Item 1. Business
Item 1. Business
General
Wolverine World Wide, Inc. (the “Company”) is a leading designer, marketer and licensor of a broad range of quality casual footwear and apparel, performance outdoor and athletic footwear and apparel, kids' footwear, industrial work boots and apparel, and uniform shoes and boots. The Company’s products are marketed worldwide in approximately 170 countries and territories through owned operations in the United States ("U.S."), Canada, the United Kingdom and certain countries in continental Europe and Asia Pacific. In other regions (Latin America, portions of Europe and Asia Pacific, the Middle East and Africa), the Company relies on a network of third-party distributors, licensees and joint ventures.
Today, the Company sources and markets a broad range of footwear styles, including shoes, boots and sandals under many recognizable brand names, including Bates ® , Cat ® , Chaco ® , Harley-Davidson ® , Hush Puppies ® , Hytest ® , Keds ® , Merrell ® , Saucony ® , Sperry ® and Wolverine ® . The Company licenses its Stride Rite ® brand under a global license arrangement. The Company also markets Merrell ® and Wolverine ® brand apparel and accessories and licenses some of its brands for use on non-footwear products, including Hush Puppies ® apparel, eyewear, watches, socks, handbags and plush toys; Wolverine ® eyewear and gloves; Keds ® apparel; Saucony ® apparel and Sperry ® apparel. Cat ® is a registered trademark of Caterpillar Inc. and Harley-Davidson ® is a registered trademark of H-D U.S.A., LLC.
The Company’s products generally feature contemporary styling with proprietary technologies designed to provide maximum comfort and performance. The Company believes that its primary competitive advantages are its well-recognized brand names, patented proprietary designs, diverse product offerings and comfort technologies, wide range of distribution channels and diversified manufacturing and sourcing base. The Company combines quality materials and skilled workmanship to produce footwear according to its specifications at both Company-owned and third-party manufacturing facilities. The Company’s products are sold at various price points targeting a wide range of consumers of casual, work, outdoor and athletic footwear and apparel.
The Company’s portfolio of brands is organized into the following two operating segments, which the Company has determined to be reportable segments.
• Wolverine Michigan Group , consisting of Merrell ® footwear and apparel, Cat ® footwear, Wolverine ® footwear and apparel, Chaco ® footwear, Hush Puppies ® footwear and apparel, Bates ® uniform footwear, Harley-Davidson ® footwear and Hytest ® safety footwear; and
• Wolverine Boston Group , consisting of Sperry ® footwear, Saucony ® footwear and apparel, Keds ® footwear and the Kids' footwear business, which includes the Stride Rite ® licensed business, as well as Kids' footwear offerings from Saucony ® , Sperry ® , Keds ® , Merrell ® , Hush Puppies ® and Cat ® .
The reportable segments are engaged in designing, manufacturing, sourcing, marketing, licensing and distributing branded footwear, apparel and accessories. Revenue for the reportable segments includes revenue from the sale of branded footwear, apparel and accessories to third-party customers; revenue from third-party distributors, licensees and joint ventures; and revenue from the Company’s consumer-direct businesses.
The Company also reports “Other” and “Corporate” categories. The Other category consists of the Company’s leather marketing operations, sourcing operations and multi-branded consumer-direct retail stores. The Corporate category consists of unallocated corporate e xpenses, such as costs related to the COVID-19 pandemic, impairment of intangible assets and environmental and other related costs. T he Company’s reportable segments are determined based on how the Company internally reports and evaluates financial information used to make operating decisions.
The Company's reportable segments and related brands are described in more detail below.
1. Wolverine Michigan Group
Merrell ® : Merrell ® believes in sharing the simple power of being outside – no matter who you are, where you came from, who you love, or how you move — everyone should be welcome in the outdoors and wherever life takes us. Merrell ® works each day to build innovative, thoughtfully-designed, rigorously-tested products that over-deliver on quality, comfort, versatility, and style. Merrell ® designs and creates footwear, apparel, and accessories for the whole family in categories such as hiking, trail running, training, lifestyle, and work. Merrell ® can be found around the world in the Company's own retail stores and on Merrell ® eCommerce sites, including merrell.com, and in industry-leading, partner retailers and digital platforms.
