The North Face, Inc.

views updated May 11 2018

The North Face, Inc.

2013 Farallon Drive
San Leandro, California 94577
U.S.A.
Telephone: (510) 618-3500
Fax: (510) 618-3531
Web site: http://www.thenorthface.com

Wholly Owned Subsidiary of VF Corporation
Incorporated: 1994 as The North Face, Inc.
Employees: 859
Sales: $238 million (2005 est.)
NAIC: 448190 Other Clothing Stores; 315999 Other Apparel Accessories and Other Apparel Manufacturing

The North Face, Inc., is a manufacturer and distributor of high-grade equipment and apparel used in mountaineering, skiing, and backpacking. While the reputation of North Face was built on outfitting expeditions, the company's growth in the 1990s came through the introduction of high-tech apparel in upscale retail stores. With Summit Shops, North Face established its use of a "store within a store" concept. In 2006, there were approximately 100 Summit Shops located within retail shops in the U.S. There were also ten North Face retail stores scattered across California, Colorado, Illinois, Massachusetts, New York, Oregon, Virginia, and Washington. Overall, North Face products could be found in over 3,500 locations across the globe. The company fell on hard times in the late 1990s and was eventually purchased by VF Corporation in 2000.

THE EARLY YEARS: 1965–73

According to the 1996 company prospectus, the name North Face originated with the company's founders and comes from the fact that the north face of a mountain in the northern hemisphere is usually the most formidable and challenging for mountain climbers. North Face was founded in 1965 by outdoor enthusiasts retailing premium-grade backpacking and climbing equipment. North Face began to wholesale and manufacture backpacking equipment in 1968. The business continued to grow and expand. In the early 1970s North Face added outerwear to its product line.

INNOVATION IN PRODUCT DESIGN: 1975–90

Innovative product design and consistent development and introduction of new products have always been North Face's greatest strengths. In 1975 North Face introduced a benchmark in the outdoor equipment industry with its geodesic dome tent. This design became the standard for lightweight, high-performance tents used in high-altitude and polar expeditions. The geodesic dome also became very popular for general backpacking and camping as well. The same year North Face also introduced another original, sleeping bags incorporating shingled construction of synthetic insulation. Like the dome tent, these sleeping bags have become the industry standard.

In the early 1980s the company launched its "extreme skiwear" line. Another addition to the North Face product line came in 1988, when the Expedition System was introduced. A complete line of severe cold weather clothing consisting of integrated components, the Expedition System was designed to be used together in various combinations. According to the company, there was wide use of this clothing system by world-class mountain climbers. By the late 1980s North Face was the only manufacturer and distributor in the United States of a comprehensive line of premium-grade, high-performance equipment and apparel used in mountaineering, skiing, and backpacking.

SHAKY GROUND FOR NORTH FACE

While the reputation of North Face products has remained sound, internal decision-making was occasionally questioned. During the growth phase of the 1980s, the company attempted to manufacture all of its own products. This led to problems of obsolete materials, large amounts of capital invested in an inventory of finished goods, and late delivery of high-demand products. However, these were not the only detriments to the financial health of North Face. In the late 1980s, North Face opened outlet stores to sell lower-priced products in an effort to dispose of obsolete materials. The product reputation of North Face was based on a high-end, or expensive, association with the inherent product quality. The lower-priced products confused or missed the intended consumers and did not help the company's overall image. Also, these outlets were not well received by North Face's wholesale customers and were eventually closed. All of these business activities had a negative effect on North Face's finances and launched the company into the next phase of its history.

In May 1988, Odyssey Holdings, Inc. (OHI) acquired the company, known at that time as North Face Corporation. OHI owned about 30 companies in the outdoor and brand-name apparel industry and was at that time headed by William N. Simon, who soon became president of North Face.

In January 1993, a new executive staff was recruited to make needed changes in North Face's operations. Among those newly recruited was Marsden S. Cason, who was at that time the president of North Face and a director and executive officer of OHI. Some of the significant changes initiated by the new management team included hiring experienced executives and operating managers, establishing a focus on sales and gross margin, expanding contracted sources of goods and materials, closing discount outlets, and discontinuing unprofitable product lines. Eventually, as a result of these initiatives, the company would realize a significant increase in sales and profits. However, in 1993 the parent company, OHI, filed for protection under Chapter 11 of the U.S. Bankruptcy Code.

