Following is the unofficial transcript of a CNBC interview with Levi Strauss & Co. (NYSE:LEVI) CFO Harmit Singh and The Estee Lauder Companies Inc (NYSE:EL) CFO Tracey Travis at CNBC’s @Work Summit, which took place today, Wednesday, October 13th. Video from the interview will be available at https://www.cnbc.com/work/.
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Interview with Levi Strauss CFO Harmit Singh And Estee Lauder Companies CFO Tracey Travis
COURTNEY REAGAN: Thank you very much Tyler. Appreciate you tossing this over to us and it's great to begin to have this conversation with both of you Tracey and Harmit. I'm just going to start with Tracey, you know, obviously there's a lot of discussion right now but all of the technology that is just influencing our lives in so many ways of course at home but also at work and even more so as we've been working through this pandemic. I can't imagine all of the requests that you get either from external or internal forces saying please look at this technology, please invest in this technology will help us either do our jobs better internally or serve the customers that are potentially externally so I guess it just boils down to a question and then Harmit I'd love for you to jump in, how do you possibly make the decisions on evaluating where to make your technology investments?
TRACEY TRAVIS: Oh, it's a great question, Courtney. You're absolutely right. We do get an awful lot of requests for investments in technology. Harmit and I have the pleasure of both managing finance and technology for our companies so, in one of the things that it's important for us at The Estee Lauder Companies is to make sure that our investments are very closely aligned to our strategy and our corporate strategy, and that's a process that we've gone through for the last several years. So, making sure that, you know, what we're investing in has enterprise value and also, you know, has a return on investment and we do business cases for our technology investments and again make sure that they are enabling the strategic direction of the company. Certainly, you know, one of the areas we've invested in for many years has been online but we've also invested in, you know, everything from digitizing some of our manufacturing operations and distribution and have had investments for the last few years in data and analytics as well so I mean all of those are very rigorous processes in terms of prioritization relative to our corporate strategy which is very future focused in terms of where we expect growth to come from and how we're going to enable that growth in technology is a key enabler across all of the pillars of our strategy.
REAGAN: Harmit, I would ask you the same question, how do you make the decisions about where to invest and, and how you actually measure that return on investment when in some cases that may be many, many years down the line before you see any return?
HARMIT SINGH: You know, very similar to Tracey what you spoke about, it has to start with the strategic choice and how it unfolds in unlocking the strategy of the company. I think if we think about our stakeholders whether it's the consumer, whether it's our employees or our customers, their experiences with brands like ours are digitizing and our job is to ensure that the experiences, you know, are taken to the next level. In terms of your question about, you know, how do you balance different investments and how do you look at ROI, you need to take a longer-term view. My belief is that if it's linked to strategy, it is sourced or resourced in a way that you have a business lead, you have a product lead, you have a technology lead, you have an AI person and it's a global orientation because companies like ours that are, you know, that have global scale can really unlock value if you're able to scale things after being tested fairly quickly so that we are providing a similar experience to our stakeholders around the world and measuring it. We have a very rigorous process in the company where we look at investments on a regular basis especially our technology investments and we learn from those investments what worked, what didn't work, and the things that need to be course corrected as we look at investments going forward. The other area that I think we're spending a lot of time is in the culture of the company. In the mindset of folks, you know, for example, we just finished our annual hackathon which for the first time we opened it across the company. It started as something that the technology team did and this year for the first time I said, let's open it and let's make it global. So, we had 35, you know, teams from 11 countries. We had designers, we had merchandise folks, we had technology folks and we picked up some great ideas that now we can take to market test and then scale. And I think culturally that's a big piece. Plus, upskilling, a lot of folks are afraid of, you know, some of the technological changes. I remember when I first talked about introducing robotics in the company, the first I think question that I got from folks was, will my job go away and I said, no. If we can do a great job testing it, importantly upskilling you for, you know, what's coming down the road, it will actually drive a lot of productivity and that's what we realized and, and now we are offering RPA as a service across the organization.
REAGAN: Very interesting. You know, Tracey, I know that obviously Estee Lauder like Levi's also works with wholesale and wholesale partnerships and so you go through brick and mortar in that way as well as some of your brands having their own locations but as we talk about digital and it seems like everything is online is tied to ecommerce but there still is obviously an argument to invest in brick and mortar. So when someone comes to you with an investment, how or an investment idea saying hey we need money for this area of the business versus this so maybe online versus brick and mortar if it's very clearly one or the other, understanding that sometimes they do work together. Does brick and mortar always now take a backseat to the, something that's going to help sell online?
