way, if you take a look at
Wrangler and their ATG effort, everybody is going outdoors. Wrangler in the last year-and-a-half, before the
pandemic hit, they were working on launching this brand, this sub-brand, and it was about being outdoors, it
was about fabrics that perform, it was about comfort. It’s a new launch, and it’s not being footfalled [sic], it’s
not being promoted and they’re getting paid for it. That’s a place where a company like Kontoor wants to lean
into. It’s not a promotional item. They’re getting rewarded for the innovation they’ve built into the product,
and the retailer is getting the reward for selling it in a less promotional environment. The denim, on the other
hand, has been footfalled, but less of that is going on. They’re going to have to, if prices are going up.
[00:37:59]
Q: How well do you think Kontoor can expand into adjacent categories throughout the Lee and Wrangler
brands? How have its categories performed outside denim, whether it’s t-shirts or outdoor apparel?
ML: ATG, I think, is off to a good start. It was when I was there. We were starting to see the initial placements
take hold. My opinion was this has a real runway for success. I think it has definitely a runway for success with
how consumers are now engaging the outdoors. I think that brand, they build around it. It was first launched
in male, and my understanding is that they’ve now added female. Not to exclude one side of the gender line,
now females have an opportunity to buy a product that they can wear and use in an active outdoor setting.
Workwear, Riggs is one of the best value, I think, from my experience with the product. I think it’s well-made,
I think it’s a great price from an initial launch position. Work has been really strong. Carhartt is a brand that’s
doing very well. I think Riggs has a life.
T-shirt category, I know that there was investment in building a team. I think there are some numbers out
there, in terms of did they really even have a position from a volume standpoint in tees? They’re allocating
resources, they’re allocating people focusing on it. I know the VF way, and I understand the Kontoor
leadership way. They’re building the network behind a category like tees. I think what we haven’t seen is that
we need more time to see something evolve, but I’m confident, probably, when they go to market, although
that’s a competitive market, by the way. If I had to make a ranking, I would tell you outdoor would be one,
work would be number two. Tees would be the one I think is going to be a tough road, but again, that’s my
opinion.
[00:40:53]
Q: What trends in Kontoor’s performance have you noticed throughout different channels for sub-categories
such as t-shirts and outdoor apparel? Are tees performing better on the digital front or D2C front, and then
denim performing well in traditional wholesale channels?
ML: Interesting question. That’s a hard one for me to answer with any kind of confidence.
[00:41:53]
Q: How hard of a time did you have expanding distribution of other categories to some of these retailers?
When searching for a new distribution space throughout either Lee or Wrangler, is it better to push outdoors?
ML: It’s a great question. I’ll go back to your other question, just to give you an idea. I think men are starting
to buy online. I don’t think they’ve rivalled women yet, but I think men are starting to get comfortable, and if
that’s the case, men who have to buy apparel for work, you’re going to see that category online continuing to
grow. It’s maybe not going to be a one-side gender influence. Again, this is my opinion, but I think more men
are getting really comfortable, like, “I’m not going to go to the store.” They don’t like going to the store anyway,
Private and confidential 9
so that’s going to drive some categories. To your question about getting placement, Kontoor has unbelievable
relationships and unbelievable integrity in the marketplace. They don’t put people in front of retailers that
have issues. If you’re starting off from the standpoint of being able to even open the door, that’s the starting
point. The second is how to define the opening. What is the white space? I know, in my career, that’s what we
prided ourselves on, being able to dialogue through with the retailer. Even with the challenge of space shifting,
what is the opportunity for Wrangler or Lee to open new space? I think they have an edge over others based on
how they go about going to market, but it’s a challenge.
Retailers, and I go back to what I told you, are nervous. They’re optimistic, but they’re nervous, and they are
being very careful about taking risk. Nothing is a sure bet, but they’re being very careful about where dollars
are allocated. If anything, the supply chain pressures are opening up, and I know this from my own position
right now. I just had this conversation this morning. The supply chain pressures are making people step back
and say, “You know what? Maybe I need to have another one or two or three alternatives, because if I can’t get
from who I’m doing business with on a consistent flow, I need to mitigate my risk by having others.” That’s
another reason why, let’s just say Wrangler Riggs, I don’t know what Carhartt’s ability to deliver to the market
is, if they’re having an issue with their supply chain and there’s a disruption, that sometimes opens up the
dialogue as, “Let me be an alternative resource. Maybe you need to share space with your number one
workwear provider.” There are all kinds of ways that what is tightening can also be looked at as an
opportunity. Going back to what I said, there’s this nervousness and optimism going on.
[00:45:58]
Q: What do you think are the pros or cons of Kontoor’s May 2019 spin-off from VF? Is the potential lack of
capital one of the cons? What has that done for the brand so it could reinvest and, as you mentioned earlier,
spend more time expanding out Lee?