A DRAMATIC TURNAROUND BEGINNING IN 1994

North Face continued to operate at a loss until 1994, when the strategic changes mentioned began to take a positive effect; 1994 was a year of significant transitions for North Face. On June 7 the company was purchased at public auction for $62 million by a group consisting of J.H. Whitney & Co., Cason, and William S. McFarlane. On June 8, 1994, TNF Holdings changed its name to The North Face, Inc. Also in June 1994 Cason was appointed CEO of North Face.

INTO THE NEW MILLENNIUM: OPPORTUNITIES, THREATS, AND A LOOK TO THE FUTURE

One of the inherent weaknesses of being in a focused, niche industry, according to experts, is attempting to sustain growth in a field with a limited number of customers. This is what necessitated the introduction of Summit Shops selling Tekware as North Face attempted during the 1990s to obtain a share of the leisure apparel industry. Such a shift represented a major departure from traditional North Face territories. North Face's success in this new venture depended, in part, upon the buyers of casual wear, a market that can be fickle. For North Face, entering this market could be seen by industry observers as either a weakness or an opportunity. In addition, another possible weakness that presented itself was overdependence on contracted vendors to supply the majority of the company's manufactured goods.

COMPANY PERSPECTIVES

The North Face is committed to pushing the limits of design, so that you can push your limits outdoors—never stop exploring.

The largest area of opportunity that North Face was involved in was the expansion into the casual apparel industry with the introduction of "Summit Shops." Another area of opportunity for North Face was the possibility of future government contracts for tent sales, given the company's longtime association as a supplier to the U.S. Marines Corps. Finally, further development and introduction of new and innovative designs of products in the future seemed to be a likely avenue for North Face to gain or retain market share.

Nonetheless, North Face faced very real threats to its future growth. While the company remained subject to the same kinds of business threats that any business faced, such as major shifts in consumer tastes and preferences, its most prevalent threat was competition. Archrival Patagonia, for example, had historically carried a very similar product line. And there always loomed the threat of new competition because of relatively low barriers to entry and the possibility of a breakthrough in product design.

While North Face had weathered some rough and challenging times, the company seemed by the mid-1990s to be on firm footing and ready to begin another new phase. North Face recommended itself as a company poised for future growth by building on its strengths: brand-name recognition, product reputation and differentiation, innovative product design and diversity, aggressive entry into the casual wear market, and, as attested to by company profits and increases in the value of the company's stock, the decisive and able senior-level management that would continue to drive North Face's climb to success.

NEW OWNERSHIP

Shortly after going public in 1996, North Face began to face a series of problems that nearly led to its demise. Rumors began to spread that in certain instances, the company shipped products ahead of schedule and often over-shipped products to stores in order to record the sale. In 1998, James Fifield took over as CEO. He moved company headquarters to Carbondale, Colorado, which was near his home in Aspen. Overall, the move cost approximately $5 million. At the same time, Fifield and Leonard Green & Partners—a leveraged-buyout firm—announced plans to take North Face private at $17 a share. Shareholders balked at the offer claiming it undervalued the company.

It was at this time that North Face announced that it was considering restating its results from 1997 and 1998 due to accounting irregularities. Share price fell from over $27 per share to $13 per share after the announcement and trading of its stock was halted for nearly a month. The company released its new figures which revealed that 1998 sales had been overstated by six percent, or $16 million, and earnings had been inflated by 42 percent. Sales and earnings had also been overstated in 1997. Slowly but surely, shareholders began to file class action lawsuits claiming the company had inflated its results in order to boost its share price.

Plans to take the company private failed and Fifield resigned his post in 1999. Company headquarters returned to California in 2000. By this time, North Face's financial condition had deteriorated significantly due to distribution problems and costs related to the failed buyout and the moving of company headquarters. VF Corporation, one of the world's largest apparel companies, swooped in just days after North Face announced that it was facing a Chapter 11 bankruptcy protection filing. VF bought North Face for $24.5 million in August 2000.

