Presents at Goldman Sachs DTC / Digital Acceleration Conference 2021

Feb 17, 2021

Good afternoon, and thank you for joining us for our final session of the day with Levi Strauss and Co. I am thrilled to be welcoming Chip Berg, President and CEO and Harmit Singh, EVP and CFO, for a fireside chat this afternoon, where we'll dive into several of the firm's key strategic priorities. However, before we do that, the team have put together an exclusive digital store tool where Mark Rosen, EVP and President of the Levi Strauss Americas, will lead us through the new Levi's Next Gen Store at Stanford Shopping Center. We hope you enjoy this video. So without further ado, let's roll the video. Welcome to Stanford Mall. Well, I wish we could all be here together in person today. What I'm going to do is walk you through our new next gen store here. And this new next gen prototype is really key to growing our mainline full price stores around the world. Here in the U. S, it's a key component of our growth strategy. We have about 30 of these mainline premium doors today, but we think there's opportunity to open up to 100 more because in some cities like Boston, we don't even have a store yet. So we think there's significant opportunity for growth. And when we grow, those doors are going to look very much like the door that you're going to see here today. It is a smaller, much more focused and much more productive format. So this store is about 2,500 square feet, which will be typical for our next gen format. These stores are already outperforming on our key metrics, including AURs, conversion and profitability. We're able to drive that increased conversion because this store is experiential and it is omnichannel connected with all of the omnichannel capabilities that you would expect in a store like this, which really allow us to increase the assortment and expand the walls of the store and drive greater productivity. Here at Stanford Mall, this is exactly what we are looking for in our next gen stores, high traffic locations with a first class mix of brands, plenty of traffic drivers that will ensure long term success, residential, retail, restaurant entertainment, office and daily use density, primarily outdoor lifestyle centers and walk in street locations in markets with strong demographic and a high concentration of current and future Levi's consumers. And this is really the future of what we're looking for. The store is a lighter, more open and modern take on our traditional store format. We've woven sustainability into the construction of the store using post consumer waste material and LED lighting throughout. The first thing you'll notice is the new iconic facade, which is a marriage of craft and technology, evoking the fading that happens as denim is worn and ages. The entrance is wrapped in continuous digital screens, creating a band of light and movement as the consumer enters the store, a 3 second wow as they come in to the completely open storefront. As you come in, the Taylor shop is really the center of the store and it really is the heart of the experience that we want the consumer to have here because what the Taylor shop allows is the consumer to interact with one of our master tailors and to really create their very own product. And that's what we say our product is a canvas for self expression. And you can see here the buttons, the patches, and the things that a consumer can use to really design and create their very own product. We also have technology which the consumer can use to get an idea on how to customize their very own product or how to use our print shop capabilities to custom print on a T shirt or sweatshirt. And finally, if the consumer wants to participate in our re commerce Levi's secondhand opportunity, they can bring back product here, return it and get a gift card for a future purchase. So as we continue throughout the store, you'll see that the style lounge is really open and integral to the whole store so that the consumer feels really comfortable in the experience of trying on and finding the right product for them and so that our stylists are easily able to engage with them and help them find the right product. You'll see oversized fitting rooms, and we know that a great fitting room experience really translates into increased conversion in these stores. As our stylists are interacting with consumers, we're having great success in having them download the Red Tab loyalty app, which gives them exclusive access to collaborations, early access to new product and allows them to shop the full levi.com assortment 20 fourseven. We also have a full suite of omni channel technology capabilities in the store. Once they have our app, consumers can use the app to schedule a private shopping appointment. We have curbside pickup or buy online pickup in store, and consumers in the store can have a full mobile checkout experience. In addition, so that we can utilize our inventory more efficiently, we're using ship from store so that consumers order online, our AI powered optimization algorithm will decide if it's most efficient to ship from store inventory. One of the unique omni channel capabilities that we have in this store and that we've expanded throughout the fleet is called showrooming. And as the denim leader, we have more fits and styles than anyone else. But given the size of this store, we've used our micro assortment capabilities to really target the assortment in this store to the consumer here. We know, however, that there may be additional fits that they want to try. And so through showrooming, we have a full size run of those additional fits in the store that the consumer can try on and through associate order in store, we can ship them directly to their home. We're focused on growing