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Levi’s CEO talks incoming chief executive Michelle Gass and outlook for the company

Chip Bergh, Levi Strauss & Co. CEO, joins Yahoo Finance Live to discuss the onboarding of former Kohl’s executive Michelle Gass, the path to a successful IPO, and the outlook for the company.

Video Transcript

BRIAN SOZZI: Levi Strauss's longtime president and CEO Chip Bergh will be passing the baton on to Kohl's CEO Michelle Gass soon. Bergh, a former Procter & Gamble executive who was behind the development of the Swiffer and Gillette integration, has led the denim maker since 2011 and was involved in the company's return to public markets in 2019.

Joining us now live is the man, the myth, the legend himself, Chip Bergh. Chip, always nice to see you. Good to get some time with you. And I think you surprised some folks with this news this week. Why did you decide now to do this?

CHIP BERGH: Well, the opportunity to hire Michelle Gass was a big reason. We've been working at succession for quite some time. I've been working on succession with the board for a while. And it's been a very thoughtful, diligent process, very criteria-driven. And Michelle is the right executive at the right time for this company. And it was just a terrific opportunity. Timing was right. And I'm admittedly moving to the side maybe a little bit quicker than I had expected.

But, you know, succession is going to be one of my biggest legacies. And being able to turn the baton over to someone like Michelle, who is such a proven leader, 25 years of real deep retail experience, it was just too great of an opportunity. And I'm really looking forward to working with her over the next 18 months.

BRIAN SOZZI: Yeah, and Chip, we're starting to see this, I think, approach to succession a little differently, something like at Starbucks, too, with Howard Schultz leading or trying to transition a different way with his new CEO over the next few months. But why did you choose this structure?

CHIP BERGH: Well, we've always wanted to have an internal candidate to ensure continuity of strategy and staying true to our goals. And, you know, Michelle is a sitting CEO. She's been a CEO for five years. But the opportunity for her to come in and work directly with me and learn from me, learn the business, learn the organization, be able to wrap her arms around the Levi's brand before she sits in the hot seat to form points of view about she might want to organize a little bit differently, form points of view on talent as well, it's a tremendous opportunity.

And I think one of the things, one of the hallmarks of Michelle, is, she's got great humility. And, you know, she's a sitting CEO, running a $20 billion company. And she's joining to partner with me to have a very smooth and successful transition. I think she knows in her heart that this will set her up for success. And I think it's a smart transition and a smart succession plan that we've put in place.

BRIAN SOZZI: Chip, we've talked for a while. You're the only Levi CEO that I know. And it's been a pleasure to follow your career all these years. But look, I've been tough on Michelle at Kohl's. I've written a lot of stories. I've covered the Kohl's situation a lot. Have you talked to her about what she has learned over the past two years?

CHIP BERGH: Well, it's been a really rough couple of years with activism. And I think one of the things she's learned is that activists can be a huge distraction to focusing on the business. But she managed with her team to stay really focused on continuing the transformation of Kohl's. Look, the department store challenge, you know, it is structurally very, very challenged.

And she has made a number of transformational moves at Kohl's, which I think, fundamentally, make that company a stronger company today than it was before she became CEO. If you take a look at the things that she's done, the pivot to athletic and athleisure, that was next to nothing for them. It's now 25% of their revenue. She doubled down on digital. That's grown from a billion dollars in revenue to $6 billion over the last six years.

Obviously, Amazon returns drove traffic at a time when department stores needed traffic. People walked into a Kohl's for the very first time, not knowing they had a housewares department or not knowing that they sold Levi's. And then I think probably the biggest strategic move has been winning the shootout for Sephora when Sephora left JCPenney.

And I can tell you, Brian, based on some Levi's data, that our Levi's women's business in the Sephora stores, the Kohl's Sephora stores, are-- is up dramatically versus the Levi's women's business in the non-Sephora doors. And it's still really, really early days, but I think that's a proof point that they're bringing in new consumers, and it's going to lift the business.

BRAD SMITH: And Chip, I wholeheartedly agree with you-- this is Brad here, by the way. I wholeheartedly agree in that the department store model has been fractured for years now. And we've really seen the consumer appetites change, and we've seen retailers and manufacturers of so much apparel and footwear go more direct to consumer. Levi's is within that as well.