Cat ® Footwear: Cat ® Footwear is driven by the belief that generations of builders, makers and creators can turn challenge into enduring greatness. The Company is the exclusive global footwear licensee of Caterpillar Inc., and for
6
over two decades, Cat ® Footwear has been living up to the hardworking spirit of both the Caterpillar ® trademark and the millions of consumers who trust the brand. Cat ® Footwear originally created a small collection of rugged work boots designed to provide workers with the comfort and durability that met the challenges of the worksite. Today, Cat ® Footwear offers a wide range of footwear, including work boots and casual shoes for men, women and children - sold through a global distribution network. CAT ® , CATERPILLAR, their respective logos, "Caterpillar Corporate Yellow", as well as corporate product identity used herein, are registered trademarks of Caterpillar Inc.
Wolverine ® : For more than 135 years, Wolverine ® has existed to support people who forge their own path; men and women who stop at nothing to build the future they want. Wolverine ® designs and creates footwear, apparel and accessories across three strategic territories; Work, Outdoor and Heritage. The brand is best known for DuraShocks comfort technology in work boots, as well as the Wolverine ® 1000 Mile collection of premium lifestyle boots handcrafted in the USA from archival patterns. Wolverine ® products can be found online at Wolverine.com and across a variety of retail channels including online retail, farm & fleet, work specialty, outdoor specialty, department stores and national family stores.
Chaco ® : Chaco ® has a rich, 30+ year history of creating footwear that’s “Fit For Adventure” of any kind, whether that’s exploring rivers, trails or swerving city streets. Originating as an innovation in the whitewater rafting world, Chaco ® now designs footwear for all walks of life in the outdoor and lifestyle communities. The brand's mission is to help people find their way, providing access to new people, places, and experiences that make them more confident in who they are and where they’re headed. That’s why we create footwear that comes with all-terrain versatility, a unique 360° fit, unmatched durability and signature LUVSEAT™ footbed arch support. The MyChacos custom sandal program provides customers an opportunity to express their funky individuality, while the ReChaco program helps reduce their impact on the places they explore by repairing used sandals. Chaco ® products are distributed primarily through specialty footwear retailers, the Chaco ® eCommerce site, and other leading online and brick and mortar retailers.
Hush Puppies ® : Launched in 1958, Hush Puppies ® has a history of bringing color and optimism to a boring, brown shoe category. Today, Hush Puppies ® exists to inspire our consumers to live life on the bright side. The Company believes that optimism is contagious and that by encouraging positivity it can help shape a better world. Hush Puppies ® footwear is distributed through wholesale and licensed channels, and through an eCommerce site. In addition, the Hush Puppies ® brand is licensed to third parties engaged in the manufacturing, marketing and distribution of apparel, handbags, eyewear, socks, watches and plush toys sold around the world. Hush Puppies ® , with its basset hound icon, is one of the most well-known and loved brands worldwide.
Bates ® : The Bates ® brand supplies footwear to military and civilian uniform wearers. Bates ® utilizes DuraShocks ® , Bates iCS ® , Bates Endurance Performance System and other proprietary comfort technologies in the design of Bates ® footwear. Bates ® supplies military footwear to several foreign countries. Civilian uniform users include police officers, security and emergency medical services workers, and others in light industrial occupations. Bates ® products are distributed through sporting goods chains, department stores, uniform specialty retailers and catalog retailers.
Harley-Davidson ® Footwear: Pursuant to a license arrangement with the Harley-Davidson Motor Company, Inc., the Company has footwear marketing and distribution rights for Harley-Davidson ® branded footwear. Harley-Davidson ® branded footwear products include motorcycle , casual, fashion, work and western footwear for men, women and kids. Harley-Davidson ® footwear is sold globally through a network of independent Harley-Davidson ® dealerships and other retail outlets. Harley-Davidson ® is a registered trademark of H-D U.S.A., LLC.
Hytest ® Safety Footwear: The Hytest ® product line consists of high-quality work boots and shoes that incorporate various specialty safety features designed to protect against hazards of the workplace, including steel toe, composite toe, nano toe, metatarsal guards, electrical hazard protection, static dissipating and conductive footwear. Hytest ® footwear is distributed primarily through a network of independently-owned Shoemobile ® mobile truck retail outlets providing direct sales of the Company’s occupational and work footwear brands to workers at industrial facilities and also through direct sales arrangements with large industrial customers.
