INTERVIEW: Levi Strauss refocuses on "profit through principle"
Levis Strauss' Seth Ellison spoke with just-style about innovation, sustainability and supply chains
Levi Strauss & Co is returning to its roots. The denim stalwart, which has been battling sluggish traffic trends, international challenges and a revolution in activewear, is looking to re-establish leadership in its sector. A touch of nostalgia, plenty of innovation, adjustments in sourcing strategy, and global expansion are all part of the plan. just-style talks with Seth Ellison, the group's president for Europe.
Levi's is synonymous with blue jeans, and most consumers of a certain age have a memory of the brand, whether it's a first pair of jeans or the laundrette advert featuring model Nick Kamen stripping down to his boxers. Yet somewhere in the denim fashion explosion at the turn of the 21st century, Levi's got lost as brands like Diesel, True Religion and 7 For All Mankind became the labels of choice.
Levi Strauss & Co, however, is determined to keep its 160-year-old brand relevant and fully restore its reputation as the blue jeans pioneer.
And the new path the company is forging, under the ethos of profit through principle, is being led in Europe by former Nike executive Ellison. A man with a passion for growing brands, he joined as president of Levi success story Dockers in September 2012, before being promoted into his current role in July last year.
Ellison is hoping to translate affection and nostalgia for the brand into purchases, and ensure Levi's is the leading global denim innovator.
"Technology has really moved [innovation] at a faster pace," he explains. "We realise we've got to keep up with that pace and we feel like we're best when we're leading style rather than chasing it. But having said that, we've got to be faster at leading."
The answer to that may lie in the group's Eureka Lab: a research and development facility set up last year near its San Francisco headquarters, dedicated to design ideation and prototyping.
"We now have a building with state-of-the-art equipment. In fact, 80% of the new line creation for spring came out of innovations from that lab," Ellison says. "Whether you're talking about laser machines, washing machines, modern technology, finish techniques...all of it can be done right there, rapidly. We can create formulas, share those with our partners, and they can give us input."
The other advantage, he adds, is that the Lab allows the company to become better at weaving sustainability into innovation, ensuring it's not just an afterthought.
"It's built into the front end of the product process, so it's a massive win for us. It goes back to many of the moves we've made over the last year...making sure we're leading the industry in terms of the way we look at sustainability and the way we look at our relationships with factories."
A revolution in the activewear market, however, is adding to the pressure already weighing on apparel firms to innovate. Particularly in the US, sportswear is increasingly being worn as a fashion item. According to market research firm NPD Group, activewear sales amounted to US$33.7bn in the 12 months to the end of June, representing 16% of the total apparel market.
"We are fortunate in Europe. Here, people still like to wear clothing appropriate to their activity and day. There are certain elements, like stretch, that add to comfort that we'll definitely incorporate into our products."
Innovation in denim is increasing, however, and US fibre maker Invista and Austrian cellulosic fibre producer Lenzing Group recently collaborated on a denim project, launching a fabric blended with Tencel fibre, designed to provide wearers with cool dry comfort, softness, and sustainability - all in one material.
Levi Strauss has been investing in innovation too and earlier this year developed a technology that uses 100% recycled water in the finishing process, which it plans to roll out at its supplier factories worldwide. It also developed liquid shaping technology with Revel on the women's side of the business, which has been a hit for the company both in Europe and Asia
Ellison adds: "For the most part, we feel really good about the fact denim is seeing a resurgence. It's the perfect time for us to look at innovation and omni-channel, and put our foot on the gas. One of the things about our size is the fact we can play for the long term. As we see other people pull back, it's a very good time for us to be aggressive in the marketplace."
Ellison is quick to admit that, in the past, Levi Strauss has kept its marketing a little too niche - focused on the "very directional" consumer. Now, he says, they're speaking to the broader marketplace, and "having some fun again".
Indeed, Levi's hasn't been on TV in major markets in Europe for over five years. That will change next year thanks to a major blitz by the jeans giant, with television adverts planned for both halves of the year.
"[Competitors] may have seen recent announcements from Levi Strauss and think we're pulling back. What they didn't understand is that we're creating fuel for future investments like product innovation, omni-channel excellence, getting back to year-round marketing, and really driving consumer demand."
Levi Strauss last month revealed plans to cut 500 jobs as part of a $143m deal to outsource some of its global business services including information technology, finance, human resources, customer service and consumer relations.
"We realised when we looked at the P&Ls we had to make some really bold moves to create that fuel, and I think it's going to pay off big time for us," Ellison explains.
He certainly acknowledges the pressure on firms to continuously innovate, but says the real pressure for the company is on "restoring Levi Strauss back to greatness".
This has involved significant investment in the Dockers brand, regaining the emotional connection with Levi's, investing in omni-channel and marketing, and of course ensuring transparency and sustainability in its supply chain.
A sustainable core
Last month, the company revealed it is providing low-cost loans to help its garment suppliers in developing countries to upgrade environmental, health, safety and labour standards.
Ellison is keen to stress the huge emphasis Levi Strauss places on ensuring its suppliers are ethical. "We try to take a leadership position. It goes back to profit through principles. We want to run our business in the most principled way our consumers can appreciate. It is a point of difference to stand apart from, particularly the fast fashion world.
"Whether it's issues around factories and labour, or environment and social issues, we've always taken a forward position on it, even if it's not a popular decision at the time."
Ellison says Levi Strauss was the first multi-national apparel company in 1991 to introduce the Terms of Engagement, an ethical code of conduct that determines what a supplier must adhere to in order to do business. This has since become an industry standard.
As well as investing in its supply chain, however, the company is not against scaling back in this area, if necessary. In May, it announced plans to reduce sourcing from Cambodia in a bid to "minimise supply-chain risk and ensure delivery" amid ongoing unrest in the country.
Ellison says that while there are no further major shifts on the horizon, Levi Strauss will continue to adjust its sourcing strategy long-term.
"Sometimes government regulations, etcetera, force you to make adjustments. But for a company like ours, we're searching for a number of factors with suppliers. It's not just about best price.
"You'll continue to see us fine tune and not radically shrink, but trim our sourcing base. We want our partners to grow with us, to become better along the process of tightening the supply chain. If you have speed, quality, corporate compliance ... all of this together is going to take you into a narrower sourcing base."
This supply chain optimisation forms part of the company's four-pronged strategy of growing its profitable core, building a more balanced portfolio, investing in omni-channel, and global expansion.
The latter inevitably involves a focus on China, but Ellison points to Russia as a country with immense opportunity, one it entered in the early 90s.
"There are a lot of companies exiting Russia because of the tensions and oil prices dropping, but we're playing the long game. We are the market leader and we haven't even scratched the surface of opportunity ... we're just getting started."
He says the same of India and Germany, noting that both countries offer massive potential for further growth. "We're in so many markets, it's just about making sure we have the right strategies in each of them."
And while most of the group's growth to date has been organic, Ellison is not ruling out the idea of M&A to grow the business further down the line.
"As our company gets more profitable, you certainly start to look at the balance sheet and think, okay at what point does [M&A] enter the equation? Right now, we see a lot of potential for Levi's, and as a management team our noble cause is to re-establish Levi's as the market leader."
That said, Ellison says that, as the company starts to generate cash, if the right opportunity served itself up, Levi would start to think about "whether there were situations that would make sense".
"There's nothing specific but we'd be smart to think about what we'll do with our cash over time."
For the time being, however, Ellison says its first strategy is about expanding the core. "We see a lot of opportunities in the things we do best to begin with, whether it's supply chain optimisation or omni-channel, just to make sure consumers don't find holes in those."
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