our lifestyle and share of closets. And these stores allow us to showcase our category expansion into non denim and accessories. You can see that I'm now wearing our red tab sweats collection. We rolled this out exclusively on our e commerce site over the holidays, which allowed us to test a number of colors and styles and get fast consumer feedback. This store also allows us to dedicate over consumer feedback. This store also allows us to dedicate over half of our floor space to women's. And we've seen results in this store that over half of our sales are coming from women's. You can see here our premium women's tops collection. Also in this store, we've achieved over a third of our sales coming from men's and women's tops combined. This is consistent with our overall growth strategy for the brand to increase our share of women's and tops. With respect to premiumization, most of our U. S. Distribution is in our good and better product. But in these next gen stores, we have exclusively our Levi's premium product. Our premium red tab denim bottoms retail for between $79 to $98 and we're also able to showcase our ultra premium made and crafted products like this Japanese selvage denim, which retails for $1.88 Thank you for coming along with us on this virtual store tour. We are super proud of this next gen format and we're confident that we can drive profitable growth as we expand into the white space opportunities that we know exist across the country. We know that this format is going to elevate the brand, diversify our share of closet and deepen our relationships with consumers. I hope that you'll come visit 1 of our next gen stores in person soon. Fantastic. Well, thank you to Mark and thank you to the team for taking the time to put together such a great video and provide such a holistic experience into the Levi's customer experience in the company's next generation stores. I'm excited to drill into a number of the incentives that you profiled on the video today in today's fireside chat. But perhaps we can set the stage here with a high level question. Chip, can you kick us off with a run through of Levi's key strategic priorities today? How important is the DTC digital shift and how have your priorities changed as a result of the pandemic? Well, first of all, Alex, thank you for inviting us here. It's great to be here and speaking for Hermaid as well. We're excited to be here today. The video is not quite the same as being there in person and hopefully sometime in the not too distant future, we'll be able to get out and do real store tours as well. But we're really excited about the NextGen format and what it can do for our business. I guess just backing up, everybody has said it before, the pandemic has changed everything, dramatic shifts in the landscape, which is having an impact on our business and of course significant changes from a consumer standpoint. And part of that significant change is obviously the quick pivot to digital and e commerce. But DTC has been a focus of ours for the 10 years that I've been here as CEO. We declared it as one of our top strategic priorities when I joined back in 2011. At that point in time, our owned and operated direct to consumer business was only 21% of our total business. This past fiscal year when we closed, we were at 39%. And through the pandemic, we saw the strategic importance of really doubling down on the capabilities in creating this true omnichannel experience for the consumer. And it is true that the pandemic did accelerate many things. We had a roadmap, an omnichannel roadmap going out for 3 years and we pulled many of the capabilities that were on that roadmap. We pulled those capabilities forward. So, for example, prior to the pandemic, we didn't have buy online pickup in store and nobody knew what buy online pickup curbside was before the pandemic. And we put a hurry up offense on that and built that capability because that was clearly a need for the consumer. We also learned during the pandemic how critical, I guess it just reinforced how critical our brand is. And DTC helps us fuel brand growth, because we're in control of how the brand shows up in our stores, We're in control of how the brand shows up on our e commerce site. And we can create that one to one consumer experience with the consumer. And you saw it in the video walkthrough of our store in Palo Alto. The consumer comes in and goes to the tailor shop, they're highly engaged and we can create a really special experience for them and a special product, a unique product that's unique for them. And creating that experience that goes beyond just transacting in the store is a big part of what our strategy is for DTC. So, it gives us the opportunity to really manage the brand, elevate the brand, particularly in this marketplace here in the U. S. And these next gen stores have proven to be really, really financially attractive for us. And that's why we're confident that we're going to be able to add about 100 of these stores just in the U. S. Over the next couple of years. Chip, thanks so much for that overview of your priorities. And again, lots of things that you touched on that I'd like to come back to. But let's start with digital acceleration. You saw particularly strong growth in your digital revenues in recent quarters. I wonder if you could talk us through what's driving the acceleration and your outlook for e commerce growth in 2021 and beyond. Now Harmit, maybe this question is for you. The final piece of it would be how you'd expect your channel breakdown to look by the time you get to 2,030? I'll start and then Harmit can chime in. And Harmit, I think you're on mute. So, as I said, DTC has been a focal point for us for the last decade or so. When I joined, we practically had no e commerce