And so have you gotten a sense from Michelle what the first things, 90 days in to the CEO position eventually, that she would like to do, that she would like to institute as part of the fabric-- pun fully intended there-- at Levi's in a direct to consumer era?

CHIP BERGH: Well, I think we should give her a little bit of time. She hasn't even stepped in the door yet. But one of the reasons that she's such an attractive candidate and the reason we hired her, you know, I was the right guy for the company 11 years ago. The brand was lost. We were flailing. The company was really, really struggling. I came from Procter & Gamble 28 years, a brand guy. I was a brand guy.

And what we've managed to do in a big part of the company turnaround was we put the Levi's brand back at the center of culture. Our strategy, going forward, is to really double down on direct-to-consumer. Today, it's about 37% of our business. Our aspiration is to grow it to 55% of our business over the next five years. That's a meaningful jump, right?

She brings-- and that includes our brick and mortar stores and our e-commerce business. She brings 25 years of omnichannel experience. And so that's a big part of what she brings. She also has six years of Procter & Gamble. She started her career, just like I did, at P&G, and spent five years working in brand there. So she's got really good, formative brand training, classic marketing training from P&G, but then great retail omnichannel digital skills from Starbucks and Kohl's. And she's also a terrific innovator.

And I just ran down the laundry list of the number of innovations that she's led at Kohl's. So I think we're going to see her bring a fresh set of eyes to the way we're running our stores. I think she's going to bring a very fresh set of eyes to how we're running our e-commerce business. And I expect that she's going to take us to the next level in those critical strategic areas.

BRAD SMITH: I want to talk some more about the stores, too, because I've gone in a Levi's store perhaps every week, just because we're close in proximity to one, just to check it out to see, look, we're getting into the cold season, Chip. I got to make sure that my fit checks are up to snuff here in these New York streets.

And so I've been going in there, and you think about the inventory. You think about the number of stores that you operate right now. In a recession, though, if you do see any tightening of wallets, pocketbooks from consumers, how does that shift in terms of the amount of inventory that gets put into stores, how much you're producing, and then even the number of stores?

CHIP BERGH: Yeah, well, we're very committed to continuing to expand our retail footprint. So today we have about over 3,000 stores globally, of which about 1,000-- a little bit more than 1,000 are company owned and operated. The rest are mostly franchise partners. Our stores deliver a really strong return on invested capital. In fact, it's in line with the company's overall return on invested capital. And we're very committed. We still have a lot of white space.

Here in the US alone, we have about 260, 270 stores. But most of them are outlets. We only have about 50 mainline stores. And I can rattle off cities where we don't have a mainline store. And the brand is really, really strong right now. And premiumizing the US and continuing to deliver mainline growth is a very big opportunity for us.

With respect to inventory and kind of what's happening right now with the consumer and in the marketplace, we're in the holiday season. Here in the US, the NRF, which is one of the industry trade associations, is saying that the holidays should be around 5% growth over 2021. 2021 grew by 13 and 1/2% over the pandemic impacted 2020. So that's pretty good growth. And over the past 10 years, holiday growth has averaged about 5%.

We're set up for a really strong holiday. And we're expecting that we will have one. And the brand is hot, as I said. And we do think that it's going to be more promotional. We are committed. We're not going to lead promotion, but we're not going to be left uncompetitive. A lot of people have too much inventory. And I think that's going to lead to promotions and markdowns during the feverish holiday season.

BRIAN SOZZI: Chip, 10 seconds left. Your biggest career achievement, the Swiffer or skinny denim?

CHIP BERGH: Ooh. That's a hard one. Actually, I like where we're going with the new baggier jeans, Brian. It's kicked off a new denim trend, so I'm happy with that one. How about that?

BRIAN SOZZI: All right, that's a good answer. And of course, on this Veterans Day, thank you for your service, Chip Bergh, to our country. Always good to get some time with you, my friend. Have a great weekend. We'll talk to you soon.

CHIP BERGH: Thanks a lot, Brian. Great to see you guys.