Under the wing of VF, which recorded $5.6 billion in sales in 2000, North Face received an instant cash infusion. The sale benefitted VF as well. The North Face brand gave it a stronger foothold in the outdoor apparel segment. In fact, North Face quickly became the cornerstone in VF's Outdoor Apparel and Equipment Coalition. This division included North Face, JanSport, and Eastpack. In 2004, Vans, Kipling, and the Napapijri brands were added to this coalition.

KEY DATES

1965:: North Face is established.
1968:: The company begins to wholesale and manufacture backpacking equipment.
1975:: North Face introduces a benchmark in the outdoor equipment industry with its geodesic dome tent.
1988:: Odyssey Holdings, Inc. (OHI) acquires North Face.
1993:: OHI files for bankruptcy.
1994:: The company is purchased at public auction for $62 million by a group consisting of J.H. Whitney & Co., Marsden Cason, and William S. McFarlane; company name is changed to The North Face Inc.
1996:: The North Face goes public; the Tekware line is launched.
1999:: Plans to take the company private fail; accounting irregularities force the company to restate its earnings from the past two years.
2000:: VF Corporation acquires The North Face.

By 2005, North Face's financial problems were a thing of the past and demand for its products was strong. VF's outdoor apparel unit was experiencing significant year-over-year profit growth: 34 percent in 2003; and 61 percent in 2004. With the support of one of the largest apparel companies in the world, The North Face appeared to be well positioned for future growth. Indeed, the North Face logo would no doubt remain on the backs of outdoor enthusiasts for years to come.

Karen Leslie Boyd

Updated, Christina M. Stansell

PRINCIPAL COMPETITORS

K2 Inc.; L.L. Bean Inc.; Patagonia.

The North Face, Inc.

views updated May 23 2018

The North Face, Inc.

2013 Farallon Drive
San Leandro, California 94577
U.S.A.
(510) 618-3500
Fax: (510) 618-3531

Public Company
Incorporated: 1994 as The North Face, Inc.
Employees: 518
Sales: $158.23 million (1996)
Stock Exchanges: NASDAQ
SICs: 5699 Miscellaneous Apparel & Accessory Stores; 2399 Fabricated Textile Products, Not Elsewhere Classified

The North Face, Inc. is a manufacturer and distributor of high-grade equipment and apparel used in mountaineering, skiing, and backpacking. While the reputation of North Face was built on outfitting expeditions, the company’s later growth has come through the introduction of high-tech apparel in upscale retail stores. With Summit Shops, North Face has established its use of a “store within a store” concept. Summit Shops are located within the company’s wholesale customer’s stores. As of 1996 there were 25 Summit Shops, with another 100 planned for opening sometime in 1997. The company also operated nine retail stores, two distribution centers, and three outlets in the U.S., with domestic distribution to approximately 840 wholesalers representing nearly 1,200 storefronts. Virtually all of the company’s goods are manufactured, to North Face’s specifications, by some 50 unaffiliated contractors located in North America and Asia.

The Early Years: 1965–73

According to the 1996 company prospectus, the name North Face originated with the company’s founders and comes from the fact that the north face of a mountain in the northern hemisphere is usually the most formidable and challenging for mountain climbers. North Face was founded in 1965 by outdoor enthusiasts retailing premium-grade backpacking and climbing equipment. North Face began to wholesale and manufacture backpacking equipment in 1968. The business continued to grow and expand. In the early 1970s North Face added outerwear to its product line.

Innovation in Product Design: 1975–90

Innovative product design and consistent development and introduction of new products have always been North Face’s greatest strengths. In 1975 North Face introduced a benchmark in the outdoor equipment industry with its geodesic dome tent. This design became the standard for lightweight, high-performance tents used in high-altitude and polar expeditions. The geodesic dome also became very popular for general backpacking and camping as well. The same year North Face also introduced another original, sleeping bags incorporating shingled construction of synthetic insulation. Like the dome tent, these sleeping bags have become the industry standard.

In the early 1980s the company launched its “extreme skiwear” line. Another addition to the North Face product line came in 1988, when the Expedition System was introduced. A complete line of severe cold weather clothing consisting of integrated components, the Expedition System was designed to be used together in various combinations. According to the company, there is wide use of this clothing system by world-class mountain climbers. By the late 1980s North Face was the only manufacturer and distributor in the United States of a comprehensive line of premium-grade, high-performance equipment and apparel used in mountaineering, skiing, and backpacking.