2. Wolverine Boston Group
Sperry ® : Sperry ® was founded in 1935 by avid sailor, inventor and intrepid explorer Paul Sperry. The brand is fully rooted in the history of American style and continues to craft the tools for life’s memorable experiences on, off and by the water. From the invention of the world's first boat shoe, Sperry ® remains the leader in the boat shoe category, and has also expanded its business into casuals, wet weather, boots and sneakers. The brand is primarily distributed through leading premium and better lifestyle retailers, as well as through Sperry ® retail stores and Sperry.com.
7
Saucony ® : Saucony ® is a purpose driven performance running brand with roots dating back to 1898. Saucony ® targets both elite and casual runners through award winning design, innovation and performance technology. The brand is focused on meeting the functional biomechanical needs of runners while delivering on their emotional style needs as well. Saucony innovations include Powerrun+, a cushioning technology system; PWRFOAM midsole, PWRTRAC outsole, and FormFit, an adaptive fit system. Saucony ® offers five categories of performance footwear products; Competition, Road, Trail, Train and Walking; as well as the Originals lifestyle footwear inspired by Saucony ® products of the 1970's to 2000's. Saucony ® also offers a complete line of performance running apparel and select lifestyle apparel pieces. Through Saucony's ® Run For Good brand platform and charitable foundation, Saucony ® is strengthening connections with consumers and elevating the positioning of the brand. The brand’s products are distributed primarily through leading run specialty and sporting goods retailers, as well as Saucony ® retail stores and an eCommerce site.
Keds ® : Keds ® is an authentic, casual lifestyle brand brought to life in 1916 with its simple, yet chic take on canvas footwear. Emerging from its popularity came the iconic Champion ® sneaker, a shoe that soon ignited a style revolution, popularized by everyone from fashion icons to the girl next door. Today, Keds ® remains a true American brand, rooted in female empowerment and fueled by a passion for inspiring a new generation of ladies. The brand’s product architecture targets young women consumers with both core offerings and seasonal iterations featuring updated prints, patterns, materials and constructions on lace-up and slip-on silhouettes, all designed specifically for a woman’s foot. Keds ® continues to inspire loyalty through purposeful, innovative and classic, yet modernized footwear and its unwavering support for putting ladies first.
Kids' Footwear: The Kids' footwear business includes the Stride Rite ® licensed business, as well as kids' footwear offerings from Saucony ® , Sperry ® , Keds ® , Merrell ® , Hush Puppies ® and Cat ® . With a history dating back to 1919, Stride Rite ® is an industry leader in kids' footwear. The Company signed a multi-year license agreement in 2017 to license the Stride Rite ® brand. Kids' footwear offerings from Saucony ® , Sperry ® , Keds ® , Merrell ® , Hush Puppies ® and Cat ® are distributed through premium and better lifestyle retailers, outdoor and sporting goods retailers, as well as through an eCommerce site and by a license partner.
Other Businesses
In addition to its reportable segments, the Company operates a performance leather business, sourcing operations and a multi-brand consumer-direct business.
Wolverine Leathers Division - The Wolverine Leathers Division markets pigskin leather for use primarily in the footwear industry. The Company believes pigskin leather offers superior performance and other advantages over cowhide leather. The Company’s waterproof and stain resistant leathers are featured in some of the Company’s footwear lines and also sold to external footwear brands.
Sourcing Division - The sourcing division earns third-party commission revenue by providing consulting services related to product development, production control, quality assurance, materials procurement, compliance and other services.
Multi-brand Consumer-Direct Division - The multi-brand consumer-direct division includes retail stores that sell footwear and apparel from the Company's brand portfoli o and other brands.
Marketing
The Company’s marketing strategy is to develop brand-specific plans and related promotional materials that foster a consistent message for each of the Company’s core brands across the globe. Each reportable segment has dedicated marketing personnel who develop the marketing strategies for specific brands. Marketing campaigns and strategies vary by brand, but are generally designed to target consumers in order to increase awareness of, and affinity for, the Company’s brands. The Company’s advertisements typically emphasize fashion, comfort, quality, durability, functionality and other performance and lifestyle attributes of the Company’s brands and products. Components of brand-specific marketing plans vary and may include print and radio advertising, search engine optimization, social networking sites, event sponsorships, in-store point-of-purchase displays, promotional materials and sales and technical assistance.