ML: People would ask that question, by the way, “What’s now in front of you? What’s going to happen?” I
always used to say that the Jeanswear Coalition, within all of the coalitions within VF, we paid a franchise fee
to VF, and VF, the holding company, made the decisions on, after we paid into the franchise owner,
distributing where they wanted to invest. There’s been the joke out there that all Jeanswear did is they
generated a lot of cash along the way, and VF got the opportunity to invest it in the marketplace. What I see as
the advantage with Kontoor being spun off is now Kontoor, under the two brands of Lee and Wrangler, the two
great brands, get to reinvest where they see fit. They get to strategise on how to generate cash flow and how to
grow their company. That change, I think, is paying out. I believe they’re ahead of schedule with their debt
payments. They’re doing all the right things. I think it freed up Kontoor to go ahead and focus on growing two
great brands, and that’s what they’re doing. There’s a strategy in place to expand those brands, through sub-
brands or expansions in categories, as we’ve been talking about, and I think that’s a positive. Maybe those
things didn’t happen under the VF umbrella, because the VF umbrella had a say in how the Jeanswear
Coalition operated.
The flip side of that is Lee’s position in China. When VF was in charge of Lee, VF made a strategic decision that
they were going to expand their business in the Asian-run countries. Lee was a benefactor of that, and
probably has had a 20-year run of having a growth strategy over in China. Would that have happened without
VF? I think VF at the table with what they represented gave a lot of credibility overall in terms of what Lee’s
position was. There’s nothing wrong with having a company that is generating business from multi-categories.
There was sportswear, lifestyle brands, footwear distribution. We always used to say, if one was faltering, we
had others to pick us up. When you separated from VF, you kind of gave that up, but I think Kontoor is doing
pretty well about reinvesting and game-planning how they’re going to take care of their financials. It looks like
they’re improving their productivity. They have operational flexibility. They needed to make a major
investment in system updates, which I know was starting to unfold. It was needed, and it’s probably a glide
path to them becoming more efficient in the marketplace.
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[00:50:23]
Q: Could you discuss Kontoor’s performance in China or across the globe and how that relates to Lee? As you
mentioned, Lee is doing so well internationally. Could you discuss some of the dynamics playing into that? Is
losing big wholesale accounts in the US distorting the numbers? Why do you think Lee is strongly positioned
across the globe?
ML: There is an unbelievable leadership team, and I got a chance to hear them speak, that runs that
international side of the business. They have unbelievable relationships. There’s a great blend of core
businesses with fashion. I think their distribution is pretty well-oiled. Lee has done a very good job of
executing themselves as a brand and its position, brand story, brand message. I don’t know if Lee has anything
to do with the name in China and the names in the phone book, but for whatever [sic], Lee has got a great
position. I think Kontoor’s future is to see Wrangler evolve there, and I think that is probably one of Kontoor’s
little secret gems. If Wrangler can take the same kind of CAGR growth pattern that Lee has, it’s going to be a
pretty good year for Kontoor over the next couple of years.
[00:52:19]
Q: How do you think retailers or brands will be able to source products for the upcoming holiday season
demand? As you mentioned, there seem to be tons of sourcing issues, such as Nike facilities in Vietnam being
shut down. How are you considering apparel’s preparation for the season, especially with shipping containers
still unable to dock?
ML: If you have this hemisphere production network, which Kontoor does, I think that that helps get product
from distribution to retail. I also would tell you that Kontoor is pretty smart about, “If we’re going to have
issues, let’s make sure we focus on the right things,” and they probably have been focusing on the right things
in terms of what inventory they’re building. Having sizeable, in this hemisphere, production capabilities has
probably put them in a better position than some of the people who are dependent on those ships that are
stuck at the port and are not getting in. Are there not going to be issues? I’m not hearing that. Again, I hear
this for other brands as well, but I have this-hemisphere production capabilities and that’s an advantage, and
I’m using that in my conversations in the marketplace. That’s one. I think, at VF, Lee and Wrangler have been
very, very strong with expertise in category and sales planning. I bet you to the (inaudible 54.16) they have
planned out their business and have been communicating with transparency what they can deliver and what
they can’t. Again, not without issue, but they’re going to do it better than others. That’s only going to help their
relationship in the market.
[00:54:37]
Q: What do you think investors are overlooking regarding Kontoor and its brands?
ML: I’ll give you one. There’s something going on with sustainability. The conversation about sustainability
was very simple, “That’s great, but is it going to cost me more?” I think what’s happening is sustainability is
becoming extremely important. These people are more aware, over the last year, with maybe what’s happened
globally. It’s a real topic, and brands are going to have to deal with it. I think Kontoor has done a pretty good
job with positioning. They’re doing things to show themselves as a social-conscious corporation, and how their
brands fit into that. I think there’s a tremendous amount of value in that. Sustainability is not going to go
away, and how it shows up in production, how it shows up in products, how it impacts communities, all very
important. I’m seeing more and more of it being asked about. That would be my closing statement for you.
NH: I think that’s a great point on the topic of sustainability. I’m curious what it actually means for some of
these corporate brands to be sustainable and what impact that might have on the supply chain.
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[00:56:37]
NH: Thank you for your time today, Mike. Thank you, clients, for joining Third Bridge Forum’s Interview.
Clients, if you’d like to speak to Mike directly in a private call or meeting, please contact your relationship
manager.
Transcription ends at 00:57:25 of the recorded material
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