Return to public ownership a perfect fit for Levi’s
Jeansmaker returns to stock market to raise funds for expansion
● For decades, Levi Strauss somehow managed to combine being an American institution with being hip.
Marlon Brando wore 501 jeans in The Wild One. The image of James Dean in his 501s, white shirt and leather jacket remains one of pop culture’s most iconic images.
But, by the late 20th century, it seemed that the brand was losing its gloss. Denim looked like it was going out of fashion, being supplanted by clothing introduced by “athleisure” brands such as Reebok.
At the same time, Levi Strauss was caught in a pincer movement between low-cost retailers producing their own cheap jeans and high-end fashion designers like Ralph Lauren muscling in at the top end of the market.
In 1999, in a year in which sales slumped by 13%, Levi Strauss shut down 11 factories in North America, laying off 5,900 workers and shifting production overseas.
However, reports of Levi’s demise proved to be spectacularly premature.
Last week, investors piled into Levi’s with shares opening at $22.22 each, more than 30% higher than the $17 which was set in the initial public offering (IPO). This was only the second time in its 165-year history that Levi’s had turned to Wall Street for capital. It offered shares back in 1971 before returning the company to private ownership in 1985.
That deal was led by Bob Haas, the greatgreat-grandnephew of Levi Strauss, a German immigrant who founded the company in San Francisco in 1854 and patented the riveted blue jeans 19 years later. It was this design that became the 501 — a staple of men’s wardrobes in the US and beyond.
“The Levi brand is incredibly important, not only for the fashion industry but also America’s cultural identity,” says Emma McClendon, the associate curator of costume of the museum at New York’s Fashion Institute of Technology.
“Its history has taken on mythical proportions, especially the 501 jeans, which are symbolic of Americana.
“The company has had its ups and downs and, in my view, the market really changed early in the 21st century when companies created a market for premium denim.”
But the idea of denim as a luxury brand was not a happy fit for Levi Strauss. Fortunately for it, the market changed again.
“There has been a revival in the vintage denim heritage,” McClendon adds. “Men are pushing demand for authentic workwear.”
The women’s market has also surged, with sales soaring for “mom jeans” — straight leg, reaching the waist, rather than below the midriff as was fashion 15 to 17 years ago.
Demand for Levi’s soared. In 2017, the company set a new sales record of $4.9bn. Last year, it hit $5.6bn.
It was against this backdrop that Levi’s returned to the stock market. “The company is very different from the company it was six to seven years ago,” says Harmit Singh, Levi’s chief financial officer.
“Then it was skewed towards the US market and wholesale. Men’s jeans were a much larger component. E-commerce was nonexistent a few years ago. Now it is about 4% of our business.
“Women’s clothing is now about a third of our business, and sales of tops and T-shirts now account for about a fifth, double what it was three to four years ago.”
The decision to go for an IPO was a reflection of the company’s confidence.
Analysts have voiced fears that bringing in outside capital could result in Levi’s being put under pressure to maximise profits at the expense of a longer-term strategy. But Singh dismisses such fears. “We are not changing our orientation.”
The company took its time in searching for investors who shared its vision.
“Our focus is to grow profits but with principle. We are big on sustainability,” he adds, pointing out how the company was now using lasers to break in jeans, rather than environmentally damaging chemicals.
The company had been pretty bullish in its prospectus. Revenue in its top five markets — the US, France, Germany, Mexico and the UK — had grown from $3bn in 2015 to $3.5bn last year. The feeling among analysts in the US is that Levi’s has picked a good time to raise capital on the stock market.
Levi’s expects to use the cash — which should be at least $600m — to finance the company’s expansion into new markets including India, China and Brazil. “I think they are doing the IPO because they have been assessing the landscape,” says Marie Driscoll, MD for luxury and fashion at Coresight Research, a global research and advisory firm specialising in retail and technology.
Wall Street’s excitement at the IPO does not surprise analysts like Jane Hali, CEO of Jane Hali & Associates Investment Research.
“Levi’s are doing a really good job and everybody on the street is looking for new stocks and investment.” London