The North Face has peered into the discounting rabbit hole — and isn’t interested in diving in.
On Friday VF, The North Face’s parent company, reported that the outdoor-gear brand’s sales fell 7% in the fourth quarter. Last year was rough for The North Face, which was hit by a one-two punch when two of its key retailers, Sports Authority and Eastern Outfitters, Eastern Mountain Sports’ parent company, filed for bankruptcy. This, combined with the lingering effects of a weak 2015 winter, led to a torrent of discounted North Face gear at chains like T.J. Maxx and Nordstrom[/f500link] (JWN)Rack.
While selling discounted items at off-price stores is typically a helpful conduit for selling extra, unsold The North Face merchandise, the volumes were such last week that VF decided to shift strategies. Instead of clearing merchandise through third-party channels, it is selling more through its own outlet stores.
The concern was that shoppers were starting to develop a taste for discounts. As retailers from Coach (COH) to J.C. Penney (JCP) to Ralph Lauren (RL) have learned, once customers get hooked on deals, good luck getting them to pay full price again. VF figured it was best to nip any potential discount addiction in the bud.
“The outdoor apparel market place was awash with a lot of excess,” recently appointed CEO Steve Rendle told Fortune in an interview. “We saw it in how our customers were interacting with us, we could tell how they were shopping and looking for price.”
VF is counting on its digital business to pick up the slack and propel growth: Direct-to-consumer revenue reached 37% of total fourth quarter revenue, compared with 33% a year earlier. (While its Nautica brand has been hit by the travails buffeting department stores, The North Face only gets 20% of sales at stores like Kohl’s (KSS), J.C. Penney (JCP) and Macy’s (M))
Because of its conscious decision to hold back merchandise, The North Face started 2017 with significantly fewer discounted items floating around the market, helping the brand’s new lines to command their usual hefty prices. That doesn’t mean The North Face is out of the woods entirely, however. Last year, it was eclipsed by Vans as VF’s top brand.
VF reported a fourth-quarter profit of $264.3 million, or 63 cents per share. Earnings, adjusted for asset impairment costs and restructuring costs, were 97 cents per share, inline with Wall Street estimates. Revenue was $3.32 billion in the period, missing Street forecasts for $3.45 billion. For the year, profit was $1.07 billion, or $2.54 per share. Revenue was reported as $12.02 billion.