TRAVIS: Not, no, I mean, we understand that brick and mortar is still a very, very important part of our company. One of the things that, you know, certainly has happened during this pandemic is we've seen an acceleration, you know, probably three to five year acceleration in terms of our online business across all forms of online, brand.com, retailer.com, third party platform, etc. So clearly during the last, you know, during this pandemic during the last 12 months, the priority has been very much online and adding capability to our online, our online channel and at the same time, trying to assess how brick and mortar would recover, where brick and mortar would recover and where we should be investing and where we should be disinvesting so that really, you know, is, and to Harmit’s point, in a global company which, you know, we're in more than 150 different countries, you know, that's quite, that's quite a task but we have you know great teams on the ground and again with the rigorous strategy process that we go through, it really allowed us to take a deep view of that and, and make some of those choices. So we are, you know, we have rationalized some of our brick and mortar but the remaining brick and mortar we're focused on driving productivity in brick and mortar and some of that has to do with, Courtney to your point, linking the brick and mortar experience with the online experience, you know, being able to order online and pick up in store. I mean that's a basic fundamental of omni that, you know, we, you know, that's very important for our consumers and the consumer really is driving the prioritization in terms of, of digital experiences and that's where we're seeing, we're seeing the return on investment.
SINGH: And just what Tracey—
SINGH: And building on what Tracey said, I think, you know, the consumer wants a seamless experience. He or she wants to be able to interact with us in our stores as well as on our website and so building an omni channel experience has been critical in fact during the pandemic, we continued to open new doors. We opened 100 doors last year and I think over 100 this year but to the point I think Tracey you made, we ensure we scaled up our investments in, you know, driving more of a digital experience. We pulled back on a few things but we actually spent more and the one thing that we realized as part of the, you know, during the pandemic, we would, the teams were able to do a lot more and a lot faster. We were able to test things and scale things at speeds we would have, you know, not said was, was possible pre the pandemic and I think it's, you know, really help companies like ours because I think we've been able to get a lot more agile and been able to deliver the promise that we've set out to the, to our consumers.
TRAVIS: Yeah, no, I, I would agree with you Harmit. We have added, you know, experiences online like virtual try-on. We've added beauty advisors online so one of the things that we recognized is, you know, our in-store experiences is so strong. I mean it's, it's fundamentally where we're the company has been focused for many, many years. Making sure that we're investing in online and having, you know, as much of a high touch experience online as we do offline was, was critically important again to make that, that consumer experience more seamless between online and offline. But we've seen a great return to brick and mortar in markets that, you know, where people feel more comfortable going out into brick and mortar and we are certainly looking forward to this upcoming holiday season. Wherever consumers want to shop, we will be prepared in terms of, in terms of brick and mortar or, or the online experience.
SINGH: And Courtney, I think, you know, supply chain is in the news, you know, we just talked about how that is a competitive advantage to us but one of the things that we were able to do during the pandemic again accelerating things that we were, that were in the woods, may have taken us a year, is start shipping from store. The other thing that we did is because legacy companies like us that have been around for a long time have some legacy processes and systems. We had distribution centers that were only sending, you know, fulfilling products to wholesale customers. We had different distribution center centers servicing the needs of our ecommerce consumers and what we were able to do is build, you know, take the ecommerce distribution on the West Coast, bring it in house and deliver what I call an omni channel experience. It definitely is beneficial to the consumer. It leads to inventory efficiencies and obviously low cost of service and I think things like that will make a big difference. Now we're scaling our ship from store around the world and we're setting up more omni channel distribution centers in Europe and other parts and I think that makes a big difference.
REAGAN: Absolutely and Tracey, I understand you guys are in a bit of a quiet period and can't talk to a lot of particulars with the supply chain but obviously in general, you are a global company as well. You're serving customers all over the world in your different channels so when it comes to investments in the supply chain, generally what is most important to Estee Lauder to be able to serve customers where they want to be met?
TRAVIS: Yeah, I mean, certainly capacity so we have been growing, you know, so, so fast over the last few years and even with during the pandemic. I mean we had a very strong fiscal ’21 which ended for us in, in June of this year. So, you know, so we're investing in capacity, we're investing in efficiency within our existing plant networks. We actually during this pandemic, you know, or building a new plant in Japan. We did some of the equipment testing virtually for that, for that plant so we're leveraging technology in ways that were unimaginable pre, pre pandemic. But capacity is certainly one, one of the areas that, you know, that we're, we're focused on, as well as making sure that we can serve our direct to consumer channel which is growing quite, you know, quite fast in, in the best way so we're investing in technology to make sure that we are providing service to consumers directly that, you know, that they expect in terms of the experience.
REAGAN: Harmit, I know that retail has often been criticized for not using all of the consumer data that was available in the most productive way. I think for many years, data exists but it was hard to analyze, people didn't know the patterns to look for or perhaps didn't have the right skills to do it. But now that there are so many options for technology to be infused in the retail business, I imagine it's unlocked the power of data but of course you also have to maintain privacy and, and make sure that all of those ethical concerns are in check to. I guess my question is can you talk a little bit about the investments that Levi has made to make sure that all of that data that comes in from the digital shopping footprint or otherwise of consumers is being leveraged across platforms and helping to grow the business and make that connection to the consumer?
