Live & Love in Levi’s: Innovative Growth at an Iconic Heritage Brand

Blue jeans hanging on a clothing rack against a sunny cloudy sky representing our recent podcast with Levi's
Insight by

Harmit Singh, Chief Financial and Growth Officer at Levi Strauss & Co., spoke with Oliver Chen, Retail & Luxury Analyst at our 7th Annual Future of the Consumer Conference.

On this episode, they discuss Levi’s apparel transformation, diversification strategies, cutting-edge innovation, and leadership in experiential, omni-channel capabilities. Press play to listen to the podcast

Transcript

Announcer:

Welcome to TD Cowen Insights, a space that brings leading thinkers together to share insights and ideas shaping the world around us. Join us as we converse with the top minds who are influencing our global sectors.

Oliver Chen:

We’re here to talk about the greatest story ever worn. It’s Levi’s. What an iconic brand. My name is Oliver Chen, Cowen’s new Platform Retail and Luxury Analyst. In this episode, we’re excited to explore Levi’s impressive apparel transformation in leadership and experiential omnichannel capabilities. We’re thrilled to host Harmit Singh, Chief Financial and Growth Officer at Levi Strauss and Company. Harmit joined Levi’s in 2013. He’s been instrumental in taking the brand public in 2019. Prior, he held several global leadership roles at leading consumer franchises, including CEO of Hyatt Hotels Corp, and CFO of Yum Restaurants. Harmit, thanks for being here with us.

Harmit Singh:

Thanks, Oliver, for having me.

Oliver Chen:

It’s such a pleasure. You’ve been instrumental in the past decade turning this company around. What’s changed most, and what are you most excited about, about what the company’s like now versus prior?

Harmit Singh:

Gosh, it’s been over a decade. Chip had got there a little before I did. When we joined, the company was skewed to the US, skewed to US wholesale, and skewed towards men’s bottoms. If you added all that up, you saw low growth. The balance sheet, we were highly leveraged, so we are not investing for growth. There was very little stability in the management team. The company today is a lot different. Our balance sheet is rock solid. I call it a real asset now we’re investing for growth. The business is very diversified. For example, international is now 55% of our business and growing big time. Our women’s business is a third of our business, getting towards 50%. We sell a lot more tops. Our direct-to-consumer business, which was about 20% of the business, now is 40% on the way to 55%.

If you look at the last 10 years, our sales have grown over a $1.5. Our gross margins are up a thousand basis points. Our EBIT margins are up 300 basis points and the company generates a lot of cash. It’s all, I think, contributed a couple of things. One, having the right strategies. When we got here, our strategy was about growing the profitable goal, which is our US and wholesale business, because that’s a cash cow, generates a lot of cash, but expanding four more that is about growing a direct-to-consumer business, growing areas we underpenetrated like tops and women’s, which are fast-growing category, especially when you’re under-penetrated. And then becoming more of an omnichannel player.

During the pandemic, we took a hard look at where we are because I had a little project plan. I call it Bonsai. I went to Chip and the board and I said, “Chip, during the crisis we have to hunker down. We have to manage through the crisis, but let’s emerge stronger.” And it evolved into three areas of focus, which is let’s become a DTC-first company, which is accelerate DTC, let’s continue to be a brand-led company, and let’s diversify. The diversification led to the acquisition of Beyond Yoga and got us into athleisure. The company’s a very different company today, but we have huge opportunities going forward.

Oliver Chen:

It’s exciting that you’re also Chief Growth Officer. What initiatives are you most excited about and what categories and/or geographies do you see the most opportunity?

Harmit Singh:

Yeah, I’m humbled to be expanding my role at Chief Growth Officer. I’m a CFO who’s always embraced growth. This expansion really resonates with me. In terms of the expansion role, I look after now retail, real estate. I look after corporate strategy. I also work with the team to determine what we license and what we don’t we license. So, really thinking about the long term. The areas that we really focused on growing are our top categories and our top geographies. In terms of categories, growing our tops business. 10 years ago we were selling seven bottoms to a top. The best apparel company sells one-to-one.

Today, we’re selling three bottoms to a top, but getting on the way. And it’s about more of a head-to-toe look, something like I’m wearing today. You can buy T-shirts, can woman shirts, you can buy denim shirts, you can buy dresses for her, you can buy skirts and… A complete lifestyle orientation. The second is all about growing our women’s business. Our women’s business, which was about a fifth of our business 10 years ago, is about a third. And women’s, believe it or not, is generous higher gross margin than men’s. That was not the case 10 years ago. 10 years ago, it was diluted to margin. Today, [inaudible 00:05:31].

And then, growing our non-denim business. That’s Dockers, that’s Beyond Yoga, because we want to own a higher share of the closet. And so focusing on those areas from a category perspective. We are not yet into auto wave, and not yet into footwear. So clearly, opportunities as we think about diversification. In terms of geographies, I think diversifying and growing the international piece of our business, which is higher gross margin, higher DTC is critical. Asia is still a small piece of our business. We’re growing big time. It’s about in the mid-to-high teens. I think with a larger younger population there, consumers love us. Brands are very famous and iconic. I think that’s an area we can continue to expand.

