Levi Strauss & Co. will cut 500 jobs in the second stage of its global productivity initiative and transfer the responsibilities to Wipro Ltd. through a five-year outsourcing agreement.
This story first appeared in the November 12, 2014 issue of WWD. Subscribe Today.
The new round of cuts, part of a plan begun in March to effect annualized cost savings of between $175 million and $200 million, will result in about a 3 percent reduction in its corporate head count of about 16,000 and will be focused on management personnel, taking particular aim at “duplicative roles” and excess layers of management.
The first stage resulted in the elimination of about 800 jobs and annualized savings of between $75 million and $100 million, excluding charges. Levi’s didn’t attach a dollar figure to the savings it expects to realize from this round of reductions, although it did estimate it would pay Wipro about $143 million, a combination of fixed and variable charges, over the initial five-year term of the agreement for the information technology, finance, human resources, customer service and consumer relations services to be utilized beginning during Levi’s first quarter.
The San Francisco-based jeans and sportswear giant expects to incur charges of between $45 million and $55 million from the restructuring, most of which are expected to be taken in the fourth quarter of the current year, which ends later this month. The charges cover severance benefits, retention bonuses and consulting fees. Wipro will begin to provide services to Levi’s during the first quarter.
“Through our efforts this year, we’ve made great strides toward bringing our cost structure more in line with our revenue base,” said Harmit Singh, Levi’s chief financial officer. “We are making solid progress and I expect that the actions announced today will help simplify how we operate, improve our productivity levels, increase our agility and further reduce costs.”
Since joining Levi’s as chief executive officer just over three years ago, Chip Bergh has emphasized the need for the company to streamline its management structure and bring its expenses more in line with industry benchmark levels. In 2013, Levi’s operating margin — operating profit as a percentage of revenues — rose to 9.9 percent of its $4.68 billion in sales, up from 7.2 percent of its $4.61 billion in sales the prior year. By contrast, VF Corp. last year landed with an operating margin of 14.4 percent on sales of $11.42 billion.