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Fresh from spinning off its denim division, VF Corp (NYSE: VFC) is looking to expand further into China by partnering with Alibaba's (NYSE: BABA) Tmall Innovation Center (TMIC) to design products for local customers. Having previously used TMIC to develop products for VF brands like Dickies and Kipling, VF is broadening its collaboration with the Chinese e-commerce giant's research and development arm.
VF, which owns a collection of brands that includes The North Face, Timberland, and Vans, will get access to data on the buying habits of Alibaba's 654 million customers and use this data to develop products for one of its fastest-growing international markets. In exchange, the Chinese e-commerce platform will be able to exclusively sell the products on its site for a limited time and gain further insights into seller marketing strategies.
It's a win-win, but one Alibaba in particular should benefit from as it continues to establish closer ties with U.S. retailers. Using the Tmall business-to-consumer (B2C) platform to encourage them to enter the Chinese e-commerce market makes the process easy for the retailer and gives Alibaba valuable information.
Image source: VF Corp.
A diverse and varied partnership
Begun originally as an online platform for local businesses, Taobao Mall was subsequently rebranded as Tmall and has become an important tool in getting foreign brands to market in mainland China, Hong Kong, Macau, and Taiwan.
Tmall is now China's largest B2C e-commerce platform, and TMIC has assisted numerous multinational companies in designing products for China, including a spicy Snickers bar for Mars; a fruit-flavored Listerine for Johnson & Johnson; and a chocolate-and-orange flavored beer it's working on for Anheuser-Busch InBev.
VF, which was the first apparel retailer to work with TMIC in 2017, is now an $11 billion business after spinning off Wrangler and Lee jeans into the independently operated and traded Kontoor Brands.
Analysts believe VF now has better prospects for growth as it can focus its attention on the portfolio of brands it acquired through a bit of a buying binge. The Vans line of footwear is especially seen as a big opportunity as it has emerged as the second most popular brand for teens behind Nike, according to some research. Add this to the power of The North Face, which should capitalize on the premiumization trend, and Wall Street anticipates VF will generate increased shareholder returns.
Among the opportunities VF is exploring is further international sales, which grew 10% in the first quarter, led by a 25% increase in China and 8% growth in Europe, the Middle East, and Africa. Building upon what is already its strongest market by crafting a broad selection of products designed for local consumers makes a lot of sense.
No doubt the success on Tmall of a Kipling backpack, which VF created using TMIC's insights, informed the apparel company's decision to expand the relationship. VF also used the R&D center's data analysis to predict what style of Van's shoe would be most popular, and it tapped into custom chatrooms on the Tmall app to poll focus groups on attributes they'd want to see before releasing new Dickies streetwear.
Big opportunity brewing
Although it missed Alibaba's massive mid-year sales festival on June 18, an event that may come to rival its Singles Day extravaganza in November, VF has a big window of opportunity to climb through to design, manufacture, and market niche products solely for Chinese consumers.
And it's another partnership that should allow Alibaba to continue its market-dominating presence, and prove it to be the go-to partner for accessing Chinese online shoppers.
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Rich Duprey has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Nike. The Motley Fool recommends Anheuser-Busch InBev NV and Johnson & Johnson. The Motley Fool has a disclosure policy.