Speaker 1:
From the library of the New York Stock Exchange, at the corner of Wall and Broad Streets in New York City, you're Inside the ICE House, our podcast from Intercontinental Exchange on markets, leadership and vision and global business. The dream drivers that have made the NYSE an indispensable institution of global growth for over 225 years. Each week, we feature stories of those who hatch plans, create jobs, and harness the engine of capitalism. Right here, right now at the NYSE and at ICE's 12 exchanges and six clearinghouses around the world. And now welcome Inside the ICE House, here's your host, Josh King of Intercontinental Exchange.
Josh King:
Blue jeans, it's been a symbol of our culture for over a century and a half. And what many linked to the California Gold Rush actually hearkens back to a classic story of immigration. You see, Levi Strauss & Company made the first blue Jean in 1873, but Levi Strauss the inventor, or entrepreneur, as we might call him today, wasn't born here. Buttenheim, Bavaria was his place of birth back in 1829. After immigrating to New York in 1848, Levi joined his two older brothers, who'd arrived in the US before him to work for their family's dry good business. And in 1853, Levi headed west, to San Francisco, not to make his fortune panning for gold, but to set up his own dry goods business and represent West Coast operations for the family firm.
Josh King:
One of my favorite TV shows ever was David Milch's Deadwood on HBO. It tells the story of gold prospectors in South Dakota. Two of the most compelling characters in that show were Seth Bullock and Sol Star, who together started Star and Bullock Hardware. Modeled on real life characters, Star too was born in Bavaria. And you can imagine Strauss's heirs feeling a particular kinship with the Deadwood dry goods entrepreneurs reaching for their dreams, not with nuggets of gold, but purveying the supplies needed to do the hard work in their rivers, streams, and mines.
Josh King:
In these pursuits, you need to be particularly tied to your customer's aspirations. And in 1872, Levi Strauss got a letter from one of them, Jacob Davis, a Nevada Taylor who'd purchased denim cloth from Levi's company to make work pants. Frustrated by constant tears in the pants, Davis created a new way to ensure the longevity by using copper rivets to reinforce the pant seams. He was looking for a business partner to help patent his idea, and the rest you might say is history.
Josh King:
The patent for fastening pocket openings was granted to Jacob Davis and Levi Strauss & Company on May 20th, 1873, marking the birth of the first blue jeans. What it began as clothing for industrial labor is today over 16 billion industry in the US alone. Betting on casual wear, it's what millions of consumers opt to wear after work and on weekends, whether it's your average Joe, or even the president of the United States.
Josh King:
You know me, I'm a student of presidential history, photos of President Ronald Reagan at his California ranch, sporting denim and a straw hat while brushing his horses are a part of the indelible pictures of my younger days. Where you don't typically see denim is on Wall Street, until now that is. Where suits may still reign supreme, some of the nation's most powerful financial institutions have recently announced a loosening of dress codes. And just a few weeks ago, Goldman Sachs, one of the bluest of blue chip firms issued an internal memo this month announcing a new firm-wide flexible dress code. And JP Morgan went business casual nearly two years ago. You might not see investment bankers doing deals in denim just yet, but perhaps we're on our way.
Josh King:
The trading floor here at the New York Stock Exchange, however, still requires a traditional dress code, no t-shirts, jeans, or sneakers are permitted. But this morning was a different scene, as Levi Strauss & Co rang the opening bell and its initial public offering got underway, now trading as NYSE ticker symbol LEVI, the Levi Strauss executive team was greeted by a sea of blue as our traders and staff donned Levi's jeans and denim jackets to welcome the company to the New York Stock Exchange. I'm wearing my new pair of 502s and Levi's trucker jacket as I sit here in the library.
Josh King:
And proudly cheering on the opening bell as it rang was Harmit Singh, Executive Vice President and Chief Financial Officer of Levi Strauss. Like Levi's, Harmit's path to the bell podium has also been one of immigration, sharp business acumen, and financial prowess. How did he find himself at the helm of one of the oldest and most iconic American retailers? What do his responsibilities entail in overseeing the company's financial growth? And what lies ahead for the future of retail? We'll find out right after this.
Speaker 3:
Tencent Music Entertainment Group is the largest online music entertainment group in China. We operate the four largest online music apps, including the social entertainment part. We are serving a more than 800 million users. The user experience on TME platform is extremely great. I look forward to have a long term partnership with New York Stock Exchange. Tencent Music Entertainment Group is now listed on New York Stock Exchange.
