Levi Builds Community for Over 165 Years
Chip Bergh

Written by:

Share

Facebook
Twitter
LinkedIn
Pinterest
Email
Print

If you go to Levi site, you will read in big, bold type, \”Been innovating since the birth of the blue jean in 1873.\” In fact, 1873 was the year that Levi Strauss & Co. and Jacob Davis received a U.S. patent for an \”Improvement in Fastening Pocket-Openings.\” By adding metal rivets to work pants, which would be known as blue jeans, they created stronger pants for working men. And over the last 147 years, Levi Strauss & Company has indeed fundamentally innovated across their business model, its products and every operation throughout their value chain.

[callout]We bring together the best people to build the best brand.[/callout]

For the first 100 years, the Levi brand dominated the jeans market. During those years they had a fairly competitive-free runway to accelerate its dominance, its iconic status and its global brand awareness as the \”king\” of blue jeans, so to speak. Then, the Levi-loving hippie culture during the 60s and 70s moved jeans from workwear to common daily attire. This opened the door for the designer jeans phenomenon, thus launching a huge wave of jeans brands, which today number in the thousands.

Levi\’s runway suddenly became very crowded very fast. And innovation on all fronts played a dominant role for the company…until it didn\’t.

Something Happened on the Way to the Future

The Levi brand successfully battled to maintain market share during the 80s and into the 90s, reaching record revenues of $7 billion in 1997. Then the brand suffered from what I coined as \”positioning drift.\” It drifted older and lost its young and cool image and consumers along with it. Between 2001 and 2010, the brand failed to break through revenues of $4.5 billion. Enter current CEO Chip Bergh in 2011 who had the audacity — in an article he wrote for the Harvard Business Review in 2018 — to say, \”I believe we can grow beyond our historical peak of $7 billion and someday be a $10 billion brand. Audacity is gradually turning into reality. After five years of creating and implementing his four-point transformation strategy since 2011, it began to pay off and has continued through 2019.

  • In 2015 Levi owned over 10.6 percent of the U.S. jeans market, dwindling from 11.6 percent in 2013, due to intense competition from the likes of Walmart, Wrangler, AEO, Old Navy and Target all of whom were increasing wallet share. With mounting competition in the U.S. market, Levi focused on a diversified model, including growing its international presence, resulting in a global jeans market share in 2019 of 8.4 percent compared to 7.9 percent. in 2016
  • In 2016 with revenues of $4.5 billion, it rose to $4.9 in 2017, $5.6 in 2018, and in 2019, revenues reached $5.8 billion (including 16 consecutive quarters of double-digit growth in direct to consumer sales, a major focus of his strategy). The three-year revenue CAGR ending 2019 was 8.3 percent.

\"\"

Levi prevails to this day as one of the most popular and top-selling jeans brands in the world and in 2018 was voted as consumers\’ most-loved denim brand with a net favorability score of 72 percent, blowing away all other brands (second highest brand was 58 percent).

The Four-Point Transformation Strategy

Having spent 28 years at Procter & Gamble in brand management and leading the integration of P&G\’s $57 billion acquisition of Gillette (which he then ran for six years as one of P&G\’s most profitable divisions), Bergh was able to make some quick and major observations when he took the helm at Levi Strauss & Co. His insights informed some immediate changes, leading to his four-point strategy.

Following what he called his listening tour among his 60 top executives when he first arrived, he found there was no cohesive strategy that the various functions of the business could link to the work they were doing, \”all rowing in different directions,\” as he put it. Most (75 percent) of them thought the business was performing well when it clearly was not. Bergh said, \”A lack of urgency, of financial discipline, and of data discipline permeated the culture. I took my listeners through why I believed that the company was underperforming and why we had an opportunity, and an obligation, to do better. Succeeding would require significant cultural change,\” which he acknowledged was the biggest challenge in his turnaround process.

He was also astonished at how many of his team members he needed to replace. \”When I arrived, I had 11 direct reports. Within 18 months nine of them were gone, and only one of the other two is still here today. We now have a world-class executive team that I would put up against that of any other company in the world,\” he says.

About six months after he took over, he rolled out his four-point strategic plan, one that is, as he put it is, \”memorable and easy to understand.\” Bergh\’s own words, as he wrote for the HBR in 2018:

1. Build our profitable core.

A total of 80 percent of our cash flow and profits come from men\’s bottoms–jeans and Dockers–and from sales in our top-five countries and to our top 10 wholesale customers (primarily department stores, including Kohl\’s, JCPenney, Sears, and Macy\’s). This part of our business has high market share but relatively low growth. It\’s vitally important to our finances, however; if the core isn\’t healthy, our business can\’t succeed.

2. Expand for more.

At the time, we had a very low market share in women\’s clothing, and we weren\’t selling enough tops. The rule of thumb in apparel is that most people buy three or four tops for every bottom, but our numbers were just the opposite. We also had very low sales in developing markets such as Brazil, Russia, India, and China. That represented an opportunity.

3. Become a leading omnichannel retailer.

Even though most of our products were sold in department stores, Levi had 2,700 of its own stores around the world, plus an e-commerce website. When I walked through department stores, I saw that our brand wasn\’t consistently showcased. But in our own retail stores, of course, we controlled the experience, and we got higher margins on sales. So, we needed to grow sales in our brick-and-mortar stores and on our website as well-because over time more apparel sales would be online.

