Levi's was the quintessential dominant American jeans wear brand in the late 1990s. The brand, credited with inventing denim, commanded a premium and the market lapped up whatever it had to offer. Then came what its global President and CEO Charles V. Bergh, or Chip Bergh, calls the lost generation - the young and restless who cared less about legacy and more about style and comfort. As baggy and yoga pants came in vogue, Levi's lost its touch, most palpably with women buyers. After taking over in 2011, Bergh has successfully stemmed the decline, but the turnaround is still in progress. Speaking to BT's Sumant Banerji, Bergh outlines his ambition and how India will play a major role for Levi's.
Q: When you joined Levi's in 2011, the brand had eroded and seemed out of sync with the market. You are credited for getting it back on track. How far have you been able to achieve what you set out to do?
A: We've made really good progress. At a global level, and particularly in the United States, we're outperforming almost everybody. In a world where retailers are struggling, we've 2,900 stores globally. Yet, our direct-to-consumer business, which includes e-commerce, has been growing for five quarters. I wouldn't say the turnaround is complete - we still have as much opportunity ahead of us as what we have achieved over the past six years.
Q: What is working for Levi's now?
A: Many goals have been driven by fixing things. Our core Levi's men's denim bottom - 511 - is a real success. It is little less important here in India, but 511 is our new icon and, globally, it is bigger than 501. Trucker jackets are another part of the icons and then there are the classic white sunset T-shirts. This is where we make most of our money and generate cash to fund other strategies. Our other big strategic choice was our women's business, which has grown in double digits every quarter for the last two years globally. We're still way under-developed on women's. Our men's business is four times bigger than the women's business. We've picked up massive market share in India in women's business over the last year and a half. The other big growth area is tops. Simple things like graphic tees have driven growth in our tops business, which has been growing at 20 per cent for the last couple of quarters.
Q: Given your geographic spread, India is only a fraction of your overall turnover. Yet you are a regular visitor here
A: India is a strategic priority, though it's less than 5 per cent of the company's business today. China, India and Russia would be three markets that are massive opportunities for us. What I really like about India is that it's a very young country. The demographics play to our advantage. Incomes are rising, shopping malls are now everywhere and we have great franchise partners. That's why I come here about twice a year.
Q: What is the potential in real terms?
A: The Indian market for us is at a little over $ 100 million, but the ambition is way beyond that. We can double this in, say, five years, given the traction in recent times. Our women's business in India is particularly strong vis-a-vis other markets. People talk of India's population as bigger than all of Europe, which for us is an over $ 1 billion market. And it is a country hungry for growth, so there are that many people to serve. The challenge is to convert this demographic advantage into a market reality.
Q: You undertook many cost cutting measures to reduce overheads. How much of that has worked?
A: It's hard to look at it totally objectively because currencies have their own dynamics which we don't control. If you adjust that, we took about $150 million restructuring charges over two years and reduced head count by roughly 20 per cent globally. It was painful and I hope I never have to do that again. When I joined the company, our profit margins were 7 per cent; today they're 11-12 per cent. We've added about $400 million to our bottom line, $200-250 million of which we've reinvested into brand building.
Q: At its peak, Levi's was a $ 7 billion company. Today, you are at $ 4.6 billion. Is it possible to get back to that level?
A: I do think it's possible and I will not rest till we achieve and surpass that. In fact, last quarter, our business in Europe grew 15 per cent and revenues crossed $1 billion. Everybody was thrilled. But I keep reminding the team in Europe that at one time we were at $2 billion. In the US, we are a bit over $2 billion, but we were more than double that at the peak. So, we still have opportunities to gain share. We have other brands that do not get talked about a lot. Dockers' is the number one khaki brand in the US, but we've struggled with it for two decades. So, we've focused on getting the product right and getting that brand going again. In India, too, there is a big khaki market. So that is an opportunity for us here. We have a number of opportunities as a company and my objective is to get the brand and the company back to its glory days. Now we've got the cash to do things, be it investing in core businesses, opening new markets or acquiring new brands.
Q: Much of the buzz these days is around e-commerce and how it disrupts traditional retail. How do you manage that?
A: Our e-commerce business has been growing in strong double digits for the last 18 months and we will invest there even more. But we are also adding stores when a lot of people are closing them. Our stores work, they're profitable, there is return on capital, so we'll continue to add them. We are also trying to create a seamless consumer experience where you can buy a pair online, try it at home, and if it doesn't fit, you can exchange it for another pair at a nearby store. Selling a pair of jeans or a top isn't the easiest thing to do as fit and finish are unique propositions. So, we want to be innovative on how best to get it right.
Q: Is it difficult to innovate like new upstart companies can? Is that why the company witnessed that slump when you took over?
A: One of the first investments I made as the CEO was to build an innovation centre right down the street from our headquarters in San Francisco. That is where we can innovate with fabrics, which is part of the reason why our women's business has been growing in double digits over the last two years quarter on quarter. If you go back three years, there were headlines on the death of the denim movement. In most parts of the US, it's perfectly acceptable to go to a really nice restaurant in a pair of yoga pants and sweater and so people were saying this is it, it's the end of denim and we're going to forever switch to yoga pants. It was a wake-up call too for us. We went back and understood why our women were switching to yoga pants. It was because they loved the comfort, the stretch and the fabric and they loved the way they look in it. So we thought if you can give them the same comfort and fabric in denim, they'd rather wear a pair of jeans. We focused on getting the right fabric with the right kind of stretch.
Q: So the thinking that denim can only be designed in X many ways is misplaced?
A: Yes. It's like denim is a world in itself. It's like a canvas that you can paint on with different finishes, fabrics and looks. We have to walk with one foot firmly planted in who we are and what we've been. We started this category, so nobody can take that away from us. We continue to drive forward with our icons and our essentials - trucker jackets, 501s - but we need to be walking forward too, so one foot planted in the past and one foot moving very confidently into the future.
We have this project with Google called Project Jacquard, which will be a trucker jacket we'll launch in the fall where you can control your iPhone with swipe in your sleeve over the fabric. So it's got conductive fibre woven into the denim and you can put your iPhone right in there and with the swipe of your sleeve you could be moving your music or answer phone calls. It's a smart fabric and it'll be one of the first real prototypes, commercial prototype. I think the potential for wearable technology is huge. It's possible to innovate with different washes, finishes and fabric. And then there's disruptive innovation around like wearable technology. If you don't innovate you die and that holds true for us too.