Josh King:
Joining us, denim clad, in the ICE House today is Harmit Singh, Executive Vice President and Chief Financial Officer of Levi Strauss. When it comes to IPOs this isn't Harmit's first rodeo, or should I say road show, prior to joining Levi, in 2013, Harmit served as the CFO of Hyatt Hotels Corporation and NYSE ticker symbol H, where he established a global financial structure, took the company public and created a strong balance sheet.
Josh King:
He's also held executive financial roles for global corporations, including Yum! Brands, American Express India, and Price Waterhouse India. Harmit, welcome to the ICE House.
Harmit Singh:
Thanks for having me, Josh.
Josh King:
The first question I have is, where do I score one of those shearling-collared jackets that you have?
Harmit Singh:
You can get that at our Times Square store, we opened that a couple of months ago. You can get in any one of our stores in New York. We have one in Soho House, or you can get it online, on our levis.com.
Josh King:
You looked particularly dashing at the trading post today with you and Chip Bergh ringing the first bell there. And I watched, from afar, but embraces, hugs, high fives all around. What was going through your head at this moment?
Harmit Singh:
It was exciting. And I must thank our employees around the world for allowing us to get to this part, our shareholders, our family shareholders who've been with the company now for over 160 years, and our wonderful board. When Chip and I joined the company a little over six, seven years ago, it was a very different company. It was not as diversified. The company then was skewed towards US, skewed towards wholesale, and skewed towards men's bottoms. And if you summed it up, it sets low single digit growth. The company today is a lot more diversified, a lot more global. International, today, is 54% of our business, and the US is growing.
Harmit Singh:
Our direct to consumer business, where you can actually shop Time Square, SoHo, our stores, as well as online is about a third of our business. And it's been growing in the low double digit.
Josh King:
I went in there the other day, bought this get up, great service, loved the whole experience.
Harmit Singh:
And today you can buy t-shirts, you can buy woven shirt like I'm wearing. Women can go and buy their product. By a mile, we are market leaders in both men's and women's in denim around the world, and both businesses are growing. So all in all, an epic day that sets it up and the enterprise for another 165 years.
Josh King:
The share's price last night at $17, they opened at 22.22, have you and Chip taken a minute just to sit back and reflect on it.
Harmit Singh:
Not at all, because we don't look at stock price on by minute basis. We don't look at it on a daily basis. We, along with our board and both new shareholders and our older shareholders, want to grow this company for the long term. And what's more important is what does the stock price do over time? As, again, it's not on a particular moment of time or a particular day.
Josh King:
I was down at the trading post for a while this morning watching price discovery. And you've seen this process unfold before, but what did you see, feel, and hear today that was different from your prior experiences?
Harmit Singh:
It took longer, and I think it's a good testimony to the demand out there. I would've thought with technology, a lot more technology today than that existed 10 years ago, it would've taken less time, but it was brilliant. They were able to price it at different levels, see the demand and supply instantaneously, which didn't exist a decade ago. And I think the other big difference was having everybody wearing denim, and our product, which didn't exist 10 years ago, so a totally different experience.
Josh King:
They weren't wearing hotel rooms.
Harmit Singh:
Yeah, no hotel rooms, so it's a very different experience. But I'm proud, and I was saying this to somebody earlier, just lucky and privileged and proud to be associated with two iconic brands that went public.
Josh King:
CNBC's Bob Pisani was in the middle of the action during price discovery. Let's listen to Bob and Patrick Murphy, the head of the NYSE Market Making and Listing Services at GTS on what makes the process of price discovery so unique.
Bob Pisani:
Really getting close, technically, 21.75 to 22 and a quarter, and folks, when you get a 50 cent spread, that means we're really, really close. Come on, let's get man with the answers here, Patty, when's it happening?
Patrick Murphy:
We're getting very close. We're fine tuning the price, it's a little bit above five dollars on the range, we got plenty of volume. So it's very close, all systems go.
Bob Pisani:
How do you decide when you cut it off? You're talking to the desk over at Goldman. You're trying to figure out what the right price is. When do you say, "Okay, guys enough, the book is closed." How do you make that decision?
Patrick Murphy:
Basically when the price pairs off at the buyers and sellers, and we're very comfortable with the depth of book on both sides of the market, applying our technology, we feel comfortable, the desk at Goldman feels comfortable, all the asset managers and the brokers feel comfortable. We're almost to that point right now.
Bob Pisani:
And this is a dynamic process. We always keep explaining to people, there are people at the last second, you say, "Okay, we're ready," and then somebody comes in with a new bid and it moves.
Patrick Murphy:
Correct. And that's why this process is great. We take our time. Not only do we apply technology, but the human element of Glen and Mike, we make sure that everybody has a chance for the print, full transparency on price and volume. And we're very close.
Josh King:
So that was the way it unfolded this morning, Harmit, but this is really the culmination of, I don't know how long your road show actually was, but do you have any energy left to like look over Patrick's shoulder and watch the price get balanced?