4. Achieve operational excellence.

We needed to cut costs, drive cash flow, and become more data-driven and financially disciplined to free up money to invest in technology and innovation. We also needed to reduce the nearly $2 billion in debt remaining from a leveraged buyout in the late 1990s. When I arrived, we were spending more on interest payments than on advertising, which makes it difficult to grow a brand.

Innovation

One of Bergh\’s early investments was to move its Eureka Innovation Lab from its location in Turkey next to one of its manufacturing plants to San Francisco. He thought it was \”crazy\” to have an innovation group in Turkey when all the designers were in California. The Lab is \”dedicated to design, research and creative development, and creating advanced denim prototypes. It also served as the birthplace of Project F.L.X., a laser-powered technology that digitizes the design and development of denim finishing.\” As he pointed out, \”apparel innovation is iterative and tactile. How could an apparel company put such a low priority on innovation? Since the Lab opened in 2013 its biggest success has been our revamped women\’s denim line, which we launched in 2015. Our women\’s business had been in decline, owing partly to the rise of athleisure wear. Since that relaunch (which through innovative technologies, gave the denim an athleisure comfort effect), our women\’s business has experienced 11 quarters of consistent growth, and sales have increased from less than $800 million to more than $1 billion annually.\”

DTC: A Truly Visionary Move

Bergh acknowledged that one of the big learnings for him was the fact that he had no retail experience while at P&G. That may be the case, but the strategies he has implemented for the integration of their online and offline businesses (having grown 51 percent in the past five years, and now 40 percent of their total business) and the moves they are initiating across the brick-and-mortar enterprise will resonate with an enormous cool factor among next-gen consumers and their shopping desires and expectations. This is one major reason Levi is a 2020 Retail Radical.

It\’s about AI and analytics. It\’s about localization and personalization. It\’s about incredible experiences. It\’s about delivering cool for next-gen consumers. This is the formula for success for Levi and an imperative for all retailers who want to survive.

Having tested the DTC model in Europe, Levi opened its first U.S. store last month in Palo Alto, CA, and plans to roll out the concept in other next-gen locations. AI and analytics inform those locations and what products and experiences are preferred in those local markets.

The model offers customization ideas and enhanced digital features that appeal to those consumers. They include tailor shops. Consumers can customize T-shirts. They offer BOPIS or curbside pick-up. Consumers can make in-store personal shopping appointments. There are reimagined fitting rooms with an \”endless aisle\” showroom experience.

\”Though early days, we\’re seeing stronger than anticipated traffic and higher than expected conversion of youth and up market consumers, elevating the brand in the market. We make our best impression with consumers through our Levi\’s stores and we\’ve been transforming them from traditional stores into an immersive omnichannel brand experience,\” said Bergh in a recent analyst call.

He also said, \”AI is enabling local stores in China and the U.S. to better curate their assortments by predicting demand based on the specific profile and preferences of consumers in the vicinity of each store, which will thereby optimize the profitability of these smaller mainline doors\” Levi plans to invest two-thirds of its $160 million in capital investments on technology and digital transformation in AI and data analytics. This is not only driving more profitable growth, inventory optimization, but more importantly, it is driving a more powerful and personally intimate relationship with its consumers. Need I say more?

Radical Actions Yield Radical Results

Matt Laukaitis, Global General Manager, Consumer Industries, SAP — and partner of TRR Retail Radicals Awards says, \”Levi is truly an iconic brand. Their ability to set new trends, introduce new business models, and continue to deliver on their sustainability goals are just some of the ways this fashion powerhouse continues to innovate. Chip Bergh and his team continue to create unique and engaging ways to connect with consumers, driving impressive growth. Their ability to adapt and pivot during the pandemic further highlights why they are being recognized as a Retail Radical.\”

For third-quarter 2020, in the middle of the pandemic year, Levi was able to deliver profitable sales and strong cash flow. Revenues were down 27 percent but gross margin was 54.3 percent and higher than last year\’s third-quarter results. Margin improvements were driven by direct-to-consumer sales and the continued transformation to digital with e-commerce growing 52 percent. Total available liquidity for Q3 was $2 billion with cash at quarter end at $1.4 billion.

Extreme laser focus coming off of a financially strong 2019 with revenue gains of 3.4 percent, Levi has continually been able to pivot with the market and consumers. Recently announced leadership changes that Berg calls his \”industry-leading management team;\” the emphasis on the DTC model plus its highly diversified strategy including geographics, product categories, and distribution channels will surely get Levi on the road to $10 billion.

But wait, there\’s more.

New ways to shop including TikTok, virtual closets and Google Lens, an image recognition technology fostering contactless shopping features, play directly into today\’s consumer psyche. SecondHand, its resale platform, and sustainability efforts like, Levi\’s WellThread are big wins with the customer and the earth! During the pandemic, Levi\’s brand has been getting close to customers through music connections and 5:01 Live online concert series launched in March to support key charities. Levi says, \”In times like these, many of us turn to music to feel a sense of community. We are unified by music and all in this together. Stay home but stay connected.\”

All of this and more is why Chip Bergh was named one of the World\’s Greatest Leaders by Fortune Magazine, and certainly why he and his team are one of The Robin Report\’s 2020 Radical Retailers.

Related

Articles

Scroll to Top