business and we had outsourced almost everything. So, our owned and operated e commerce business for fiscal 'nineteen, which closed at the end of November for us, was 8% of our total revenues. That's double what it was the prior year. And obviously, the pandemic accelerated that. Importantly, our e commerce business on a fully loaded basis is now profitable. It was profitable the last two quarters of the fiscal year. It was profitable for the fiscal full fiscal year. And so all of our investments are working. I would also be quick to say though that at 8% of our total revenues, we look to our left, we look to our right, we look at some of our peers and we know that we still have significant opportunity on our e commerce business. And that's going to be part of propelling our DTC business from today's roughly 40% to over 50% of our business over the next couple of years. Harmit, you want to talk about the channel piece? You're on mute, Harmit. All right. We'll let Harmit sort out his audio. I'll talk about it a little bit. So, I guess, if you step way back, again, looking back a decade ago, when I joined the company, U. S. Wholesale, just U. S. Wholesale was 48% of the company's total revenues. The U. S. Was 58% of our total revenues. International was only 42% of our global revenues. Fast forward to the fiscal year that we just closed, as I said, our DTC business and that's our owned and operated DTC business was 39% of our total business. International is now well over 50% of our total business. I think when we closed the year, we were at 56% of our total business. And U. S. Wholesale is significantly smaller at around 20 plus percent of our global business. And traditional U. S. Department stores, the traditional U. S. Department stores today are less than 10% of our overall global revenues. So, the mix is clearly shifting to our DTC business and that's financially accretive to us, higher gross margins in DTC. It is obviously, we're more in control of the brand in our own channels. And that's why we're very, very focused on continuing to accelerate growth in DTC and in e commerce. And as I said, we believe we still have significant white space. Our e commerce at 8%, benchmarks still relatively low to some of our peers. So we've got opportunities there. And we know on our U. S. On our brick and mortar business in the U. S, we've got opportunities for at least 100 new of these next gen stores. And we still have opportunity white space opportunity for retail stores on a global basis as well. Well, let's talk about that white space opportunity for retail stores. You mentioned there, the 100 stores. I think Mark mentioned that number in the video as well. Can you share more details on the rollout plan in North America and internationally? And any more color you can share on how those financial metrics compare to the fleet? Sure. So, we have announced that we will add 100 of these next gen mainline stores here in the U. S. And just for perspective, here in the U. S, our business our DTC business skews heavily to outlet. We only have a little bit north of 30 mainline doors today. And our mainline doors sell, as Mark said in the video, it's mostly our premium or Tier 2 products priced in the $79 plus kind of price point for a pair of jeans. And that compares to the U. S. In total at around $40 which is driven heavily by our wholesale business. So given the strength of the brand, we believe we have a huge opportunity to elevate this marketplace from a pricing standpoint, from a quality standpoint. And the best way for us to achieve that is through our own direct to consumer business. And now that these smaller format next gen stores are financially viable, we have so much white space opportunity. I mean, Mark talked about in the video and I love using it as an example. We don't have any doors in Boston. There are a quarter of a 1000000 college age students in Boston every school year. And if you want to go to a Levi's store and you're in Boston, you're hopping in your car and you're going north to Kittery, Maine to an outlet center or you're going south to rent the mask to an outlet center. And so and in the Greater Boston area, we could easily have 4, 5, 6 of these really highly productive mainline next gen stores. So, lots of white space opportunity. We haven't put a real specific timeline on the 800 door or 100 new doors. We will do probably in the neighborhood of 15 of those new doors in the U. S. This year. So the rollout will probably take us 3 to 5 years, I would say, to reach that incremental 100 mainline doors in the next gen format. And will those incremental mainline doors complement the existing fleet of mainline and outlet fleet stores? Or will some of that existing fleet be replaced? And then more broadly as we think about Levi's positioning in the outlet centers in the medium term? Yes. So, I mean, outlet is still an important part of our business and it's a very, very profitable part. We make for outlet here in the U. S. Internationally, our outlet business is more of a flush business than it is here in the U. S. We do flush some product through outlet here in the U. S. As well. We have order of magnitude roughly 200 or so outlet doors. We're in most, if not all of the better premium outlet malls. We don't plan on adding more unless new malls are being built and we feel that that's a mall that we should be in. Our real focus here in the U. S. Is accelerating the rollout of these successful now mainline next gen stores. That's really where our focus is. We will likely sunset some unproductive mainline doors as leases expire, not just here, but around the world. We're constantly renewing our fleet and looking for better opportunities from a real estate standpoint and traffic patterns shift and all of