China and women's clothes: How Levi's strategy won over Wall Street

New York(CNN Business) Levi Strauss racked up $5.6 billion in sales last year. But chief executive Chip Bergh has a mission to make Levi's a $10 billion brand one day.

To hit that ambitious target and match up against bigger rivals, Levi's needs a new playbook.

Levi's hopes tapping the public market will fund its efforts to expand in the United States and overseas, make new types of clothing and footwear and acquire hip brands.

The 165-year-old company that invented the blue jean re-entered the public market on Thursday. It was the first time the LEVI ticker was listed for trading on the New York Stock Exchange in 34 years.

Wall Street rewarded Levi (LEVI) by driving its stock up 32% on Thursday.

Why Wall Street is buzzing about Levi's

Levi's believes it has a path forward by moving beyond jeans.

"We have significant opportunity to grow by expanding beyond our core business," the company said in a regulatory filing last month. Levi's wants to "develop leading positions in categories outside of men's bottoms."

Pants still make up 68% of the company's sales, but they have been shrinking in recent years as sales of other clothing expand. Levi's wants to sell more shirts, sweatshirts, shoes and cold weather gear, and also double down on women's clothes. Women's sales have increased from 20% of Levi's business in 2015 to 29% last year. Levi's believes it has an opportunity grow even more with women.

"We have a vision of this brand becoming a head-to-toe lifestyle brand, competing in multiple categories," CEO Bergh told CNN's Richard Quest in an interview Thursday.

Levi's also hopes to grab a bigger piece of international markets, including China, India and Brazil. It believes it has a huge growth opportunity in China, which accounts for 20% of the global apparel market — but only 3% of Levi's revenue.

Higher costs

Levi's costs have been soaring. It ramped up its advertising spending by 24% last year, and also increased spending on new stores and technology.

Levi's needs sustained investments to build stores, increase marketing and grow its direct sales online. That's why it's going public.

"There's a price of admission to compete digitally," said Bill Lewis, director in the retail practice of consultancy AlixPartners.

Levi's is the jeans' market share leader in the United States, controlling 13.5% of the industry, according to Euromonitor International data.

But it competes against a host of industry-leading brands, retailers and fast-fashion players. Big rivals like Gap (GPS), American Eagle (AEO), H&M (HMRZF), Uniqlo (FRCOF) and Target (CBDY) are all public. VF Corp (VFC), which owns Wrangler & Lee jeans, plans to spin off those brands into a stand-alone company.

Levi's new life

Levi's will face huge challenges in its new life as a public company.

"This is not the finish line," Bergh said Thursday.

Despite Levi's transformation, it still gets some sales from troubled retailers like JCPenney (JCP) and Sears. If either retailer goes under, Levi's could take a small hit.

Fashion trends change quickly and boutique jean makers or new brands born online could pressure the company as well.

And Walmart (WMT) and Target (TGT) have been building out their own clothing brands, sometimes at the expense of their longtime partners. Last year, Target said it would end a popular line for Champion, leaving a huge hole for the brand to fill.

Levi's warned in filings that retailers growing their private label brands posed risk to the company.

Making progress

Levi's still has plenty more to do, but the company has already begun to revamp its business over the past few years to navigate disruption in the market.

The brand used to find growth mostly by selling to outside retailers. But many of the company's largest partners have shrunk or disappeared, forcing Levi's to adjust.

In response, Levi's transformed its traditional distribution model away from struggling department stores and expanded its business by opening new stores and tapping online growth.

Levi's direct sales at its more than 800 stores and its website — which are more profitable for the company than sales through retailers — now make up 35% of its annual revenue. And no single retailer accounts for more than 10% of Levi's sales. That means that Levi's probably won't crater if one of its retail partners suddenly goes belly up.

Levi's has also diversified the brands it sells to partners.

It has introduced lower-priced brands, Signature by Levi Strauss and Denizen, to reach Walmart and Target shoppers, while still improving premium lines at Nordstrom and Bloomingdale's. It built a strategy to sell on Amazon, too.

"They've done a very good of focusing on retail partners that are likely to survive the turmoil in the market," said Michelle Grant, head of retailing at Euromonitor International. "It's particularly important in the current retail landscape."