Clothing brands have fallen to the altar, why can Levi's “reverse attack” return to the capital market

- Mar 15, 2019-

Recently, Levi Strauss & Co, who created jeans, re-entered the New York Stock Exchange after thirty-four years, and plans to raise $587 million to expand the product category, which will bring the company up to $6.17 billion. Valuation.

According to the announcement, the company has 385.5 million tradable shares and is expected to sell 36.7 million shares at a price between $14 and $16 per share. The Hass family, also known as the founder of Levi Strauss, will retain 80% of the company's voting rights after the IPO.

As the originator of jeans, today's Levi's product line has been involved in casual and dress pants, tops, shorts, skirts, jackets, footwear and related accessories, including Levi's, Dockers, Leign Strauss & Co and many other clothing brands.

According to the announcement, as of November 25, 2018, Levi's generated a net income of 5.6 billion U.S. dollars in more than 110 countries and sold it at 50,000 retail outlets worldwide, including 3,000 stores (including in-store stores).

North America remains Levi's main market and currently holds 55% of its share, followed by Europe and Asia Pacific with 29% and 16% respectively. Levi's is very optimistic about the Chinese market, which currently accounts for only 3% of its China business. The marketing program that specializes in using popular culture to attract young people gives them the confidence to gain a bigger share in the Chinese market.

In addition, revenue from e-commerce channels accounts for only 4%, and Levi's believes that e-commerce has great potential.

Levi's century history

Levi's is a veritable family business. The founder is a Jewish immigrant from Germany. During the gold rush in California, the founder Levi Strauss just wanted to make a more solid and durable work clothes for the people who work hard. Jeans became a symbol of popular culture for more than 160 years.

In 1902, after the death of founder Levi Strauss, the inheritance was inherited by four nephews, and one of the nephew's daughters married the German Jewish fellow Walter A. Haas, who became the chairman and president of Levi's. This is the origin of the famous Haas family who took control of Levi's.

In 1971, Levi's first landing in the capital market, publicly raised $50 million, created the largest IPO fundraising record in the history of the United States.

However, in the mid-to-late 1980s, American men changed into suit trousers in the office, and women were more willing to dress themselves in soft and comfortable clothes. In the overall downturn of the market, this clothing giant “trapped in the denim tradition” is difficult to compete with the more abundant brands. Even if you buy jeans, consumers tend to be cheaper brands such as Zara and H&M.

This ultimately led to Levi's performance and stock price plummeting. In 1984, the Haas family eventually privatized Levi's privatization with $1.7 billion, and in 1996 used bank leverage to buy the remaining shares from employees and outside investors. Completely become a private asset of the Haas family. So far, the Haas family still holds 80% of the voting rights of Levi's, and the top six shareholders are all from the Haas family.

After the delisting, Levi's transformation into a low-end brand with low price as a competitive advantage by expanding wholesale channels and reducing production costs has indeed reversed Levi's sluggish performance, but the cost of losing the brand premium is real. A bit big, Levi's performance quickly fell again.

Until 2003, due to the continued expansion of debt, Levi's was on the verge of bankruptcy. This year, Levi's shut down more than 60 factories in the United States, cutting nearly 2,000 employees and transforming into a light asset company. It was during this period that Levi's scandal was constant, and the jeans labeled "American production" were actually produced in cheaper China, which prompted Levi's further change of strategy.

After a period of bleak management, Levi's board of directors invited Chip Bergh, who had worked at P&G for 28 years, as CEO. It is this arrogant marketing master who has built a nearly $2 billion Gillette brand, and this time he will bring Levi's to the growth track again.

Levi's marketing

From the low performance to the nearly $6 billion in revenue generated in 2018, Levi's comeback is a research sample worth studying. How to find a new market breakthrough in the desperate situation may be the secret of the Levi's brand for 165 years.

After Chip Bergh, who moved from P&G, took office, he made a drastic reform of Levi's. Reduce supply chain costs, increase design and development, and expand new categories such as women's wear and accessories, while increasing investment in marketing and DTC (Direct To Consumer) channels.

In the apparel industry, the gross profit margin is maintained at 30-50%. According to the financial data disclosed by Levi's for the past five years, Levi's gross profit has remained above 50%, mainly due to the low cost of production and retail. The production cost of clothing affects the company's gross profit space to a certain extent. What Levi's can do is the same as most companies, layoffs.

At the same time as the layoffs, Levi's established the Eureka laboratory, which is mainly used for the development and testing of new processes and new ideas. A total of 30 employees, who test different colors, patterns and chemical reagents every day, every week. Producing 20 prototypes, for example, it takes only 90 seconds to complete a pair of jeans, greatly improving production efficiency and product categories.

This small department is especially valued by Chip because his focus is on two areas: product design and marketing, to reshape the stereotype that global consumers are a cheap brand for Levi's.

Although the clothing market is no longer the world of denim clothing, Levi's is still equal to the fashion, technology, and pop culture with its high marketing costs.

In the prospectus, Levi's did not hide the big deal in marketing costs over the past few years. Since 2013, Levi's has continued to enhance its brand influence through cross-border cooperation with sports and entertainment stars.

In 2013, Levi's won the naming rights of the San Francisco 49ers new stadium. The 2016 Super Bowl was held at Levi's Stadium and became one of the most watched programs in American TV history.

Beyoncé's Levi's cutoff shorts worn in the headlines at the Coachella Music Festival were sizzled by the media as the "Ultimate Coachella Apparel Project", and now at the Coachella Music Festival, girls wearing denim shorts have become a standard landscape.

In addition, CoBranding between brands is also indispensable. Levi's joint venture with Nike's Air Jordan brand and the singer superstar Justin Timberlake have greatly increased Levi's brand exposure.

Levi's cross-border cooperation also touched on technology companies. On December 9, 2018, Levi's also launched a smart jacket called Jacquard with Google. The smart module added in Jacquard provides automatic reminder. As long as the mobile phone is within the connection range, the mobile phone will flash and vibrate through the recall mode of the mobile phone, which is convenient for retrieval.

In the future, Levi's will continue to work in the women's wear business. In the 2018 and 2017 fiscal years, Levi's women's business net income increased by 29% and 25% respectively, reaching $1.6 billion in FY18.

In addition, Levi's will also focus on the higher profit margins of footwear, accessories and other product lines, these two businesses accounted for only 6% of net income in FY18, there is still a lot of room for growth.

In the international business, the big cake in the Chinese market will naturally not be abandoned. In 2018, China accounted for 20% of the global apparel market, while Levi's revenue from the Chinese market accounted for only 3%. As Levi's pointed out in the prospectus, "I hope to develop into a global leading brand for men and women lifestyle."

However, some analysts question Levi's business model. The founder of Levi's started his business as a wholesale business and served the public. This market strategy has risen within Levi's corporate strategy to achieve major revenues through third-party retailers.

In 2018, Levi's 65% of its revenue comes from traditional wholesale channels such as Wal-Mart, Amazon, Target, and Macy's. However, most traditional department stores are facing the risk of large-scale closing, which is not for Levi's retail market. A small worry.