that. So I think it's fair to say that over the next couple of years as we have these 100 new doors that we will be sunsetting and exiting some of the older doors that are potentially much less attractive from a financial standpoint. One more question here that's focused on the stores. Mark went through a number of the omnichannel features that the stores are offering, buy online pickup in store, you mentioned something that you accelerated during the pandemic. How much of the fleet is equipped with these features? And how should we expect them to be rolled out? Is that part and parcel of that next gen store rollout? Or should some of the existing stores also receive that omnichannel treatment? Yes. So, something is working really well for us. We're going to expand it as quickly as we can. I mean, a good example of this is RFID actually. We've got RFID in all of our stores here in the U. S. That gives us real time inventory visibility, which is critical for the capability of buy online, pick up in store. You need to know in the moment what your inventory levels are and RFID gives us that capability. And we expand we put that on a global tour. We're expanding that globally. Same with buy online, pickup in store, buy online, pickup curbside. We tested that early in the pandemic here in the U. S. We actually we built some new muscles during the pandemic. We rolled this thing out. It was less than perfect when we rolled it out and put it into a test. We perfected it as we went. We expanded it here in the U. S. And we're now expanding that globally. And some capabilities will make sense to retrofit back into our older doors. Mobile checkout is a good example of that. We can eliminate the cash wrap and free up more selling space by moving the mobile checkout that makes our stores more productive. And so that could be a capability, for example. So each one of these different components that are in next gen, if they make sense to retrofit back into our other mainline doors or even into outlet, we'll do that. We'll do that as it makes good financial sense. It sounds like there are a lot of features in those next gen stores that are making them more productive and more profitable. And I wanted to talk about profitability as it relates to the direct to consumer strategy as it's a big talking point for investors as brands shift. You guys have had improving profitability in e commerce in particular this year. And I wanted to ask you about your expectation for improving profitability in that e commerce channel. What further investments do you need to make? What are the key points of leverage going forward? And what time line should we be thinking about for that process? Harmit, I believe your audio may well be working now. Could I try to really jump in on this one? Oh, Harmit, we still can't meet you. Harmit gets an F for AV today. If you're on other sites, Arneet, just shut them down. I mean, I'll start. So Can you hear me now? Well, we can hear you. Welcome. I had to reboot and come back technology. And I look after technology, I should be able to figure this one out. Anyway, thanks for that. But to the question that you were asking, and it's about e commerce profitability. As you know, our e commerce today is profitable. EBIT margins are in the low single digit. It was losing money. And the pandemic made a difference because our e commerce business has grown from 5% pandemic to about 8% of our total revenue. Our view of the world, Alex, is and it's about a $400,000,000 business today. Our view of the world is when this business doubles, say add another $400,000,000 to $500,000,000 the EBIT margins approach, what we have called out for the company getting to about a 12% margin plus. So how are e commerce margins going to increase? Basically, 3 or 4 buckets. Obviously, leverage of volumes makes a big difference. The second is gross margin accretion that we have called out for the business largely driven by higher AURs as we premiumize the offer in the U. S. And irregular COGS savings. And the last piece of it is the what I call the cost side of the P and L. We are taking a hard look. Right now, most of our fulfillment in Europe and in the U. S. Is through 3rd party. We're looking at bringing that in house. We talked about establishing or building a distribution center in Europe as volumes have really grown. So I think and as volumes grow, if you've got this in house, you're not only able to engage directly with the consumer, but also able to leverage that costs. So that's one. 2nd, as volumes grow, we're going to ensure we get efficiencies in as we buy media. The percentage on media on revenue has largely remained constant as we have scaled this up. And we think as we scale it up further, we can drive better cost efficiency. So that's how we think about it. It's a combination of volume, better gross margins and lower costs. And I think that will over time drive higher e commerce profitability. Thanks for sharing that, Harmi. It sounds like there are several initiatives in place in order to sustainably raise margins in that e commerce channel. One of the places where we often hear investors focus as they think about e commerce profitability is marketing spend. And you touched on it briefly there, but I wonder if we could go into it in more detail. Customer acquisition costs, marketing costs are elevated in e commerce channel versus in a wholesale channel where you have a partner to help you acquire customers. How do you think about that? How can you leverage that cost over time? Sure. So I think so we think about it a lot, especially as Chip mentioned, given the strength of the brand and having an incredible brand awareness really translates to people coming to our site and shopping. We don't have to spend on driving higher brand awareness in our brands. People are aware of our brands. So that's the good news. The way we think about it is it's important to balance the brand spending vis a vis the demand generation spending. And keeping that balance is very critical. Even during the pandemic year, in the 1st 3 months, we tightened brand spending. We drove we spent a lot on generating demand. But soon after, as we got into the 2nd semester of the pandemic, we decided the balance was important. And so as and as you know, I think it was in late 2017, we did scale up brand advertising and it did lead to a major lift in our revenue. The way we think about optimizing our spending as e commerce grows, basically 2 big buckets. 