Levis Has Started Making Hemp Jeans Again.
When the author was tapped to join Levi Strauss, in 2011, the visitor's financial performance had been erratic for a decade. He went on a listening tour, conversing with each of the top lx executives, asking them what three things admittedly must modify and what three things must not. He wasn't surprised to discover that a clear strategy was defective. Just he as well saw that a lack of urgency, of financial discipline, and of information subject area permeated the culture. After half dozen months on the job, Bergh and his squad rolled out a plan consisting of four key pieces: (ane) Build our profitable core (80% of profits come up from men's jeans and Dockers); (two) Aggrandize for more (seize the opportunity in women's habiliment); (3) Become a leading omnichannel retailer (grow sales in the company's own stores and online); (4) Attain operational excellence (cut costs, drive cash menses, get more data driven and financially disciplined). The new strategy provided funds for investment in the company's Eureka Innovation Lab, which had been colocated with a factory in Turkey. In 2013 a new facility was opened four blocks from headquarters in San Francisco. Its biggest success has been a revamped women's denim line. A second large investment was the buy of naming rights for the San Francisco 49ers' new stadium—a 20-year, $220 million deal. Bergh saw that equally an opportunity to put the Levi's brand back at the center of the cultural conversation.
I'm a brand guy. I spent 28 years at Procter & Adventure in brand management. I led the integration of P&G's $57 billion acquisition of Gillette, and then I ran that division—one of P&Thousand's most profitable—for half dozen years. It was a high-visibility assignment, so I started to get calls about CEO jobs. Most of them weren't very interesting. So, in belatedly 2010, I was at a hotel in Beijing for a quarterly meeting of our leadership team. A headhunter I knew called. She said, "I have something you may exist interested in." I rolled my eyes—how many times had I heard that before? "OK, what is it?" I asked. "Levi Strauss," she replied. My i-word response: "Wow."
Jessica Chou
Few brands are as iconic equally Levi'south, and Levi Strauss is ane of the oldest companies in America. It was a make I grew upwardly with and had an emotional zipper to. The story of its founding is well known: Launched equally a dry out-goods retailer during the California gold rush, the company got a breakthrough in the 1870s, when it patented the use of rivets to strengthen the seams in denim piece of work pants, inventing blue jeans. But as I began doing enquiry to set for my offset meeting with its lath chairman, I was surprised by what I found. I'd guessed that Levi Strauss had revenue of almost $x billion. Just in fact its sales had peaked at $seven billion in 1997 and then fallen to $four.1 billion in five years. From 2001 to 2010 they never exceeded $4.5 billion. The more I studied the visitor'south contempo history, the more than information technology looked like The Gang That Couldn't Shoot Directly. I didn't call back a single Levi'southward advertisement. Its financial performance had been erratic for a decade.
Although I worked in consumer packaged goods, I was intrigued past the apparel industry as a result of my time on the board of VF (which owns the Lee and Wrangler jeans brands). Afterwards a long dinner with the chairman of Levi Strauss, I could run across this was a swell opportunity. I was 54 years former and ready for a modify. When I decided to have the CEO role, I saw it as a noble cause. I wanted to go out a legacy and make the company great once more.
"Live in Levi's"
When I arrived, in September 2011, I basically went on a listening tour, spending an hour with each of the company's top threescore executives. I had e-mailed them my questions beforehand: What are three things we should not change? What are iii things we absolutely must change? What's one thing you're hoping I'll practise? What'south 1 thing y'all're afraid I may do? After nearly 15 or twenty of those meetings, I had a pretty clear sense of the problems. When I asked people what they were working on, and how that piece of work linked to Levi'southward strategy, I got a lot of bare stares. It was obvious that they were rowing in dissimilar directions.
I asked how people'due south work linked to Levi'south strategy and got a lot of blank stares.
The lack of a clear strategy wasn't surprising. But two other things really were. At an employee town hall meeting I asked, "How many of you retrieve this company is performing well?" 3-quarters of the attendees raised a mitt. I was shocked. 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 nosotros had an opportunity—and an obligation—to exercise improve. Succeeding would crave significant cultural change.
The second surprise was related to the start. Every new CEO expects to make a few changes in the top leadership squad, especially when coming in from the outside. But I was astonished past how many of my squad members I needed to supervene upon. When I arrived, I had 11 directly reports. Within 18 months ix of them were gone, and just 1 of the other two is still here today. Nosotros now take a earth-course executive team that I would put up confronting that of any other visitor in the world.
Even as I worked to understand what was going on inside Levi Strauss, I studied the market and our customers. During my second month in the job, I visited Bangalore and asked our people there to fix an in-dwelling visit. An in-dwelling house typically starts with wide questions about lifestyle and interests so narrows down to how the client uses the product and views the category. P&K relies heavily on in-homes, so I had been doing them for years. I find them incredibly useful, even though the insights gained are qualitative.