Harmit Singh:
Yeah, no, there was a lot of energy, a lot of excitement. For a lot of people, it was the first time. For me, obviously, it was the second time, but in a very different environment. And it's always exciting to see the interest in the company. And that's what I was seeing, how many people want buy, how many people want to sell, and seeing the demand/supply interplay and drive the stock price. So it was great. And Bob was patient, because he kept coming back after every half an hour just to say, "Okay, is it ready or not?" And it was wonderful to see the demand drive the final supply.
Josh King:
I watched your comments this morning in the boardroom to your team. You said that through the whole process, you underestimated a lot. You are in the business of making rock solid estimations, what did you underestimate?
Harmit Singh:
I underestimated, and I should have preface that by saying, "I'm pretty good at forecasting, and if I'm wrong, I'd rather I'd rather be wrong in terms of undercommitting versus overcommitting," and that's what I was wrong here.
Harmit Singh:
I think a couple of things, one was I underestimated the strength and the secret sauce of Levi's in terms of its culture. We're a very value-based organization. We want to grow our business for the long term. Growing profits through principles is important, which in essence means that making something is important, but how you do it, the fact that it has to be sustainable, the fact that it is the right thing is critical.
Harmit Singh:
I underestimated the strength of our people. There's a lot of pride in this company to be associated and work with the group. You can see it from the employees who came here, but what you didn't see today was the excitement around the world on our listing. We had folks in our home office, because we have deep roots in San Francisco, who were there at six o'clock in the morning. We have folks in Europe with us, it's late there, they were beaming in. There are folks in Asia who were just waking up. So a lot of excitement around the world.
Harmit Singh:
And I underestimated the potential of this brand when all are cylinders are firing. In Europe, for example, last few years, we've been growing at 20%. The European economies or the category grows at two or three percent, but we've been chugging along. In the US, last year, we grew at 10% and the denim category is growing at about two percent, and our wholesale doors are closing. So there is a lot of potential in this brand if you get it right. And we are just beginning a lot of things. So to me, just seeing that is great. And I keep telling our employees, and I said that this morning, I said, "Let's prove the investors wrong, by making sure they underestimated on what they'll get from us." And to me, that's important, under commit, over deliver. But the strength of our people, our culture, and our business, or our brands is great.
Josh King:
I mean, at the same gathering Chip said that, "The work over the last six or seven years came down to three things, brands, people, and progress." The work that you and Chip have done, as was discussed this morning, is to make Levi's great again. And it seems, I've heard a phrase like that somewhere before, what went into that?
Harmit Singh:
I tell people, and this is something I've done all my life, especially the last two gigs, at Hyatt and here, "I didn't come here to sign up for a job. I came here to make a difference." And the difference is to make Levi's and the other brands great again. Largely, in ensuring that we are connecting with the consumer, we are doing more than just what we've done over the years, which is men's bottoms. And we are growing this business globally. And that's what making Levi's great again is important. Plus, our people, we have an obligation to a responsibility it's critical that they feel that we are winning. And we are here for a long time and we will continue to win for a long time, and getting that confidence back, which probably had disappeared six, seven years ago.
Harmit Singh:
I mean, there's a saying that if the business results are not great or strong, the first thing that happens is you lose good people. And today I'm very proud that we have the best of the best. I mean, we are in the Silicon Bay Area. There's a lot of heat for talent from that perspective. But we have folks who have been here for a long time, and will be here for a long time.
Harmit Singh:
Once a year, we get a top 250 leaders from around the world and just talk about the business, and we got that group two weeks ago. And a large majority of them came a year ago. So they're folks who've been here for a while, believe in the company, and we believe will stay for a long, long time.
Josh King:
You joined Levi's at the start of this financial turnaround that included turning a free cashflow from a negative 158 million to almost 300 million positive 2017. When I was at First Data, the turnaround in free cash was this prime litmus test about the company's readiness to have an IPO, but the timing needed to be just right. Why is 2019 the right time to tap the public markets?
Harmit Singh:
Three reasons. One, we have had strong business results. We are confident about our future and our business results and deliver of what we said for a long, long time, so that's one. Second, the management team that got us here or helped in the turnaround is the management team that will take it to the next level. So there's stability, plus a group that knows the business well. And last but not the least, the markets are at the right spot. The markets are hot, our brands are hot, so from a timing perspective, it's great. And as we think about building this enterprise for the next 165 years, and it has to go beyond Chip and me or the management team.