In addition to the Company’s internal marketing efforts, each brand provides its third-party licensees and distributors with creative direction, brand images and other materials to convey globally consistent brand messaging, including (i) direction on the categories of footwear and apparel to be promoted; (ii) photography and layouts; (iii) broadcast advertising, including commercials and film footage; (iv) point-of-purchase specifications, blueprints and packaging; (v) sales materials; and (vi) consulting services regarding retail store layout and design. The Company believes its brand names represent a competitive
8
advantage, and the Company, along with its licensees and distributors, make significant marketing investments to promote and enhance the market position of its products and drive brand awareness.
Domestic Sales and Distribution
The Company uses a variety of means to support sales to a variety of domestic distribution channels:
• The Company uses a dedicated sales force and customer service team, third party sales representatives and point-of-purchase materials to support domestic sales.
• The Company maintains core in-stock inventories to service department stores, national chains, specialty retailers, catalog retailers, independent retailers, uniform outlets and its own consumer-direct business.
• The Company uses volume direct programs to ship products to retail customers and to provide products at competitive prices to service major retail, catalog, mass merchant and government customers.
• The Company also operates brick and mortar retail stores and eCommerce sites.
International Operations and Global Licensing
The Company’s foreign-sourced revenue is generated from a combination of (i) sales of branded footwear and apparel through the Company’s owned operations in Canada, the United Kingdom and certain countries in continental Europe and Asia-Pacific; (ii) revenue from third-party distributors for certain markets and businesses; (iii) revenue from a network of third-party licensees; and (iv) revenue and income from joint ventures that market the Company’s branded products in Mexico, Colombia and China. The Company’s international owned operations are located in markets where the Company believes it can gain a strategic advantage by directly controlling the sale of its products into retail accounts. License and distribution arrangements enable the Company to generate sales in other markets without the capital commitment required to maintain related foreign operations, employees, inventories or localized marketing programs. The Company believes that joint ventures will provide it with a more meaningful ownership stake and near-term brand impact in fast-growing markets than its traditional licensee and distributor arrangements.
The Company continues to develop its international network of third-party licensees and distributors to market its branded products. The Company assists its licensees in designing products that are appropriate to each foreign market, yet consistent with global brand positioning. Pursuant to license or distribution agreements, third-party licensees and distributors either purchase goods directly from the Company and authorized third-party manufacturers or manufacture branded products themselves, consistent with Company standards. Distributors and licensees are responsible for independently marketing and distributing the Company’s branded products in their respective territories, with product and marketing support from the Company.
Manufacturing and Sourcing
The Company directly controls the majority of the units of footwear and apparel sourced under the Company’s brand names. The Company’s licensees directly control the balance. Substantially all of the units sourced by the Company are procured from numerous third-party manufacturers in the Asia Pacific region. The Company maintains offices in the Asia Pacific region to develop and facilitate sourcing strategies. The Company has established guidelines for each of its third-party manufacturers in order to monitor product quality, labor practices and financial viability. The Company has adopted “Engagement Criteria for Partners and Sources,” a policy that requires the Company’s domestic and foreign manufacturers, licensees and distributors to use ethical business standards, comply with all applicable health and safety laws and regulations, commit to use environmentally safe practices, treat employees fairly with respect to wages, benefits and working conditions and not use child or prison labor. The Company’s third-party sourcing strategy allows the Company to (i) benefit from lower manufacturing costs and state-of-the-art manufacturing facilities; (ii) source high quality raw materials from around the world; and (iii) avoid capital expenditures necessary for additional owned factories. The Company believes that its overall global manufacturing strategy provides the flexibility to properly balance the need for timely shipments, high quality products and competitive pricing.
The Company’s principal raw material is quality leather, which it purchases from a select group of domestic and foreign suppliers. The widespread availability of common upper materials and specialty leathers eliminates reliance by the Company on a single supplier.
The Company currently purchases all of the raw pigskins used for its Wolverine Leathers Division from one domestic source, which has been a reliable and consistent supplier to the Company for over 50 years. Alternative sources of raw pigskin are available, but the Company believes these sources offer less advantageous pricing, quality and compatibility with the Company’s processing method. The Company purchases all of its other raw materials and component parts from a variety of sources and does not believe that any of these sources are a dominant supplier.