The client I met with was a 29-year-old professional adult female from an upper-middle-class family. She lived with her parents in an air-conditioned abode with marble floors; it differed greatly from many of the homes I'd visited in India while at P&One thousand. The woman spoke perfect English language and had attended Cambridge. She had about x pairs of jeans—Hudson, Estimate, Calvin Klein, and some others. We went into her room, and she pulled them out of her wardrobe.
We talked virtually each pair—what she liked, what she didn't, and when she wore it. She had two pairs of Levi's, and we talked about those last. She pointed to i pair and said, "These are my go-to jeans—the ones I'll article of clothing day-to-mean solar day, like if I'm going to meet a girlfriend." Then she focused on the second pair. "These are the jeans I wore at university," she said. "They don't even fit me anymore, only I tin can't bear to part with them because of all the memories." Then she said something absorbing: "Yous habiliment other jeans, but you live in Levi's." I nevertheless get goosebumps when I recall that moment. To me, her words captured the essence of our brand. "Live in Levi'south" became our advertising tagline. That experience is an illustration of how much value can come from listening to consumers.
A Iv-Function Strategy
But a new tagline isn't a new strategy, which is what the visitor really needed. Devising one was my top priority during those early on months. I tortured the finance department, request information technology to piece and restack the information to help me understand how nosotros could create a program to grow revenue and profits. Virtually six months after I arrived, we rolled out the plan. It had four key pieces, each of them memorable and easy to empathize:
Build our profitable cadre.
This piece was based on the recognition that lxxx% of our cash menstruation and profits come from men'south bottoms—jeans and Dockers—and from sales in our top v countries and to our top 10 wholesale customers (primarily section stores, including Kohl's, JCPenney, Sears, and Macy'south). This role of our concern has high market share merely relatively depression growth. It'south vitally important to our finances, however; if the core isn't salubrious, our business can't succeed.
Expand for more.
At the time, nosotros had a very low market share in women's clothing, and we weren't selling plenty tops. The rule of thumb in apparel is that most people purchase iii or four tops for every lesser, merely our numbers were just the contrary. We also had very depression sales in developing markets such as Brazil, Russia, Bharat, and China. That represented an opportunity.
Become a leading omnichannel retailer.
Fifty-fifty though most of our products were sold in section stores, Levi'southward had ii,700 of its own stores around the earth, plus an eastward-commerce website. When I walked through department stores, I saw that our brand wasn't consistently showcased. Only in our own retail stores, of course, we controlled the feel, and we got higher margins on sales. So we needed to grow sales in our brick-and-mortar stores and on our website too—because over time more apparel sales would be online.
Achieve operational excellence.
We needed to cut costs, bulldoze cash menstruation, and become more data driven and financially disciplined to gratis up money to invest in engineering and innovation. Nosotros also needed to reduce the nearly $two billion in debt remaining from a leveraged buyout in the late 1990s. When I arrived, we were spending more than on interest payments than on advertising, which makes it difficult to grow a brand.
The Innovation Lab
Ane of the beginning places we reinvested the savings from our new strategy was in our Eureka Innovation Lab. The lab was in Corlu, Turkey, colocated with one of our factories. To me, this was crazy. Almost all our designers were in San Francisco, where the company is headquartered. To get to Corlu from San Francisco took more than 12 hours, then people would go for a week or two, once or twice a year. We spent a fortune shipping samples back and along, considering apparel innovation is iterative and tactile. How could an wearing apparel visitor put such a low priority on innovation?
Our innovation lab was in Turkey—12 hours away. To me this was crazy.
Nosotros decided to open a new facility iv blocks from our headquarters. It's substantially a pilot institute, with a laundry operation, cut and sew capabilities, hundreds of rolls of denim, and dozens of artistic people. We spent a few one thousand thousand dollars on it, and our CFO was worried that we'd never see a render. I signed off on it anyhow, because I figured that if we created the right environment, something huge would come up out of it.
Since the lab opened, in 2013, its biggest success has been our revamped women'south denim line, which we launched in 2015. Our women's business concern had been in decline, owing partly to the ascension of athleisure wear. It drives me crazy that women clothing yoga pants to dainty restaurants—denim would look so much better. Only they're choosing athleisure because it's more comfortable. I told our designers that we had to fix this trouble. They began creating denim with new technologies, such every bit four-manner stretch—fabric that recovers quickly and doesn't get baggy at the knees (a common trouble with stretch jeans). Consumers loved the stretch, the comfort, the soft fabric, and the style they looked in the new designs. Since that relaunch our women'south business concern has experienced eleven quarters of consistent growth, and sales have increased from less than $800 million to more than $ane billion annually.