Harmit Singh:
It has to be driven by a corporate structure, a set of shareholders who believe in the long term orientation of the company, and that's why tapping long term institutional shareholders, who we can engage. And I'm a big believer that when you engage with people, it's a two way street. Feedback to me is a gift. And I believe good shareholders don't hold back. They tell you what's on their mind, and we can have that conversation, and together we can emerge as a much stronger group. And I think that's what tapping the public markets is going to be all about.
Josh King:
You were mentioning being in San Francisco, close to the technology heart of the world, really. San Francisco's going through a boom right now that rivals its growth during the Gold Rush that gave Levi's its start. We see names like Uber and Slack and Airbnb looking ahead to IPOs, but we also see ideas flame out dramatically in Silicon Valley, like all the stories that are coming out now from that ghost building that was once the headquarters of Theranos. Does being in one of the main innovation centers in the world influence Levi's recent development? Do the stories of success but also failure, drive you to think of Levi's as a technology company that happens to make apparel, as Chip said, in a recent podcast?
Harmit Singh:
We've talked about it. Are we company that has great brand that and has technology that enables the brands to grow? Or are we a technology company? I'd say we are a company that has great brands, but leverage the user's technology to grow those brands and grow our presence. And I'll give you a few examples. I look after technology for the company, so not only finance, I look after technology. When I got here six, seven years ago, because there was no business strategy, we were just spending money on technology to run the trains. We were not using technology to grow the business, e-commerce is a very small piece of our business.
Harmit Singh:
Today, two thirds of our capital is to grow this business and technology plays a bigger role. Chip has done a lot of great things, but the one thing that stands out to me is he brought the innovation center to San Francisco. It used to be in Turkey and 80% of our innovation today or are relevant in products comes out of that innovation center, it's less than a mile from our office.
Harmit Singh:
The latest innovation is something that I think, and I strongly believe, will take us to the next level, and that is FLXs, future led execution. It is all about leveraging laser machines to finish jeans. The lasers today can finish the jean in 90 seconds. It takes 20 minutes by hand in a third world or emerging country, so definitely margin and creative. But more importantly, because we've got some laser units in our distribution center in Las Vegas, we can finish stuff closer to market, and closer to when the trend is.
Harmit Singh:
And I think that will drive sales. It'll ensure we are on trend, most of the time. It'll ensure that we are able to chase trends that one hasn't predicted before. And will help us run our business with lower inventory, and lower markdowns, because stuff that we are selling is largely stuff that's on trend.
Josh King:
Harmit, here is a clip from a three part documentary presented by Levi's that celebrates the 501 jean's influence on popular culture. I want to hear a clip from it, and then get a thought from you on the other side.
Speaker 6:
... or a rudeboy, definitely a rockabilly, wrote graffiti, hip hop culture, the 501 just fit any of them.
Speaker 7:
Mods and rockers, Beatle freaks, punks and skunks, and couks and geeks, which pretty much sums up Levi's.
Speaker 8:
Emulating Patti Smith and the Ramones and people who were living like paupers in New York City.
Speaker 9:
I inherited a pair when I was a kid, my brother was a Suedehead, like two or number three skinhead, the uniform was Doc Martens and 501s.
Speaker 10:
I had to hide them. I was on my way to rabbinical school and I wasn't supposed to be packed jeans with me.
Speaker 8:
And they weren't necessarily wearing them for any other reason than they found them or some chick stole her boyfriend's pants.
Speaker 6:
The 501s are the the Australopithecus of cool jeans.
Josh King:
The Australpithecus of cool jeans. I didn't even know what that means, Harmit, but everyone has their own Levi's story, what's yours?
Harmit Singh:
So my Levi's story dates back to the '80s, I spent more than half my life overseas. I went to school and grew up in India. And in the 1980s, India, as an economy, was not open to brands. So I had this aunt who was headed to the US and she asked me what I wanted. And like most kids at that point, I said, "I want a pair of Levi's." And she said, all right, she'll get it. So she comes back, has my pair of Levi's. I give her a call. She said, "I've got it." And I waited for a week, it didn't show up. So I called her again and said, "What happened?" "Well," she said, "your cousin stole it." Because it was not something that he would part with at the moment, he knew that I get. It took me three months later to get a pay of Levi's.
Harmit Singh:
But that is what the product was. It was hot and it continues to be hot. And it's something that one has grown up with and will always continue to wear. We are a democratic brand all genders, all ages can wear our product, and these are relevant products.
Josh King:
From the 1980s and your own personal Levi's story to 2019, and today, this week, Instagram launched a new checkout featured on its mobile app, which allows users to store their own payment information within Instagram, in order to make purchasing an item as easy as liking a photo. And in return, Instagram's going to charge retailers a selling fee, and 20 have already signed on, including Nike, Adidas, Warby Parker, and Zara. Levi's currently has five point seven million followers on Instagram, and #Levis has been mentioned in four point seven million posts, a number which I'm sure is going to increase after today. Given Levi's strong presence on social media, would you consider selling through Instagram checkout? And does that fit within your financial strategy?