9
Trademarks, Licenses and Patents
The Company holds a significant portfolio of registered and common law trademarks that identify its branded products and technologies. The Company’s owned trademarks include Hush Puppies ® , Dog Likeness (registered design trademark), Wolverine ® , Bates ® , Chaco ® , Soft Style ® , Wolverine Fusion ® , DuraShocks ® , MultiShox ® , Wolverine Compressor ® , Wolverine ICS ® , Hidden Tracks ® , iTechnology ™ , Bounce ® , Comfort Curve ® , Hytest ® , Merrell ® , M Circle Design (registered design trademark), Continuum ® , Q Form ® , Sperry ® , Saucony ® , Stride Rite ® and Keds ® . The Company’s Wolverine Leathers Division markets its pigskin leathers under the trademarks Wolverine Warrior Leather ® , Weather Tight ® and All Season Weather Leathers™ . The Company has footwear marketing and distribution rights under the Cat ® and Harley-Davidson ® trademarks pursuant to license arrangements with the respective trademark owners. The Cat ® license term runs through December 31, 2024 and the Harley-Davidson ® license term runs through December 31, 2022. Both licenses are subject to early termination for breach.
The Company believes that consumers identify its products by the Company’s trademarks and that its trademarks are valuable assets. The Company has a policy of registering its primary trademarks and vigorously defending its trademarks against infringement or other threats whenever practicable. The Company also holds many design and utility patents, copyrights and various other proprietary rights. The Company protects its proprietary rights under applicable laws.
Seasonality
Prior to the COVID-19 pandemic, the Company’s business was subject to seasonal influences that could cause significant differences in revenue, earnings and cash flows from quarter to quarter. The COVID-19 pandemic resulted in changes in consumer behavior and preferences in fiscal 2020 that have negatively impacted the Company's fiscal 2020 results. The Company expects the seasonal cadence that the Company experienced historically may continue to be affected as a result of these changes in consumer behavior and preferences.
The Company also experiences some fluctuation in its levels of working capital, typically including an increase in net working capital requirements near the end of the first and third fiscal quarters. The Company meets its working capital requirements through internal operating cash flows and, as needed, borrowings under the Revolving Credit Facility, included in its Amended Senior Credit Facility as discussed in more detail under the caption "Liquidity and Capital Resources" in Item 7: "Management's Discussion and Analysis of Financial Condition and Results of Operations".
Competition
The Company markets its footwear and apparel lines in a highly competitive and fragmented environment. The Company competes with numerous domestic and international footwear marketers, some of whom are larger and have greater resources than the Company. Product performance and quality, including technological improvements, product identity, competitive pricing, ability to control costs and ability to adapt to style changes are all important elements of competition in the footwear and apparel markets served by the Company. The footwear and apparel industries are subject to changes in consumer preferences. The Company strives to maintain its competitive position through promotions designed to increase brand awareness, manufacturing and sourcing efficiencies, and the style, comfort and value of its products. Future sales by the Company will be affected by its continued ability to sell its products at competitive prices and to meet shifts in consumer preferences.
Because of the lack of reliable published statistics, the Company is unable to state with certainty its competitive position in the overall footwear and apparel industries. The non-athletic footwear and apparel markets are highly fragmented and no one company has a dominant market position.
Environmental Matters
The Company uses and generates certain substances and wastes that are regulated or may be deemed hazardous to the environment under certain federal, state and local regulations. The Company works with foreign and domestic federal, state and local agencies from time to time to resolve cleanup issues at various affected sites and other regulatory issues. Financial information regarding the Company’s environmental remediation activities is found in Note 17 to the Company's Consolidated Financial Statements.
Human Capital Resources
Employee Profile : As of January 2, 2021, the Company had approximately 3,400 domestic and foreign production, office and sales employees. One of the Company's Core Values is "Our People Are the Difference," and as such we work to maximize the
10
engagement and contribution of our current workforce and to attract the best talent available from outside the organization when needed.