The other big investment came in 2013, when we bought the naming rights to Levi's Stadium, the new home of the San Francisco 49ers, from the NFL. This was a 20-year, $220 1000000 bargain with an option to extend it to 25 years. That's a lot of money, only I had experience in this area. In my previous task I'd overseen Gillette's relationship with the New England Patriots, who accept played at Gillette Stadium since 2002. The people who attend concerts and NFL games are Levi's core customers, and so this would put our make back at the center of the cultural conversation. Today the 49ers mascot wears Levi's jeans, our brand is all over the stadium, and we can entertain of import stakeholders in great seats. When Super Bowl 50 was played in Levi's Stadium in 2016, some experts calculated that the brand exposure from that week alone was worth a significant portion of what we paid for the naming rights.
"Don't Launder Jeans"
In marketing our products we tried to find the right rest between highlighting our heritage and being contemporary. If a seasoned make dwells too much on its history, it can feel old and dusty. But if y'all disregard your history, you lot're walking away from one of your strongest assets. I spent time looking at other successful brands, such as Converse and Ray-Ban, that leverage their heritage. One case of the way we meld old and new is our iconic trucker jacket. This year we celebrated the trucker's 50th altogether, but nosotros also partnered with Google to create a vesture technology version that lets yous command your iPhone from your jacket sleeve. Sales of all Levi's trucker jackets jumped nearly 40% last year, which shows that today's consumers are looking for authenticity and want a brand that stands for something—every bit ours does.
Not everything I've done in this chore has gone every bit planned. In 2014 I became a viral sensation for an offhand comment I made at a briefing on sustainability. We've worked hard to make our products more environmentally friendly, including reducing the amount of water used in creating our jeans. At the conference I mentioned that a life-cycle assay shows that about of the water jeans consume is used not in our manufacturing them but in owners' washing them. I explained that people wash their jeans far more than is necessary—in fact, I was wearing a pair of Levi'southward that were 2 years quondam, and I had never put them in a washing machine. (I wash them every few months by manus and line dry them, which is what we recommend.) The remark was meant to be a wake-up phone call—you don't need to wash jeans every time you wear them!—but people took it to mean that I never wash my jeans. Today, if you type "CEO Levi's" into Google, "don't wash jeans" comes up. I expect that my supposed anti-laundry stance will be mentioned in my obituary.
Much Room for Growth
I've learned a lot during my seven years hither. The learning curve has been steeper than I expected. I thought my brand-building experience would translate directly to this task—and it has in some means—but the bike times and the step of innovation are much different in clothes. At Gillette nosotros launched the Fusion razor in 2006, and the get-go upgrade was in 2010. At Levi Strauss our product lines alter every six months, so it'south crucial to get the trends correct. The other big learning for me has been running a retail operation, which I hadn't done at Procter & Take chances. Today one-third of our business comes from selling direct to consumers via our website and company-owned retail locations. Those businesses have grown 51% in the past five years, and we're well on the style toward our goal of being a world-course omnichannel retailer.
I've also learned that information technology'due south very hard to alter a culture. When a company is in decline for 10 years, something perverse happens to its culture. I've spent a lot of time with my executive team and the company's top leaders around the world to shape the behaviors and expectations that define a high-performance civilisation. It all starts with having the right people and unleashing them to tackle some of the biggest challenges. Nosotros have become more focused on customers and consumers in general, on winning, on teamwork, and on the thought that performance really matters—but fifty-fifty at present that we're growing again, the civilisation has been slow to modify.
The company is making good progress. We've delivered most five straight years of top- and bottom-line growth and have more doubled the value of the enterprise. Nosotros've significantly strengthened our balance sheet, paying down about $1 billion in debt. Our balance sheet is at present an asset (not a liability), with $1.2 billion of liquidity. And we've dramatically increased our investment in advertising, which is working. Financial 2017 was the strongest year the visitor has had in more than a decade, generating an eight% revenue increase, while the Levi'due south brand grew nine%. And although we've increased acquirement and profits, nosotros still have much room for growth. Our global market share in women's clothing is in the high single digits. Fifty-fifty if athleisure continues to be strong and the women'south denim marketplace stays flat, nosotros tin can grow by stealing share. Our tops grew 35% terminal year, merely our marketplace share for tops is notwithstanding below one%. Everywhere I wait I encounter upside. Nosotros have nearly 3,000 stores now, and unlike a lot of retailers, we're continuing to open new ones.
I believe we can grow beyond our historical acme of $7 billion and someday be a $10 billion brand, as I in one case assumed the company was. Levi's lost a generation of consumers in the early 2000s, but today our customers are younger than always—and we're gaining momentum every bit nosotros bring them back.
A version of this article appeared in the July–August 2018 event (pp.33–39) of Harvard Business Review.
Source: https://hbr.org/2018/07/the-ceo-of-levi-strauss-on-leading-an-iconic-brand-back-to-growth
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