1 is, as direct to consumer grows and e commerce as a result of that, we're able to engage directly with the consumer and engage with more consumers than we have in the past. This will allow us to grow lifetime value. Now, we have the data, we can engage with him or her and grow the lifetime value. The second piece is, we're just getting started on our customer acquisition costs, understanding what it is, measuring it, etcetera. But given high brand awareness, customer acquisition costs are not as high. And so the question is over time, how do we optimize the customer acquisition cost, while at the same time growing lifetime value? And I think the magic of the equation is going to be the lifetime value is going to far exceed the customer acquisition costs. And I think that's how you grow and drive higher ROI on the e commerce piece of the brand spending. That's clear, Harmit. One of the things that's come up on several occasions today is building that connection with the loyal consumer who then becomes a repeat consumer and you can better lever that customer acquisition costs over time. That makes me think of something that Mark mentioned in the video, which was encouraging consumers to download the Red Tab mobile app. And I just final question on this customer acquisition and loyalty piece would be, how important are the mobile app and the loyalty strategy in your plan for the business and how do you see those evolving over time? It's critical. Chip talked about accelerating things in a few months when we thought it'd take years and that's one of the things we did. We were testing an app in the U. S. It was to be launched nationwide sometime in 2021, we accelerated that. We were in the process of testing a loyalty program, we accelerated that. And at the end of quarter 4, we have 4,000,000 loyal consumers, 2 in the U. S, 2 in Europe. So we are we've launched it in the U. S, we've accelerated that in Europe and we're just getting started. I think to your question, engaging with the consumer and driving higher loyalty is important. And what we are seeing early signs of is that our more loyal consumers, for example, are buying more. They're downloading the app, they're engaging better with the consumer. And where it really makes the difference is, as we've talked about diversification, we've talked about building more of a lifestyle orientation, owning the share of the closet. And we can show our assortments a lot better on the app. We can engage with the consumer a lot better. I'll give you an example. Last year, we did 32 hour collaboration with other wonderful brands. And I think late last year, we collaborated with New Balance. And in the same family, I have a millennial. She got to know about the collaboration because she's using the Levi's app. And before you know it, the product was sold out. So the entire question in the Sync family is how do you get the product, right? As a millennial, she was able to engage with the brand through the app and that led to a great experience. So I think, the millionaires and the younger consumers for them, this is going to be very important. And as we drive more of lifetime value with our loyal consumers globally, I think you'll see the growth in our business, which is something new, it's something different, it's something that we did 8 years ago, it's something that just started over the last 12 months. Super clear. Now we spent a lot of time talking about the digital channel and your store channel and the overall direct to consumer strategy of the business. But wholesale, of course, remains a very important channel for Levi's, albeit one that's rapidly evolving. Can you talk to the complexion of your wholesale business today? How does it break down between different types of partners? And where do you see this going? And I wonder if I could bring Chip in to kick off on this one. Well, so first of all, the wholesale business is still really, really important to us. So even though we are doubling down on DTC and really committed to accelerating growth in our DTC business, our wholesale business is so big. It is still and it's very, very profitable from an EBIT standpoint. So, I mentioned how the landscape is shifting so quickly as a result of the pandemic. It's accelerated what probably would have taken another 5 or 10 years to play out and compress it all into the last year or so. And we've shared multiple initiatives in the past on earnings calls and in other conferences and things like that. And what we're doing with our wholesale footprint, particularly here in the U. S. And I mentioned earlier, our traditional department store business, which used to be a really significant part of our total business, even in the 10 years that I've been here, is now down to less than 10% of our total business. We mapped our business. We built a new footprint of high caliber, high quality wholesale partners. We are premiumizing the brand in the marketplace with these customers. So we've really focused on premium, the premium customers. So, Nordstrom, as an example, has become a much more significant