Harmit Singh:
Yeah, sure. I mean it's another way of reaching out to the younger consumer. We have connected really well with the younger consumer over the years, the average age, in terms of the men who use us has moved from 47, in the US, to about 32. The average years for women has moved from 39 to 34 over the last many years, and that's huge movement. So I think Instagram is a good way to connect.
Harmit Singh:
I'll just go back, in terms of my immediate family, I have a wife and daughter, when I joined the company in '13, I said to my wife and daughter, "It's time to connect back with Levi's." It took my wife two years to start supporting Levi's, and that's when we reset the women's business in 2015. My daughter connected back with the brand, not because the dad kept telling her, but because of all the cool products in 2017, and today that converts. And I think, oh, and that's the change that's happened as we resurrected the brand. So to answer your question, yeah, I mean, it's something I'm sure Mark Rosen who's our direct-to-consumer head will definitely take a look at.
Josh King:
I recently visited the Levi's store in SoHo, where I noticed a few things. I was immediately drawn to the Levi's tailor station at the center of the store, where customers can have custom patchwork or embroidery sewn into a denim jacket, studs added to your jeans, or simply altered for the best fit. What's the take up on this kind of customized setting?
Harmit Singh:
It's great. Everybody loves it, but especially the millennials. They love it. We had tailor shops in the past, but it was only until Europe, which has been on a complete tear, ensured that they were able to deliver choice, because consumers want choice, and millennials loved their choice. They started expanding tailor shops in all our main line stores, and it really took off. It allows people to customize and personalize. We've introduced something called a print bar, where we get blank tees, and then you can print within a guideline of what you can print on the t-shirts and that's taken off.
Harmit Singh:
So as we are remodeling our stores or building new stores, we are adding tailor shops. And SoHo, for example, was remodeled about 18 months ago. SoHo was losing money. It was in a prime area, great traffic, but not growing at the pace that we thought it should be growing. So that's what we did, we added the tailor shop, both print bar and the customization. We changed the fitting room experience. We got a lot more fitting rooms. We freshened the lighting, added more lighting, and brought in a head to toe look, because now we've got products in the tops category and in the bottoms category, and across both genders. And the business has taken off. SoHo now makes money, which I never thought it would, and that's great.
Josh King:
Another interesting element about that store. This is a nod to your sustainability efforts. There's a water fountain that's affixed to the wall where customers can refill their reusable water bottles. Store associates, walk around with iPads, allowing them to check inventory and check out a customer at the same spot. How has this reimagining and reinventing the in-store experiences helped drive growth, a place to fill up your bottle?
Harmit Singh:
Thank you for bringing that up, because we are big believers in doing the right thing, both to society, as well as ensuring scarce resources, we protect those resources. And that's why I think you had the filling the bottles optionality incorporated as we remodeled the store. We are also looking at the store of the future. So where does this go from here? And sustainability is a big piece, reducing our carbon footprint, reducing the energy that we use in these stores, et cetera, is all areas of focus. Over time that's going to be important.
Harmit Singh:
I think it was about a year ago, we voiced our views on climate and what are we going to do relative to that? And we've come up with real targets that we believe we can meet over the next four or five years.
Josh King:
And as we finish up this part of the program, really focusing in on your role, achieve being operational excellence, perhaps the most important part of the strategy was one that zeroed in on your world, Harmit. Chip noted that Levi's needed to cut costs, drive cashflow, become more data-driven and financially disciplined. Since launching this strategy, you've paid down nearly a billion dollars in debt, and you've got one point two billion in liquidity, explain the steps you took to make this happen.
Harmit Singh:
Sure. So when I got here about six years, seven years ago, Chip and I were talking, and saying, "Okay, Harmit, you've got to write this organization announcement. And so what do you want to do?" And I said, "I want to do two things. I want people to remember me as someone who came in and unlocked significant shareholder value and obviously strengthened the financial position of the company."
Harmit Singh:
At that time, the balance sheet was over levered. We were levered over three and a half times. We were not investing for growth, and that was a problem. Balance sheet, as I tell people, was a constraint. You had your hands tied around your back. And I said, "That's not going to be the company that I, A, want to be associated with it, but more importantly, the legacy I want to leave."
