money Levi’s CEO on Reshoring, ‘Derisking’ China and the Denim His Daughter Is Buying
With recent supply chain disruptions exposing the weaknesses of far-away sourcing bases, politicians and interest groups have seized on the opportunity to promote the return of American manufacturing.
Like many others at the time, Levi Strauss & Co. moved manufacturing abroad decades ago, with its last U.S. factory closing in 2003—notwithstanding a short-lived limited-edition Made in America line. Two decades later, Levi’s CEO and president Chip Bergh sees no reason to return.
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“We were one of the last ones to go [overseas], actually, and it almost cost the company its life because we became so cost uncompetitive in the late ‘80s and early ‘90s,” Bergh said at an Axios event Wednesday. “I actually don’t think those are the kinds of jobs that should come back into the U.S. I mean we’re already almost at full employment anyway…. The sewing and everything is done very manually, and it’s low-skill, low-cost labor and that’s really not the kind of labor I think we should be trying to bring onshore here in the U.S.”
Bergh, however, does see opportunities to move production closer to the U.S., which accounts for about 45 percent of LS&Co.’s global revenues. Though the company does “quite a bit of sourcing out of Mexico,” the CEO said the denim giant is still “trying to find the right balance.”
“The closer our supply chain is to the market, the more agile we can be and the more responsive we can be,” Bergh said. “So there’s a lot of benefit to that versus needing to ship it across the ocean coming from the other side of the world. And that agility in the apparel business, especially when you’re chasing trends and fashion, it’s really important.”
On the other side of the world, LS&Co.’s supply chain has undergone a separate transformation in recent years. When Bergh joined the denim company in 2011, he said, it sourced nearly 20 percent of its product from China. Today, that number is in the mid-single digits. Of the product arriving in the U.S., less than 1 percent comes from China.
“We’ve really derisked our source dependence on China going all the way back to when the tariffs started,” Bergh said. “That fortunately helped us through Covid and everything because a lot of companies got very, very caught up with an over-dependence [on China].”
Embracing AI technology, women’s apparel
Two years on from when the metaverse and non-fungible tokens, or NFTs, first entered the public consciousness, LS&Co. has yet to work with the emerging technologies in any major way. It’s released a couple of NFTs so far, but in each case, it never saw an immediate lift in interest or sales, Bergh admitted.
One area the company is investing in, however, is artificial intelligence. Three years in, the company is using the technology for pricing, promotions, product recommendations and, more recently, to decide where the company will place its stores and to generate more diverse models. “We’re definitely getting value out of it,” Bergh said.
Bergh also discussed the shift he’s led at Levi’s toward women’s and tops. Primarily a men’s blue jeans business in 2011, the company, now doing $6.5 billion a year in sales, was “not performing” when he joined as CEO, Bergh said.
“We had to protect that core business, that profitable core business because it is what generates all the cash and a lot of the profit,” he added. “We got very high market share, it’s slow growing. Low single-digit growth is kind of the best you can expect out of something like that. So to grow, we had to do other things.”
When Bergh joined, he said, women’s accounted for about 20 percent of the company’s business. Today, it is more than a third and “growing double digits.”
In the past couple years, LS&Co. has made another pivot: growing its tops business. “When you go in to buy a pair of jeans, it’s kind of natural to buy a T-shirt,” Bergh said. In the last couple years, the company has grown that segment “significantly,” he said. Together, women’s and tops have been “a key driver of our growth,” he added.
And for women, skinny jeans will always be a wardrobe staple, Bergh said. “They are never gonna go away,” he said.
However, “all the cool kids” are wearing looser, baggier jean fits right now, continuing the “new denim cycle” buoying both the men’s and women’s business, Bergh said. The trend, he said, “plays right into our sweet spot: the 501 Jean.” Levi’s is commemorating 150 years of the celebrated straight-fit style this year with a steady drumbeat of special collabs and drops.
Even Bergh’s teenage daughter is keeping up with the fashion zeitgeist. “She is buying the naughty bootcut—that is her cut right now,” the CEO said. “That’s the fit of her choice.”
Additional reporting by Jessica Binns.