Talent Recruitment, Retention and Development : Our talent strategy is focused on attracting top talent and continually developing, engaging, investing in and retaining top employees through a variety of retention and development efforts and world class corporate amenities. We strive to hire world class talent, while ensuring opportunities for growth and development for our team members. We recently launched an engaging modern recruitment marketing website to tell our compelling story of opportunity and inclusion. Development starts on day one with an enriching Day 1 experience designed to help employees start off on the right foot from the moment they begin their career with the Company. The Company strives to be one of the best places to work.
In order to maximize engagement and contribution of our team members, we conduct regular pulse and check-in surveys to ensure we are in touch with our team member needs and perspectives. Our annual talent planning process provides invaluable data to help retain top talent through career planning and leadership continuity by using that data to identify and mitigate succession gaps through hiring and development.
The Company benchmarks its benefits regularly and keeps abreast of the most up-to-date and effective strategies in order to offer a comprehensive and competitive compensation and benefits package that is specific to the employees’ region of employment including annual incentive programs, long-term incentive programs and health and wellness benefits, such as the corporate headquarters' on-site, state of the art Fitness Center, Child Care, and Doggie Day Care facilities for our employees.
The Company believes that leaders should be developed at every stage of their career, from new managers to executives. We have a global leadership development program for all people leaders through partnerships with top educational institutions which focuses both on business leadership and capabilities needed to evolve our businesses, and on people leadership capabilities to build, retain, and inspire top performing teams. As we continue to evolve and transform, the continued development of leaders is viewed as critical to the Company's future success. To enhance the development of employees, the Company offers a wide variety of virtual learning courses, instructor led classes, video libraries, and quick reference documents and provides tuition reimbursement to help employees achieve higher education goals.
Diversity, Equity, and Inclusion : The Company is committed to having a diverse and inclusive workforce which is reflected in the wide range of cultures, religions, ethnicities and nationalities, as well as varied professional and educational backgrounds currently represented at the Company. Because the Company believes in cultivating a well-rounded, diverse workforce, the Company continuously seeks out individuals who reflect and support the goal of maintaining a diverse corporation. We have further prioritized diversity and inclusion by hiring an expert partner to help us build a framework to promote an inclusive environment today and into the future in order to make the Company an even greater place to work.
Health and Safety : The health and safety of the Company's employees is one of its highest priorities. The Company has developed safety protocols to enhance the health and safety of all employees. The Environmental, Health, & Safety Council is composed of representatives from across the Company and coordinates health and safety matters on a real time basis. The Company's focus on the health and safety of its workforce is also evidenced by the actions it has taken in response to the COVID-19 pandemic around the globe, including:
• Increasing employees' work from home flexibility;
• Adjusting attendance policies to encourage those who are sick to stay home;
• Increasing cleaning protocols;
• Initiating regular communication regarding impacts of the COVID-19 pandemic, including health and safety protocols and procedures;
• Implementing temperature screening of employees at the majority of its distribution facilities;
• Establishing new physical distancing procedures for employees who need to be onsite;
• Providing additional personal protective equipment and cleaning supplies;
• Modifying work spaces with plexiglass dividers and touchless faucets;
• Implementing protocols to address actual and suspected COVID-19 cases and potential exposure;
• Prohibiting all domestic and international non-essential travel for all employees; and
• Requiring masks to be worn in all locations where allowed by local law.
The Company distributes its products to a variety of customers, many of which are deemed essential, including customers in the health and safety, critical construction, food and agriculture, and energy sectors. As a result, the majority of the Company's distribution facilities have continued operating since the COVID-19 pandemic began. In order to keep distribution facilities open, the Company invested in creating physically safe work environments for employees.
11
Available Information
Information about the Company, including the Company’s Code of Business Conduct, Corporate Governance Guidelines, Director Independence Standards, Accounting and Finance Code of Ethics, Audit Committee Charter, Compensation Committee Charter and Governance Committee Charter, is available at its website at www.wolverineworldwide.com/investor-relations/corporate-governance . Printed copies of the documents listed above are available upon request, without charge, by writing to the Company at 9341 Courtland Drive, N.E., Rockford, Michigan 49351, Attention: General Counsel.
The Company also makes available on or through its website at www.wolverineworldwide.com/investor-relations , free of charge, the Company’s Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, and amendments to those reports (along with certain other Company filings with the Securities and Exchange Commission (“SEC”)), as soon as reasonably practicable after electronically filing such material with, or furnishing it to, the SEC. These materials are also accessible on the SEC’s website at www.sec.gov .