important part of our business, regional as well. And at the same time, we still have a value business. We haven't really talked about it, but we have Signature and Denison, which are 2 value brands. Signature is sold primarily in Walmart. It's also available on Amazon. It's at a price point from $19.99 to roughly $29.99 and Denizen is kind of in the $29.99 to $34.99 price point. And those brands are attractive to a broad swath of consumers. We play with those brands primarily in the mass channel. But as you know, we've launched Red Tab very, very successfully at Target. And Target is a winning customer today. We were in 140 doors successfully with both men's and women's for about the last 18 months or so. It's a relatively tight assortment, but at premium prices to the U. S. Wholesale average out the door and we're attracting new consumers. We're attracting new fans to Levi's. So that's been part of the remapping. We announced, I think about a quarter ago that in collaboration with Target, we're going to expand that to 500 doors by back to school this year. So, we've got a lot of different moving parts. I think the big takeaway though should be that as we emerge from the pandemic, wholesale will still be important to us, but it will look different. And we will be in healthier customers with a stronger proposition and winning with winning customers at the end of the day. And that's really what we're trying to do. In fact, a small fun fact, our women's business in our top 10 wholesale accounts globally was up high single digits in both the Q3 and Q4. So, wholesale still helps us. We're a very democratic brand and it still helps us reach into parts of the country and parts of the world where it might take us a real long time before we ever have our own retail store there. So it still plays an important role in our overall strategy. And as we think nearer term, Hamid, I wonder if you could jump in here. Would you expect a material wholesale rebound in 2020 one as partners reopen doors? Or will you be immediately more selective as Chip was talking about when you're reinitiating shipments, rebuilding the Levi's wholesale business after the pandemic? Yes. So other than probably the 1st 3 months and I think opportunistically in some cases, because we really wanted to ensure that we got paid, We were shipping to our wholesale businesses. So it was even during the during 2020, shipping was continuing. And we did pause in a few cases. So I think in the cases where we paused and we believe that the wholesale customer is financially sound, I think you see that rebound. But as Chip talked about, our view of wholesale generally is that it's a healthier business. It's a business that represents more of a lifestyle and a better gender mix than it has been in the past. And wherever we can, we are going to premiumize, whether it's with Nordstrom, whether it's the top end of our good category in Target, etcetera, etcetera. So I think in the U. S, it's definitely a healthy business. Outside the U. S, Europe, for example, 50% of the business is wholesale. That business has come back as our retail business came back. And I think once stores reopen in Europe, we will see the similar rebound. Let's stick on that. The only other thing I would say is one measurement is of the health of the business is our gross margin in wholesale. And our gross margin in wholesale over the last two quarters has improved year over year. We really tightened our discounting. We have made sure that where we could, we have taken price increases. For example, we took our price as the women business was on a roll, we took our prices in some of the women products up by $10 that has stuck. So I think this I think that will measure the health of the business along the term too. Sorry, Alex, didn't want to interject that. No, my apologies for interrupting. I did want to ask about AURs actually. And one of the areas where you've been really successful during the pandemic and indeed before that is raising AURs and reducing promotions. Can you talk us through the drivers of that? How related is it to the channel shift and how confident are you that those AUR gains can continue as the environment normalizes? Yes. So I would say we are focused on growing AURs. And the drivers of improving AUR performance are basically 2 or 3 buckets. 1, as you talked about, we have reduced discounting. We are leveraging AI to understand the breadth and depth of our markdowns and it's making a big difference. In the past, we would take our assortments and probably discounted 30%, 40%. Now we are saying that's probably not appropriate. We are also limiting the amount of discounts, so it's not spread across all assortments. We've taken price rises. And as Chip and I like to say, we're probably at the top of the second innings or the bottom of the third innings on pricing, because the way we think about pricing is you think about pricing for innovation, pricing for inflation and reducing markdowns. And we are looking at all three levers as we think about premiumizing the brand going forward. We've talked about a portfolio of assortments that better balance between good, better, best. And so if you think about the U. S, which is largely a good market, and you think about us growing mainline and growing our premium assortments with premium wholesalers, our AURs are going to grow and increase. So that's one way of looking at it. The second is, Alex, you talked about channel mix, DDC and growth internationally. Internationally is more of a better, best market. So as international grows, our gross margin improved and ARs obviously improved. And then as direct to consumer growth, that also impacts AURs. And so I think we have a couple of levers that will allow us to grow AURs longer term. Chip, I'd