Harmit Singh:
So what we did then, we spent '13 and '14 taking a hard look at our cost base. We took out about 10% of management head count. We shut two factories. We took services that we don't need to be best in class and outsourced that, because that was not a core competency. And we unlocked probably 200 million as a year. So we had two choices. We could bank it, and our operating margins would be in the mid teens, everybody would say, "Oh my God, that's pretty good." Or we could invest a large part of it to grow and restructure this company. We took the second choice, because we are here for the long term.
Harmit Singh:
And that has allowed us now to develop what I call a cash generation machine, in terms of a business, where it becomes a bit of a flywheel. Okay, if you generate a lot of cash, you can invest that cash or drop it to your bottom line and you can then grow this business. And more importantly, differentiate our sales with the rest of the world around here, and that's what we've been doing.
Josh King:
After the break, we discuss Harmit Singh's path to San Francisco, and why sustainability is critical to a company's financial growth. That's right after this.
Speaker 11:
Twilio is a cloud communications platform that allows software developers to embed any kind of communications into every software application they build. We see ourselves at day one of a future of communications, which is powered by software. And so we are going to continue to build out globally more ways of communicating.
Speaker 11:
The New York Stock Exchange is a critical part of our global economy. It's amazing for a company to get to be a part of that long tradition. Twilio is listed on the New York Stock Exchange.
Josh King:
Welcome back. Before the break, Harmit Singh, Executive Vice President and Chief Financial Officer of Levi Strauss & Company, broke down his company's financial strategy and outlook following its initial public offering, which happened on the floor of the New York Stock Exchange this very day. Harmit, like Levi Strauss, you were also an immigrant to the United States. You studied business in Delhi at Shri Ram College of Commerce, and after graduating, began working for Price Waterhouse India in auditing and accounting. What spurred you to get into business? Was this a family orientation?
Harmit Singh:
No, actually not. So when I did my chartered accountancy in India with Price Waterhouse, my objective was to set up my own consulting firm, my own audit firm, but then I met my current wife, fell in love. My dad said to me one day, he saw this wonderful advertisement from American Express it said, they're looking for financial analysts. They were paying at that point, the highest paid starting salary for financial analysts in the country, which was in today's dollar terms about $400 a year. And he said, "Why don't you apply? You're starting a life, doing something you own will take a little time." I said, "Okay, let me give it a shot."
Harmit Singh:
So I drummed up a resume, went to submit it to American Express, on my way to Price Waterhouse. And so I walked in, dropped my resume with a receptionist, she turned around and said, "Do you have 30 minutes?" I said, "I can." She said, "Could you meet the HR officer?" So I met the HR officer. Well, long story short, about 13 interviews later, they said, "You got to meet the CEO." It's about five o'clock, my dad was buying me my first car, and the dealership closed at seven o'clock. So I said to them, "Listen, I didn't come here for a job. I have to go and pick up my car. And I can come and meet the CEO at 7:30." And they said, "Let's do it:."
Harmit Singh:
So went, picked up my car, came back, met the CEO. At 8:30, they gave me an offer letter, and said, "We want you here." And that started my career with great brands, American Express at that point. And then when I was with American Express, I was there for about eight years, Pepsi decided it's time to enter India. And they said, "Let's set up the Yum! business, KFC and Pizza Hut.
Harmit Singh:
So an old boss of mine was the managing director. He said, "Harmit, I want you as the CFO. And by the way, Harmit, we don't have a company yet. We've go to form a company." So I said, "All right." My wife was expecting our first child, she was not really comfortable me switching, but I took the risk. I switched. We set up the business, it took off. And then Pepsi brought me to Singapore as the Asia CFO.
Josh King:
We think about these Yum! Brands, including KFC, Pizza Hut, Taco Bell, and when I travel abroad you see as many of those brands and storefronts in Mumbai, Tokyo, and Beijing, as you do in LA, Boston, and Dallas. What particularly allowed that category of brand to flourish so well in so many other countries around the world?
Harmit Singh:
I think it comes down to the product, if you were offering the right product. And whether its KFC, the Asians love chicken, or it's Pizza Hut, they love Pizza Hut. I think that makes a big difference. And then obviously in the restaurant business, it is making sure you provide the right experience and you have restaurants all over the place. I think-
Josh King:
Like Levi's, was there a little bit of America too when you walked in those doors?
Harmit Singh:
Yeah. Yeah. I mean I had franchisees line up to be associated with an American brand. There is the American brand halo, and I've been lucky in my career to have been associated with large global, American initiated brands. And I tell people, because I speak to students all the time, and say, "Okay, Harmit, how do you get here?" First I said, "I didn't grow up thinking I'll be CFO of two large companies, and taking two companies public, it just has happened."
Harmit Singh:
What I tell people is, "One of the three things you should think about is be associated with global brands, global consumer brands, because even though they're large companies, you learn a lot, and the cultures are phenomenal. So if you're good, you tend to progress, and progress fast."