Oliver Chen:

What do you think is least well-appreciated about the investment story or the company?

Harmit Singh:

I think it’s our diversification strategy and what’s working. People still associate us with men’s bottom denims. When I talk to investors, 50% of the conversation is about US wholesale. I think what has really happened is as a transformation of the company and the focus in areas that are under-penetrated, we’ve grown our direct-to-consumer business. We’ve grown our non-denim business. We’ve grown internationally. We are focused on growing our tops business. I think that is what is underappreciated. And so when people look at data, look at the denim category, denim we have to own and win, but the company is about becoming the best apparel company in the world. And that is more than pure denim bottoms.

Oliver Chen:

I’m also a big believer in customer data platforms and loyalty programs. What’s ahead in terms of some key priorities and making sure you’re connected and engaging?

Harmit Singh:

Yeah, no, it’s very critical. In fact, if someone asked me why are we growing our direct-to-consumer business, it is about making that direct connection with the consumer. It is about interacting with the direct consumers, it about interacting with people like you because we want to grow a higher share of the closet. So how do you do that? We launched our loyalty program during the pandemic. We have 25 million loyal consumers. I jokingly say for a brand like ours, an iconic brand like ours, we should not have less than a hundred million loyal consumers. They spend more, they’re more loyal to the brand, they engage more. So that’s one piece of it.

We just hired a chief digital officer and he’s focused on executing against the fundamental. The other piece is direct consumer engagement. You’re able to interact, you’re able to read trends better, you’re able to ensure you’re able to satisfy these consumers better, and they’re able to shop directly with you a lot more, especially as we build more of a lifestyle orientation. We’re just beginning. As the CFO, now I’m putting on my CFO hat, but very important for a growth hat, it is important to understand lifetime value of a consumer. That’s the data that we don’t necessarily look at rigorously, but that’s leading data. And how do you grow lifetime value? How do you grow engagement? Results will follow. But those are the areas of focus I think.

Oliver Chen:

[inaudible 00:08:45] chart increasing engagement. Magic and logic, it’s a key theme. I teach a class at Columbia. Levi’s a magical brand. What do you think the essence is of the brand? How are you focused on taking care of the brand equity and also culturally evolving it?

Harmit Singh:

The brand resonates with consumers. It’s a democratic brand, the older consumer, the younger consumer. And so it’s a very democratic brand. Our styles allow us to fit any kind of fit. You love skinny jeans, so we have skinny. For our baggy loser fits, are selling like hotcakes. We have that. So very Democratic, I think. If you ask the consumer what they like about us and why they come back to us is we have a product that is high quality. We have product that is in the forefront of being sustainable. We have sustainable initiatives all the time.

I’ll jokingly say that ESG is woven into the DNA of our fabric. We have programs where we reduce the use of water, which in this case commodity, reduce the use of chemicals, et cetera, et cetera. I think as you think about why people love the brand, beside making sure that we have products that are relevant and we lead trends, it’s also products of high quality and products that have sustainability woven into the fabric.

Oliver Chen:

Yeah, and a deep sense of trust. You’re wearing great 502s. I like the 711s, and I buy them at Kohls or Macy’s, but I need to go direct-to-consumer. Last question. We have students listening to this too. For those who want to be in retail, what do you recommend?

Harmit Singh:

I’ve been in retail for a long time, so I’d say you need to be passionate about the industry that you are in. I’d say get into retail. I started from the ground floor, and over time I rose to the level that I did. If someone had asked me 30 years ago when I was in India that I’d be taking to American icons public and be the CFO, I would have bet against it. I’d say join the industry, learn, take risks, which are important. I’ve taken risks all my life. Other than this job, I’ve never done a job that I’ve done before. Always as you think about your next role, think of a couple of things. One, are you having fun? Are you enjoying it? Are you learning? And how will this role play to your next role? And so I think being curious and ensuring that you’re able to ask the right questions, but importantly delivering on your commitments is what I’d advocate to people.

Oliver Chen:

This balance between innovation, yet having discipline and grit and taking the right kinds of risks.

Harmit Singh:

Yes, and taking the right… I think being disciplined is important. That’s one thing that Chip and I [inaudible 00:11:54] Michelle are really focused on because as a CFO or a growth officer, allocating resources is a critical call. You can allocate resources against different priorities, but how much, whether it’s people or capital, you put in against each priority and how do you on a postmodern basis go back and look and say, “Okay, what worked? What didn’t work?” Not everything is going to work, but you can learn from what’s happened and ensure that you’re able to be a better leader going forward. Those are the things that are critical.

Oliver Chen:

We like thinking around test, read, and react, doing it in a way that has the right guardrails. And then in my opinion, the principles of retail have a lot to do with sequencing appropriately from a brand product supply chain perspective. Hermit, thanks for spending time with us. We appreciate it.

Harmit Singh:

Thanks, Oliver. Thanks for having me. Cheers.

Announcer:

Thanks for joining us. Stay tuned for the next episode of TD Cowen Insights.


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