like to bring you here in here on the pricing discussion as well. E vaporizer operates across a range of price points from value to premium, brand positioning differs a little bit by geography. You touched on this a little bit when you talked about the different products you have in different channels. But I wanted to ask you, are you happy with the segmentation today or does this need to change at all? And is the way that you segment the brand in this omnichannel environment different to how you would have done it historically? Chip, I think you're on mute there. I am, I'm sorry. I in a very oversimplified way, the Levi's brand, Levi's red tab is segmented good, better, best. Tier 3 being good, Tier 2 being better, Tier 1 being best. Mark gave an example of Tier 1 product Japanese salvage that we're selling in the store in Palo Alto with $188 And frankly, we're not seeing a lot of resistance to it. So, I do believe we have we continue to have opportunities to premiumize the brand around the world to get higher AURs to trade consumers up to higher quality product. As you look around the world, our business is different. The U. S. Skews very heavily to Tier 3. That's a result of our long wholesale legacy, if you will. Tier 3 average out the door is around $40 By the way, that's about $8 better than it was 10 years ago when I joined. But we still think we've got significant opportunities as we've talked about elevating the brand in this marketplace given the strength of the brand and that's why we're so focused on premium distribution, why we're so focused on mainline. Internationally, we tend to be more Tier 2 and Tier 1 product. That's true broadly across Europe and in parts of Asia. And I'll talk about each in a moment. But we do have some international markets that are still predominantly Tier 3 markets because the consumer is more of a value consumer. Mexico is a good example. India is a good example where the AURs are more like U. S. In the $40 to $50 kind of price point. And again, the brand is very, very healthy in those markets and we're continuing to try to elevate there. In Europe, our business skews heavily towards Tier 2 and Tier 3 as I said. And that's consistent even in wholesale in Europe. Our wholesale proposition in Europe is a Tier 2 proposition at roughly the same price points as what we sell in our own mainline doors. And that really is a window to the future that I think is possible for Levi's as the brand continues to strengthen more on a global basis. And then we do have some markets where Tier 1 is an important part of the business. So parts of Japan are a good example of that. China more and more is becoming a much higher quality, higher price point business for us. And we're seeing in our owned and operated stores in China, a real opportunity to elevate to Tier 1 and we're even calling it Tier 1 plus where there the sky is almost a limit in terms of pricing power. But I guess the last thing I would say is, I'm a brand guy. The best evidence of pricing power is what is happening on the brand's gross margin. And we've been successfully growing our gross margin as you know. Some of that has been through mix, channel, geography. Some of that is also being driven just by pure pricing as Harmit said. And we continue to believe that we still have opportunities here and we will continue to look for ways to capitalize on those opportunities. Chip, you just took us around the world in terms of how the brand is positioned in different geographies and some of the different pricing structures. Hamid, I wonder if you can build on that international discussion. What other ways does the Levi's business differ internationally versus in the U. S? And perhaps linking this back to the video earlier, should we expect the new stores to look similar in across regions? Yes. So I think one key difference, Levi's versus a lot of our peers, not all, a lot of our peers is we have a global footprint. We have global infrastructure. The other difference is that China continues to be an opportunity for us. It's only 3% of our business. And so 20% of the apparel market is in China, I think that's huge. If you think about our business internationally, it's more direct to consumer than in the U. S. And so but only 55% of the business of our business is international. I think the apparel market 75% of the apparel market is outside the U. S. So we have clear opportunity in terms of growth from that perspective. To your question about stores, the 2,500 to 3,500 square feet model really came from Europe. Tailor shops were really worked in Europe and we brought it across the world. So Europe is a good example of the true potential of the brand. And as you know, pre pandemic, Europe was on a tear, right? They were growing 20% year over year for a while. And I think if you think of true potential, there is great potential to be able to execute across all cylinders, which is what is happening in Europe. And so as we the other thing to other difference internationally and the U. S. Is the mix of our store base. In the U. S, the bulk of our stores are outlets. We're growing our mainline. Outside the U. S, the bulk of our stores are mainline as against outlets. And so that helps position the brand. We have enough outlets. If you want to flush, we can. We have enough outlets because we make for most of our outlets. We have enough outlets that drive the value orientation for the value consumer. But the balance is really more mainline less outlet. So as you think about our stores, we talked about this year on a gross basis opening 80 stores, it's still primarily international. We're coming towards the end of our time here, but I think we've got time probably for 2 more questions. So one for Palmit, one for Chip. Palmit, let's start with