Josh King:
I mean, Chip was saying on CNBC today that, I think a question is put to him, is there any sort of brand drag now on Levi's because of America's place in the world today? But the answer that Chip gave really was that Levi's speaks today as it always has for everything that's great about America.
Harmit Singh:
Yeah. Well, I say this really with confidence, there are very few people I've met who don't have a Levi's story. When we were on the road show, we met a lot of different investors. I remember the doorman and one of the hotels we were staying in and he says, "I've got 25 pair Levis. I've told my wife, when I die, I want to be buried with a pair of Levi's." And there's stories of that all over the world. And I think that's largely because it's a great brand, products are great. We're a very democratic brand. We play across all categories of consumers, and that's huge.
Josh King:
So you went from the restaurant and franchise industry and later into the hospitality industry, Chief Financial officer of Hyatt Hotel Group. Did your experience in these industries translate into retail? I mean from the hotel room business, into the apparel business?
Harmit Singh:
Yeah, no, and I tell, I tell folks that other than this job, I've never done a job I've done before. I was the CFO at Hyatt, the CFO here, but difference, I was in different industries. My career has probably transgressed around four or five industry. My daughter says to me, "Dad, you've worked in the basic industries, food, shelter, if you take Hyatt providing shelter and clothing." I really love harnessing and getting different experiences. And that's just been my career. I've worked in three, four countries, six, seven cities, and four or five industries. And it's important because I also like to play out of my comfort zone.
Harmit Singh:
I was doing very well at Yum! And I had no reason to leave. I headhunter called and said, "We'd like you to be CFO at Hyatt." And I said to the head hunter, I said, "You've got the wrong person. Number one, I'm ever been in hospitality. Number two, I've never taken a company public." And they said, "No, we think you're the right guy for these reasons." And six months later I was working at Hyatt.
Harmit Singh:
The same thing happened when Chip called me and said, "We'd like you to join Levi's." I said, "That's great, but apparel is not up my sleeve." And he said, "I'm not a apparel guy too. Let's do it together." And I said, "Okay, that makes sense. Let's try it." Right. And that's been my whole journey play out of your comfort zone, learn associate several great brands and the rest will happen automatically.
Josh King:
We were talking earlier about the efforts from Levi's to be a more sustainable company. You launched the water less process in 2011, reduced the amount of water used in the finishing process of producing denim. Last summer, Levi's announced yet another sustainability plan focused on cutting greenhouse gas emissions by 40% in your supply chain, by 2025. Will implementing these energy efficiency programs have a direct impact on your financial growth?
Harmit Singh:
Yeah, it will. A couple of years ago, someone said to me, "This is Levi's. One of the values is growing profit through principles." And I said, "That's important. But as a CFO, my role is to be able to, A, set the right tone on the top, because I'm joining a company that has profit through principles, I've got to be convinced. And more importantly, drive that across the organization. And second is demonstrate to people that it really creates value."
Harmit Singh:
The water less program creates value, because you're not reaching out to a consumer set, largely the millennials who really believe in sustainability. Using less water is less expensive, the margins are more creative. I think the margins were up a couple of basis points.
Harmit Singh:
In terms of, we have a worker's wellbeing program, now we cover about 200,000 workers across 10 countries. This is largely focused on women in emerging countries, driving financial literacy, as well as health. And what we have proved is that for every dollar that's invested, the return is about four time that, because it drives higher productivity, largely because of low absenteeism, et cetera, and more connection to our vendors.
Harmit Singh:
So clearer opportunity. We just announced, I think, not just, about a year ago, we announced FLX. It started at a sustainably program, but it's about leveraging through our own software, laser machines to finish our jeans as against manual labor, which takes 20 minutes, laser machines take 90 seconds. And we are pioneering that across the industry. We have filed 29 patents, got about nine approved.
Harmit Singh:
In essence, we believe, besides reducing the number of chemicals, I think we were using thousands of chemicals we're down to two dozen, it also will allow us to compete better in the marketplace, because we are able to chase trends. And importantly, it's a creative financially, because it's higher gross margin, will lead to lower inventory, and lower markdowns. So I think the combination, going back to my earlier point, the magic of the and, you all have to do something that is important to you, but also is rewarding to our shareholders longer term.
Josh King:
The magic of the and, the power of the brand, the company even made ESG part of its celebration of winning the naming rights to the 49ers new stadium. Let's take a listen.