Shaky Ground for North Face

While the reputation of North Face products has remained sound, internal decision-making has occasionally been questioned. During the growth phase of the 1980s, the company attempted to manufacture all of its own products. This led to problems of obsolete materials, large amounts of capital invested in an inventory of finished goods, and late delivery of high-demand products. However, these were not the only detriments to the financial health of North Face. In the late 1980s, North Face opened outlet stores to sell lower-priced products in an effort to dispose of obsolete materials. The product reputation of North Face was based on a high-end, or expensive, association with the inherent product quality. The lower-priced products confused or missed the intended consumers and did not help the company’s overall image. Also, these outlets were not well received by North Face’s wholesale customers and were eventually closed. All of these business activities had a negative effect on North Face’s finances and launched the company into the next phase of its history.

In January 1993, a new executive staff was recruited to make needed changes in North Face’s operations. Among those newly recruited was Marsden S. Cason, who was at that time the president of North Face and a director and executive officer of OHI. Some of the significant changes initiated by the new management team included hiring experienced executives and operating managers, establishing a focus on sales and gross margin, expanding contracted sources of goods and materials, closing discount outlets, and discontinuing unprofitable product lines. Eventually, as a result of these initiatives, the company would realize a significant increase in sales and profits. However, in 1993 the parent company, OHI, filed for protection under Chapter 11 of the U.S. Bankruptcy Code.

A Dramatic Turnaround Beginning in 1994

North Face continued to operate at a loss until 1994, when the strategic changes mentioned began to take a positive effect; 1994 was a year of significant transitions for North Face. On June 7 the company was purchased at public auction for $62 million by a group consisting of J. H. Whitney & Co., Cason, and William S. McFarlane. On June 8, 1994, TNF Holdings changed its name to The North Face, Inc. Also in June 1994 Cason was appointed CEO of North Face.

The 1990s: Opportunities, Threats, and a Look to the Future

One of the inherent weaknesses of being in a focused, niche industry, according to experts, is attempting to sustain growth in a field with a limited number of customers. This is what necessitated the introduction of Summit Shops selling Tekware as North Face attempted during the 1990s to obtain a share of the leisure apparel industry. Such a shift represented a major departure from traditional North Face territories. North Face’s success in this new venture depended, in part, upon the buyers of casual wear, a market that can be fickle. For North Face, entering this market could be seen by industry observers as either a weakness or an opportunity. In addition, another possible weakness that presented itself was overdependence on contracted vendors to supply the majority of the company’s manufactured goods.

The largest area of opportunity that North Face was involved in was the expansion into the casual apparel industry with the introduction of “Summit Shops.” Another area of opportunity for North Face was the possibility of future government contracts for tent sales, given the company’s longtime association as a supplier to the U.S. Marines Corps. Finally, further development and introduction of new and innovative designs of products in the future seemed to be a likely avenue for North Face to gain or retain market share.

While North Face had weathered some rough and challenging times, the company seemed by the mid-1990s to be on firm footing and ready to begin another new phase. North Face recommended itself as a company poised for future growth by building on its strengths: brand-name recognition, product reputation and differentiation, innovative product design and diversity, aggressive entry into the casual wear market, and, as attested to by company profits and increases in the value of the company’s stock, the decisive and able senior-level management that will continue to drive North Face’s climb to success.

Company Perspectives:

The North Face has developed a superior reputation for quality, performance and authenticity by providing technically advanced products capable of withstanding the most extreme conditions. For nearly 30 years, the Company’s outdoor apparel and outdoor equipment have been the brand of choice for numerous high altitude and polar expeditions. These products are used extensively by world-class climbers, explorers and extreme skiers, whose lives depend on the performance of their apparel and equipment. To maintain and further enhance this unique legacy, the Company continuously develops and introduces innovative products that are functional and are designed to be both technically superior and, in many instances, to set the industry standard in each product category. The Company cultivates its extreme image through its targeted marketing efforts and its teams of world-class climbers, explorers and skiers.