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Scott Baxter, Kontoor Brands President & CEO, joins Yahoo Finance's Alexis Christoforous and Brian Sozzi to speak about the company's partnerships with major retailers, its supply chain, the retail industry overall and more.
BRIAN SOZZI: In April, consumer spending fell a record 13.6%, while income unexpectedly jumped 10.5%, largely, in part, thanks to those government stimulus checks. Retail brands are certainly feeling the impact of that. Let's bring in Scott Baxter. He is President and CEO of Kontoor Brands. He joins us now. Scott, you oversee two big retail brands-- Lee and Wrangler-- one of top brands in the denim space. What are you seeing in Walmart and Target and Kohl's? These are some of your newer accounts. Those retailers seem to be holding up well in the general retail space.
SCOTT BAXTER: You know, being an essential account has really helped them and, evidently, been very beneficial for us as we talked about on our earnings call. So being part of their consumer base and their customer base has helped us greatly, going forward. And they were already a key customer of ours during the spin, so we had a really strong 30-plus-year relationship with a couple of those folks that you mentioned. And now, being able to be partners with them during this has only accelerated our expansion in what we've been thinking about as far as winning with the winners. Brian, one of our key tenets of our strategy has been to win with winners. And we're very fortunate that we've been partnered with those folks.
ALEXIS CHRISTOFOROUS: I like that. You've got a win with winners. All right, you have a pretty diversified supply chain from all parts of the world-- China, India, Vietnam, Bangladesh. Has this pandemic forced you to streamline that supply chain? Are you doing more things domestically when you can?
SCOTT BAXTER: Yeah, you know, fortunately for us, Alexis, actually, we own about 30% of our supply chain in South America, down in Mexico and Nicaragua. And because of that, we've been able to be very nimble and very quick to the marketplace. We've always thought of that as an incredible strategic advantage. Our supply chain team across the globe has just done an amazing job during this process and during this period and will continue to do so.
So we have been OK throughout the entire process. We do have a supply chain in some of those areas that you mentioned but not all from an external standpoint. And that's held up very well also. But I think the key here is owning your own supply chain during a period of time of uncertainty and upheaval has been a key, key opportunity for us.
BRIAN SOZZI: Scott, there are certainly a lot of losers in retail right now. You look at some of these mid-tier department stores closing hundreds of stores. Are you still shipping product to JC Penney? I mean, the company just filed for bankruptcy. Are you worried about working with companies like that?
SCOTT BAXTER: Yeah, you know, Brian, we don't talk about specific companies. But, you know, right now, we're really happy with our portfolio of customers. I think I talked earlier about the winning with the winners. And we've mentioned many times to our top customers are, and they've been really strong during this period of time. So from a portfolio standpoint, and from a strategy standpoint, we have a high level of confidence as we navigate our way through this difficult period of time.
ALEXIS CHRISTOFOROUS: Scott, how bullish are you for the rest of the year? I mean, today-- you know, we've been getting all of these sobering economic data points. Today we found out that consumer spending fell by the most on record in April, down more than 13 and a half percent. People are saving more. Do you think that we're going to have this pent up demand by the consumer to run out and spend when economies are reopened? Or are they going to be a little reticent? And what does that mean for your business, going forward?
SCOTT BAXTER: I think a little bit of both. But let me share with you a couple of data points on why we're cautiously optimistic. One, we talked about those essential retailers that are open and have been open, so that's been very good for us. Two, our other customers are opening up-- slowly, in some areas but at least opening up throughout the United States and throughout the world. So that's been really good. Our China business has been moving along very nicely. We've talked about it. I talked about it on our earnings call, about the fact that I like the fact that it's just been moving very steadily, without a big jump. But we've been happy with the progress since they shut down.
And then I talked on our earnings call, and I was very specific about playing offense. You know, a lot of people have been reporting, and there's been some tough things to talk about, but we talked about some good stuff too. We talked about our own manufacturing. But we also talked about two big programs on our earnings call-- one for Lee in over 2,000 doors that hits in the fall, and one for Wrangler internationally in Europe on over 400 doors.
So our strategy has been expansion internationally, expansion into new categories, like our all-terrain gear. So we're cautiously optimistic as we go forward. And then also, I would say we're hopeful that the world gets to a little bit more of a normal place, and that we have a vaccine going forward. But we're also being very cautious and thoughtful around our employee base around the world, too, to make sure that they're safe.
But I will tell you one more thing that I think is really important for Lee and Wrangler in our business-- is that we create an incredible product for an incredible value. And I do believe that the consumer that we're dealing with here, now, going forward, is going to look for brands that they know, brands that they love at a good value. And I think our position is really strong in that respect.
BRIAN SOZZI: Scott, I hear you on value. What do you expect-- how do you spec pricing on your products to look over the next couple of months? I was on the Nordstrom conference call last night, and they were highlighting a very promotional retail environment at least for the next three to four months. Do you see that?
SCOTT BAXTER: Yeah, I do see it for some pieces of the industry, but I think in our certain circumstance, for us, specifically, I think we're in really good shape. We have a very large mass business. So we come in at a very high value. And then we have a significant mid-tier business that's also at a value price. So we really like the product that we're putting out, and we like the value that we're creating with that. So we feel positioned really well.
BRIAN SOZZI: And, Scott, how has the pandemic changed growing your business? Listen, hundreds of stores are about to close. And we just had VF Corp CEO on. I know you know them quite well, being a former-- working there before the spin-off. They're building their own retail stores to get out of some of these wholesale locations. Do you have the same strategy?
SCOTT BAXTER: No, Brian, we don't. One of the things that we did when we spun off we made the decision to really lean into digital and also to win with our current customer base, you know, being some of the customers that you mentioned-- what we call the winners in the industry. And we've been very fortunate that those two strategies have really done very well during this time. So now we're actually in the process of amplifying those.
And our digital strategy has paid off. We've got a new digital leader that I've talked about that's doing exceptionally well. We're putting some assets and some resources against that. Our business is going really well there. We think, for us, for our brands, the best thing is to go ahead and partner with our partners globally and also to continue to build our digital strategy. But, Brian, I will tell you this-- we do have a portfolio of stores. It's just not really large.
And we have our VFO stores, and we use some of those to go ahead and move through some product that we need to and our outlets. So I like our strategy quite a bit right now, and I think that our strategy has played out very well during this pandemic.
BRIAN SOZZI: All right, we'll leave it there. Scott Baxter, Kontoor Brands President and CEO-- good to speak with you, as always. And, full disclosure, I can still fit into a pair of skinny jeans, despite being at home eating a lot and quarantined.
SCOTT BAXTER: Well, thanks, Brian. Thanks for having me on. Alexis, nice talking to you too. Really appreciate it.
BRIAN SOZZI: Appreciate it. Have a great weekend.
SCOTT BAXTER: Best to everybody.