SINGH: Yeah, it's a great question. Courtney thanks for asking it. You know, data is a huge unlock. When I joined the company, we probably had 11 or 12 data warehouses. We are now down to one. We've kind of consolidated data under one platform, number one. Number two, during the pandemic and as our direct to consumer business has been growing at a fast pace and it's important because, you know, leads to direct engagement with the consumer, we rolled out, we tested and rolled out a customer loyalty program and scaling it, we have about 6 million consumers and we're able to engage with the consumers directly. We're scaling up AI and machine learning because now we have the data, we're able to access the data, we're able to, you know, drive that to a mutual, between us and the consumers. The other piece that, you know, we're working on, I'm not sure if it's true for you, Tracey, but a lot of us, you know, have a, you know, use SCP as a platform and the SCP has now moved to an, on, on the cloud solution more akin to our business model which is higher direct to consumer, well balanced to wholesale the platforms we all signed up for years ago is largely a wholesale platform. So, we've over the last 12 to 18 months have actually started upgrading our ERP, we just upgraded ERP in Mexico, and, and the big, you know, my big pitch as I talked about this with the board and our company was, I want this to be less of a technological evolution. I want this to be a way we unlock data and give the employees and our consumers access or insights that we've never used before and simplify the way of working. The other thing that we have done is we've for the first time, we have an enterprise governance expert, you know, for a company our size, you know, present in over 100 countries, every different affiliate had a different way of looking at data and by bringing someone in and establishing a more of a governance structure, we're simplifying that so that, you know, the data as clean as we continue to grow a business and we're using the data under the guidelines of privacy, you know, in a way that we can make this a competitive advantage so I'm sure, Tracey, you know, your company's doing something very similar but, you know, making sure the data is clean is so important as we go and complete all the digital transformation projects that we have currently lined up.
TRAVIS: Absolutely. I mean I, one of the things Courtney I think you can see from, from both of us is we focused an awful lot in the area of technology and data and data assessment and analysis and really it is an enabler for, for the company. And so making sure that as CFOs, we are prioritizing investments which is where you started this conversation to make sure that the company is investing appropriately in these areas which really are the areas that are, you know, an important enabler for, for growth for any consumer company going forward is, is a key role of a CFO these days.
REAGAN: And I would be remiss if we didn't talk a little bit more about sort of dribs and drabs that have come up when it comes to the talents and the skills that are required of today's retail employee because everyone has to have some level of technological expertise it seems but many of us went to college or business school a long time ago and they didn't teach those things, and myself included. We've had to have a lot of sort of on the job training so what kind of investments is Estee Lauder making, for example, in those areas to make sure that you're retaining employees that really have been with the company for a while or potentially have those skills to contribute but just don't know how to use the technology that could help them get the job done in a better way?
TRAVIS: Absolutely no it's a, it's a critically important area as we invest in systems technology, making sure that our talent knows how to use that technology is equally important especially so that we can get the benefit that we're expecting out of the technology. We have utilized a combination of external training to train a broad array of our people and we are in, have been developing internal training as well. We've had internal training for our finance teams, we've had internal training for our marketing teams where we've developed the programs so that our people understand, you know, basic, you know, ecommerce analytics 101, you know, in many other aspects of technology. Every time we roll out a new system, it's important that we have training and we are investing in more repetitive training versus classroom training which, you know, historically we had done, you know, more face to face training we use a combination of both now. And a few years ago, we stood up a center of excellence for training just recognizing with the amount of change we have, largely driven by technology, you know, the need to keep our employees up to, up to speed and up to date on, on everything so the rescaling process on an ongoing basis is, is a critically important area for us.
REAGAN: And we do have to go but Harmit, I want to give you the, the opportunity to answer that question as well here and then we'll have to wrap up.
SINGH: Sure. Courtney, thank you and just building on what Tracey, you talked about, you know, I love learning. You know, I have a line that says, I learned something today and I think during the pandemic, we've all learned a lot. We'll all learned to be a lot more empathetic, we've learned a lot to listen to our folks, etc. But going back to your question. Courtney. First, I'm also blessed to have a wonderful CIO and a technology team and a wonderful ERP team. The way we're thinking about upskilling and learning, we've just completed our second boot camp for machine learning and AI. We wanted to have about 40 people. When we opened it up with a demand of 600 people so we said, okay, we can't service it in, in one boot camp, let's have two. Then we're going to make that on a regular cycle every six months have a boot camp, upskill people and, you know, also ensure that people if they want to stay back and work in AI or machine learning in that group, they can, or we can come back and just get better at what they do so my RPA leads, two wonderful ladies who started this actually went to the boot camp and became better RPA experts as a result of it. The second thing that we are realizing and this is across digital transformation or any transformation, it is very important to have cross functional skills. It's very important to have people working horizontally versus working through silos and we have established capability centers, a global capability center. We established that in Bangalore, you know, during the pandemic, we have a capability center in Westlake and we're trying to think through whether we need a presence in Europe because I think what this does is it allows us to diversify talent. We're able to now ensure that we have a great gender balance between in the technical world between men and women and have people from around the world servicing a global brand and a global company like ours and things like that I think are making a big difference.
REAGAN: Wonderful. There are so many more topics and areas of detail we could go into but unfortunately, we're out of time so we're gonna have to have you back for another event. But Harmit and Tracey, thank you so much for being here with us today and Tyler I'm going to send it back over to you.