Speaker 12:
When the company claimed naming rights to the San Francisco 49ers new billion dollar home in Santa Clara, California last year, the Field of Dreams nickname was born. Levi's trademark the term and made the play on words a reality this month with a Bay Area denim drive, the, it brought in over 18,850 pairs. The donated jeans, whose sale at Goodwill will benefit the nonprofit's local job training programs, ended up at Levi's Stadium to demonstrate the impact of recycling used clothing, instead of sending it to the landfill.
Josh King:
Now, Harmit, I've been part of a lot of public companies. I've known a bunch of CFOs, and I've been pitched a lot of naming rights opportunities, and that usually gets a veto immediately when it goes to the CFO's office. Levi's Stadium, how's it done for the brand and the company?
Harmit Singh:
Yeah, no, it's done great. I was a week in the company and I joined a company that's over levered, cost structure was high. When Chip walks into my door, he says, "I have great idea." I said, "What's the idea?" He said, "I want to spend $200 million over 20 years, and is to brand or get the naming rights for the new stadium." And I've got that wonderful experience with the Gillette Stadium in Boston, and it's been successful.
Harmit Singh:
And I said, "Chip, that's your experience? When I was here for Pizza Hut in Dallas, Pizza Hut took the naming rights of a soccer stadium in Dallas, it was a disaster. All right. So let's do this. Let's pitch your positive experience with my negative experience, and let's come up with something that we think works." And we came up with a financial equation that worked for the company, because I strongly believe that the best way to ensure that the dollar that you spend gets the best ride is, are you connecting with the consumer? Everybody watches a game of football wears, most of them, wear jeans and that's sort of, and there are consumers there. So that was a win.
Harmit Singh:
And at that time, the 49ers are doing well. And I'm sure they'll get back. And as we thought about this over 20 years, it was clear to us that the stadium would get a couple of Super Bowls. We didn't realize it would get it in two years from when we named it. And as you know today, every ad on the Super Bowl is about $5 million, and here we have the branding, so it was a clear payback. And the only other thing I said to Chip is, "The money we spend, let's ensure it's not incremental. Let's try and find this of something else we did." And he agreed and the rest is history.
Harmit Singh:
So it's really works, for that we've invested, the payback is huge. The branding is just unbelievable. If you haven't been to the stadium, the next time you guys are there, I will take you.
Josh King:
I was reading when you are interviewing candidates for a position at Levi Strauss, you often like to ask them a question relating to the company's values of empathy, integrity, originality, and courage. Where does this stem from? Is this between you and Chip, empathy and courage?
Harmit Singh:
No, it's actually something that we inherited. The founders of the company brought the values to bear, the values are what differentiate us from others. The values have stuck around for 160 years, in good times and bad times. And it resonated with us, individually. If you think about us as leaders, those principles, those values are important to each one of us. And I think that's why we-
Josh King:
Was this question asked of you?
Harmit Singh:
Not as direct. But, in the questions that Chip and I talked about or the board talked about, in some form or fashion integrity came up, what you have done from a courage perspective came up, originality, are you innovative or not?
Josh King:
What have you done from a courage perspective?
Harmit Singh:
I think playing out of my comfort zone, done that all my life. I've taken a company public, when I hadn't taken a company public before. I've not been educated in the US, but I've still been successful in the US. I've gone across four industries and I learned through that.
Harmit Singh:
So I love that. I mean, I love the experience. I worked with people I hadn't worked with before, and been successful. And made sure that people I lead are successful. What I really feel good about is when people who work for me go and do bigger, better roles. And I've got enough examples of that.
Josh King:
Well, this is your first day of trading my friend, and before too long, I'm sure I'll be dialing up and listening to your first quarterly earnings call as a public company. The journey begins here. Thank you so much for taking a little detour into the ICE House and spending some time with us.
Harmit Singh:
Thanks Josh, thanks for having me out.
Josh King:
That's our conversation for this week. Our guest was Harmit Singh, Executive Vice President and Chief Financial Officer of Levi Strauss & Company. If you like what you heard, please rate us on iTunes, so other folks know where to find us. And if you've got a comment or a question you'd like one of our experts to tackle on a future show, email us at [email protected] or tweet of us @IceHousePodcast. Our show is produced by Pete Ash and Theresa DeLuca with production assistance from Ken Abel. I'm Josh King, your host, signing off from the library of the York Stock Exchange. Thanks for listening. Talk to you next week.
Speaker 1:
Information contained in this podcast was obtained in part from publicly available sources and not independently verified. Neither ICE nor is affiliates, make any representations or warranties express or implied as to the accuracy or completeness of the information, and do not sponsor approve or endorse any of the content herein. All of which is presented solely for informational and educational purposes. Nothing herein constitutes an offered to sell, a solicitation of an offer to buy any security, or a recommendation of any security or trading practice. Some portions of the proceeding conversation may have been edited for the purpose of length or clarity.
