One year ago, I started my annual letter with this paragraph:
Our world is more dynamic and fast-paced than ever, and consumer behavior is evolving at an unprecedented pace. With change comes opportunity, and Wolverine Worldwide – a global leader in the industry – is well positioned to win in today's marketplace and to build on its long history of success.
I reflect on the past twelve months and, more importantly, focus on the road ahead – I believe these words still ring true, especially for our Company and industry. We are confident that our ambitious transformation initiative – the Wolverine Way Forward – has better positioned us to win in the “New Normal” – a retail marketplace that has been disrupted by a technological revolution which has given consumers unprecedented power. In this environment, we know that brands must create compelling products and stories, coupled with a seamless shopping experience for their consumers. We have positioned our Company for these new challenges. I’m excited to share with you some of the highlights of a transformational year and introduce the next chapter in the Wolverine story – our Global Growth Agenda.
The Way Forward was the most ambitious effort in the Company’s nearly 140-year history, a holistic and comprehensive initiative that has touched every facet of our global business and operations. This enterprise-wide transformation was focused squarely on improving the Company’s short-term performance while building a foundation for the future growth and prosperity of Wolverine Worldwide. The Way Forward established four critical work areas, or what we call our four Sprint Lanes:
It was an exceptional and busy year for the Company, driven by an ambitious agenda. Our aggressive and proactive approach, executed with incredible pace and urgency, has allowed us to dramatically improve our short-term performance and accelerate growth in the year ahead.
Some of the highlights from the past year include:
The Company is ready to move forward with:
I am especially pleased to report that while the Company was fully engaged in transforming the enterprise to win in the future, we delivered financial results that exceeded our expectations entering the year – further testament to our great brands, strong business model and exceptional team. During 2017, we:
We are proud of these results and are glad to say that the heavy lifting is behind us. However, we’re not resting on these accomplishments, but are pivoting to growth as we look to expand our global footprint and begin the next chapter in Wolverine’s long history of success.
One of the most exciting aspects of the Way Forward is the additional financial capacity to reinvest in the global growth of our brands. We’ve built a robust reinvestment framework to identify and prioritize our strategic initiatives under a new Global Growth Agenda. In 2018, through the realized benefits of our transformation initiative, we plan to invest an incremental $40 to $45 million in our new Global Growth Agenda, which is comprised of three key elements:
As part of the Way Forward transformation, our teams have developed and tested new processes, tools and speed initiatives to drive future growth. This includes investing in new creative and design capabilities while expanding our consumer insights and market intelligence skills to bring more craveable product to market on a more continuous basis. Our operating model is now positioned to execute with more speed and flexibility, including substantially shorter concept-to-market lead times and a greater ability to quickly back-fill product collections that perform well at retail.
In 2017, Merrell was our first brand to implement this new model and tool set, focusing on clear product segmentation, extensions into new consumer territories, and a faster cadence of new product introductions. This new approach and mindset was successful, as Merrell delivered high single-digit underlying growth in 2017, and high-teens growth in the fourth quarter.
All brands in the portfolio have now adopted this model and are developing go-to-market strategies which utilize these new processes and tools. We expect to commit approximately 45% of our incremental investment to this first element, with a focus to enhance design, product flow, demand planning, supply chain capabilities and distribution centers – while continuing to invest behind our consumer insights and global sales force teams.
The consumer shift to digital commerce continues. In 2017, approximately 28% of all footwear sales in the US were made on-line – and we expect this trend to continue. Technological disruption and innovation have forever changed the brand-consumer relationship. We will continue to over-index our investments toward our digital-direct offense to stay in lock-step with our consumers by creating digital content that can be used across all distribution channels and by most customers. In 2018, consumers expect to experience a seamless digital and physical store experience. As brand owners, we plan to operate more like vertical retailers to drive speed, product flow and consumer centricity – all of which will also benefit our wholesale customers.
Our owned eCommerce business has been our fastest growing channel over the last two years – with nearly 20% growth in 2017. We expect this growth to accelerate in 2018, as we continue to prioritize this channel in our owned markets, fueled by key strategic investments (approximately 30% of the total incremental investment) – which include greater social prospecting, new advertising up-and-down the consumer funnel, and the implementation of our new, unified consumer database, which we expect to increase retention and enhance the lifetime value of our consumers. We have also expanded other tactics and disciplines to drive our eCommerce business, including more exclusive product introductions, less promotional activity and increased spend on digital demand creation.
Our existing international model has been a profitable and strategic asset for the Company over many decades, minimizing risk and providing meaningful geographic diversification in a global marketplace undergoing significant change. During 2017, over 30% of our revenue and approximately 50% of our global pairs were sold outside the US. Our well-established international business benefits from a broad network of global partners – most of whom are vertical retailers with direct insight into consumer trends and preferences in their respective markets. Our brands enjoy over 15,000 controlled points of distribution around the world today.
To fuel the global expansion of our brands, we plan to allocate approximately 25% of our incremental investment spend to support international growth – specifically, to strengthen our regional teams in China and the Asia Pacific region, collaborate with key partners on new global product introductions, and improve systems to better service our global business. We are fortunate to have a strong foundation and global network, and expect our international business to be a source of high single-digit revenue growth in 2018.
Despite our strong global presence, we remain underrepresented in the fast-growing Asia Pacific region – especially in the China market. During 2017, less than 10% of our global revenue was generated from this important region – and we view this as a very meaningful opportunity for future growth and one of our top strategic priorities. Our specific plans for growth in China are in motion and we have established a near-term goal to double the revenue contribution from the Asia Pacific region by 2020.
Today we operate a stronger and more profitable portfolio of brands, and we continue to benefit from one of the best operational platforms in the industry. With a very strong balance sheet and greater capacity for reinvestment, we’ve tightened the aperture on our strategic priorities through our new Global Growth Agenda. Today the Wolverine team is fully engaged and laser focused on the global growth opportunities that exist for our leading portfolio of performance and lifestyle brands.
I would like to thank our team around the world for their incredible efforts this past year – their passion for our consumers and tireless drive to transform the Company, which has better positioned us to capture the many great opportunities that lie ahead. On behalf of everyone at Wolverine, I would also like to thank you, our shareholders, for your continued support of our Company.