you. Levi's has been really forward thinking in reimagining and repositioning its manufacturing and its supply chain operations to allow for greater speed and agility. Can you talk about key strategies and innovations here? And I'd be interested in your thinking on the blurring lines between factory distribution center store and what's next in that process? Yes, I mean, we have a wonderful supply chain. I'd say it's a competitive advantage for us. And we haven't talked sustainability, but it's as a group, we're really focused on sustainability. We've been recognized and continue to be recognized on it. But in terms of our strategies and I'll tell you what has happened and what where we headed. We talked about the FLX program, right, which is introducing lasers. It really helps when you need to manage inventory. It really helps when you need to change demand because you're finishing the product close to home. So that's one piece of it. The other thing that we have done is start shipping from store and that really allows us to convert our stores into mini DCs. We starting in Europe, we have digitized samples during the pandemic. Now our samples are largely digitized. We are working on trying to accelerate that around the world. As we think about our strategies going forward, if you think about our common assortments around the world, I think our common assortments are less than 10%. We are looking at least getting to 20% or 30%. That really helps us will really help supply chain, will really help us manage inventory, etcetera. We tend to buy in 2 halves. So if you think of a 12 month calendar, we're buying we have a 6 month buying season and another 6 month buying season. What we're trying to get to is a 4 season of buy. So you buy on a quarterly basis. That will again help us drive a lot more agility and importantly will allow us to meet consumer trends from that perspective. The other thing we're doing over the years, we had automated and digitized the demand planning side of the end to end planning. We're really focused on digitizing and automating the supply end. What that will lead to is better forecasting, better integration of supply and demand and obviously allow us to ensure we don't miss a sale, don't we ensure that we have the right sizes, etcetera. So I think there's a lot more work happening on that front. But I would like to just call out the fact that as an organization, we focus on sustainability, it's been a big piece and ESG is important to us. Super clear. Chet, last question for you. You've been vocal about the opportunity to grow in tops and women's and other underpenetrated categories. We've talked a little bit about that today, but I just wanted to focus in on it for these final questions. Can you help us to understand how much runway there is on this strategy and how do those next gen stores help? I guess the short answer, Alex, is we think there's enormous opportunity here. We're the number one brand in denim by a mile globally. We're number 1 in men's globally. We're number 1 in women's globally, but we're not number 1 in women's in many markets around the world. We happen to be number 1 globally because we have a global footprint and a global brand. But here in the U. S, we're number 3 with Levi's. And so, women's represents a significant opportunity for us. 3 years ago, it was 20% of our business. Today, it's a third of our business. It should be at least half. And that's what we're focused on. And we think there's clear opportunity for us to get there. And these next gen stores are helping. We're just shaping demand by assorting the store so that it's heavily skewed or it's at least skewed, not heavily skewed, but skewed towards women. And as you saw on the video, more than half of our sales out of that store right now are coming from women. Tops, we don't even buy market share on Topps because we're less than 1%. It's 20% of our total business, 21% I think of our total business. It was 10% a couple of years ago. It could easily be 30%, 40% of our business over the next couple of years. And so and that's still not scratching the surface in terms of what the full opportunity for tops is there. Outerwear is another big opportunity for us. And back to the theme of this conference, DTC gives us the ability to manage the brand, to present the brand to the consumer with that full head to toe lifestyle expression of the brand. And it will allow us to accelerate growth in these underpenetrated categories without compromising our position as leader in men's denim globally and without compromising our position as the number one denim brand in the world and one of the most iconic brands in any industry, I would add. Well, Chip, thank you for those comments and thank you for bringing the final answer back to the theme of this conference. I appreciate that. And of course, it's a theme, which really plays into an opportunity for Levi's. So I will wrap up the session by saying thank you to Chip and Harmit for sharing your insights here. Thank you to Mark, Ida, Chris and the team for a great video. I thought it was a fun and differentiated way to kick off the last session of the day and of course also thought provoking. And given this is the last section, I wanted to thank everyone in the audience who've joined us for this hour and for all the other sessions throughout the day. We very much appreciate you joining us, and we hope you found the day as interesting, as informative as I did. Please feel free to reach out to the team with any questions, feedback, comments. We'd really love to hear from you all and hear your thoughts. So thank you again to Levi. Thank you to the rest of our presenters. Thank you to the audience, And we look forward to hearing from you all soon. Thanks, Alex and team. Thank you.