What Happens Next – Sunday January 24, 2021 Despising Presidents, Orwell, Schools, and Markets (Labor, Shoes and Spacs) Brendan Hoffman
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What Happens Next – Sunday January 24, 2021 Despising Presidents, Orwell, Schools, and Markets (Labor, Shoes and SPACs) Brendan Hoffman Larry Bernstein: We're going to move on to our next speaker who is Brendan Hoffman. Brendan is currently the President of Wolverine Worldwide. Brendan, go ahead. Brendan Hoffman: Thanks, Larry. It's good to be back. As you mentioned, I was here in April talking about the early days of the pandemic and how it impacted the consumer shopping behavior seen through the eyes of the fashion industry. My prior role, running the lifestyle brand Vince. In September, I took a new role as president of Wolverine Worldwide. We're a portfolio of 11 footwear brands, including Sperry, Merrell, Saucony and Wolverine. I could probably speak for six minutes about switching jobs during the pandemic, but we'll try to stick on the topic you assign me. Brendan Hoffman: So a little more background on the company. Our 2019 revenues were just north of $2 billion. We're publicly traded under the ticker symbol WWW. We're over 135 years old and headQuartered in Grand Rapids, Michigan. We have offices around the world, and in fact about half, our payers are sold outside the US. Since we are a public company any remarks I make specifically about our brand, is through the lens of early November when we last reported Quarterly results. We report Q4 next month. However, I will provide some commentary on what happen more generally throughout the holiday period on what I've learned from our customers and partners. Brendan Hoffman: When I last spoke during the early days of the pandemic, stores were closed and none of us had any idea or could have imagined what the next year would look like. I spoke about how we were pleasantly surprised that the customer had pivoted online. And while it couldn't come close to making up for the closed stores, it was all done at a discount. It generated much needed cash, and did allow us to exhale that the consumer would still shop. Brendan Hoffman: Fast forward nine months, the stores opened back up over the summer. And while traffic generally has been down 40 to 50%, most retailers reported sales drops that were not nearly as dramatic, as anyone willing to venture out to a shopping center was intent on buying. That seemed to have continued into January with traffic improving off those lows and conversions 1 staying high. More importantly, e-commerce has boomed in all areas. McKinsey consulting reported that over 10 years of e-commerce development was accelerated into six months. Specific to Wolverine, our e-commerce business, on our own sites, was $235 million in 2019. And we stated in November that our goal for 2021 is $500 million. I would estimate that as two or three years ahead of when we otherwise would have expected to reach that milestone pre- pandemic. Brendan Hoffman: What we have also seen is a shift in the categories consumers are buying. Anything having to do with being outside has seen a lift for obvious reasons. For us that has greatly benefited like Merrell and Saucony. Merrell's the number one brand for hiking. And however you want to define hike, whether it's hiking the Appalachian Trail or like me hiking around my neighborhood on a socially distant walk, brands like Merrell have greatly benefited. And here's a plug for our franchise shoe, the Moab. Brendan Hoffman: Similarly, there has been a running boom since the start of the pandemic. Saucony is one of the leading running brands competing against others in our sector like Nike, Brooks and Hoka. Again, whether you are a true runner logging multi miles a week or just walking with friends, it's been a great tailwind for brands like Saucony. And another shameless plug, our Endorphin Collection was launched last year and has won multiple industry awards, if you're looking for the best sneaker to walk or run in. Another category that has been lifted by the change in consumer behaviors is the work boot category. Wolverine is the number one brand in the sector, which caters to workers in factories, warehouses, et cetera. Industries that have been working tirelessly to support all of us as we hoard toilet paper and other essential items. Businesses like Amazon will give their warehouse employees coupons to purchase their footwear in order to provide the highest level of safety and comfort to keep them on their feet. With the extended hours and shifts that have resulted during the pandemic, our work brands like Wolverine, CAT, and HYTEST have benefited. The same is true for frontline workers who are on their feet all day, and many of our brands cater specific styles to literally support them. Obviously, the examples I gave go beyond footwear as the apparel and accessories needed to participate in outdoor activities and/or support the efforts of those at work have benefited as well. While it pains me to say it, the clear winner of 2020 was Crocs. They've benefited from all the above as well as being well positioned as a slip-on comfort shoe to benefit from all those working from home or just staying home looking for the path of least resistance when getting ready for the day. 2 In April when I spoke, I mentioned that online sales were driven by deep discounts that otherwise would not have been offered as we all worried about the buildup of inventories. However, as we got into the back half of the year promotions normalized, and for many of the categories I mentioned above were less promotional than the prior year. There were the typical Black Friday and Cyber Monday promotions that our customer has become accustomed to, and they started earlier to try and compensate for the reduced store hours during the holiday period. But very Quickly demand was outpacing supply in key categories. This is both because the shift to categories like outdoors and performance wasn't anticipated pre-pandemic, but also because most every manufacturer halted production in March for a few months while the early days of the pandemic played out. Likewise, the retailers cut all their purchase orders since they didn't know when they could open up their doors. The result of this is that demand way outstripped supply in many of these categories, reducing the needs for typical end of year clearance events. I would anticipate these leaner inventories continuing into the first half of 2021 as factories that were forced to close have not been able to ramp up back to their pre-pandemic levels, especially as new waves of the virus have occurred further complicating access to the workforce. All of this has been exasperated by the transportation logistics backlog caused by the dramatic reduction in air freight from Asia causing the need for more freight, to go by sea both thriving up the cost and causing huge delays as the ports and pathways are overloaded. Of course, as categories have benefited from a shift in consumer behavior, others have been decimated. I'm glad I'm not manufacturing men’s suits or in the brown shoe business right now. Globally, we've seen shopping patterns mirror the US in the shift to online. However, depending on the region, we have seen physical stores bounce back at different levels to the US depending on the response to the pandemic. China, for example, recovered Quite Quickly last summer, and we continued our aggressive rollout of Saucony and Merrell stores in the back half of the year. Although with the resurgence of the virus and the new strain, we will see what the next few months look like. I can go on further, but I think my six minutes are up, so I'll turn it back over to Larry. 3 .