Levi Strauss is stretching beyond wholesale in search for new customers

The shifts are altering the way Levi Strauss spends money and looks to connect with its customers.
The shifts are altering the way Levi Strauss spends money and looks to connect with its customers.

Summary

Levi Strauss is leaning into its stand-alone stores to glean insight into shifting consumer tastes, its latest effort to expand beyond its image as a jeans maker. Now, it is working to keep the momentum going

Levi Strauss is leaning into its stand-alone stores to glean insight into shifting consumer tastes, its latest effort to expand beyond its image as a jeans maker.

The plan is working, with nearly half of the company’s sales now coming from selling directly to shoppers.

Now, Levi Strauss is working to keep the momentum going.

For the 170-year-old brand, the shifts are significant and are altering the way Levi Strauss spends money and looks to connect with its customers. Levi Strauss plans to boost investment to give it clues on the next fashion craze, while trimming the range of products and colors it stocks.

The San Francisco-based company is also looking to speed up new product delivery, cutting by as much as half the current runway needed to bring products to consumers.

“It’s about rewiring the company," Chief Financial and Growth Officer Harmit Singh said.

Part of the recast for Levi Strauss is an ongoing evolution into a brand that primarily sells goods directly to consumers instead of through wholesale customers. The brand, which historically has been propped up by sales through wholesalers, in 2022 unveiled plans for the direct-to-consumer business to account for more than 55% of revenue by 2027. At 48% for the quarter ended Feb. 25, the company is close, but that timeline has been pushed out, likely by a couple of years, because of a slowdown last year on denim spending, Singh said. Revenue for the three-month period, at $1.56 billion, was down roughly 8% from a year earlier, primarily on a shift last year in wholesale orders.

The focus on selling directly to shoppers provides better insights on what they want, like casual wear and baggier jeans, and cuts out uncertainty as wholesale customers, mainly department stores such as Macy’s and Kohl’s, have suffered from sluggish sales and declining foot traffic in recent years.

For Levi’s, best known for its denim jackets and classic 501 and 511 jeans, it is also a way to show off new items as the brand expands its apparel lineup. The stores enable Levi’s to show a head-to-toe look and offer a more experiential shopping trip, where buyers can customize their jeans by adding options such as patches and paint, Singh said. The result for Levi’s, which for years primarily sold denim to men, is reaching younger customers as well as women, who now make up a third of the brand’s global shoppers. The company doesn’t disclose the figure for younger shoppers.

Moreover, selling goods directly to shoppers offers a way to test products before the successful ones end up with a wholesaler, Singh said. This was the case for Levi’s performance tech products, for instance, which were initially primarily introduced in its stores and are now expanding into wholesalers in the U.S. and potentially globally.

The move from Levi Strauss makes sense, analysts said. While Levi’s overall sales dropped or were flat in three of the last four quarters, the direct-to-consumer business has been a bright spot, up 8% for the three-month period ended Feb. 25. It comes as other retailers, such as Ralph Lauren, Canada Goose and Hoka seller Deckers Outdoor, are prioritizing selling directly to consumers.

The approach is a tradeoff, said Oliver Chen, head of global retail and luxury at TD Cowen. Retailers take on additional inventory risk and sink more capital into building and renting stores, but the upsides include potentially stronger margins, a closer connection to shoppers and more control over the brand, he said. Moreover, it’s an approach that works best when brands are culturally relevant first, according to Chen. Levi’s is among that level of brands, Chen said, noting as an example that it was singled out on Beyoncé’s new country album in a song titled “Levii’s Jeans."

Singh said the Beyoncé name drop was organic, but he expects it will boost sales. Levi Strauss has seen the effect before, after the pop star wore the brand’s shorts a handful of years ago while performing at the Coachella music festival. Shorts purchases “took off" after, so while “it’s early days," Singh said he expects a similar impact from the new song.

Levi Strauss is at the same time undergoing several additional changes. Like other retailers, it is slashing costs, cutting 10% to 15% of its global workforce as part of a turnaround plan expected to generate around $100 million in cost savings in fiscal 2024. It has also been working to find the right product mix beyond jeans, acquiring Beyond Yoga in 2021 while getting out of brands that aren’t working, such as its lower-priced Denizen brand and footwear business.

To keep shoppers interested in its products, Levi Strauss is investing in updating existing stores and opening new ones, with a goal to open at least 100 net doors in fiscal 2024. It is also devoting capital to its online business and the rewards program for loyal customers. The company invests between 3.5% to 4.5% of revenue on changes that will boost the direct-to-consumer business, such as store innovations and openings. That range will remain, but as that side of the business grows at a faster clip, Singh said the investment dollars will increase.

Levi Strauss is also improving its response to trends, according to the CFO. Historically, the time from forming a product idea to it being available for sale has been around 15 or 16 months, he said. Selling directly to consumers means quicker access to indications of what shoppers want, allowing the company to shave that timing down to between nine and 12 months.

Levi’s additionally is paring down inventory to make room for new products, or variations of existing ones. Like most brands, it hasn’t done a good job of cutting out products that aren’t working, the CFO said. He described a recent exercise showing the board of directors its classic 511 jeans in several different shades of black.

“As a consumer, if you look at those colors, you can’t tell the difference," he said. “So we said, ‘OK, we’ll reduce it.’"

Already, the company has eliminated around 15% of its unique product offerings; Levi Strauss doesn’t disclose this count, but Singh said “it’s a big number." The figure could rise to as high as 25%, the finance chief said. This will help with inventory management, because the company doesn’t have to buy as much, he said. It will also likely improve margins by cutting out those items that don’t sell as quickly, and so may require markdowns.

Even as Levi Strauss is adding new products to its lineup, like skirts and dresses, the company is going to stay disciplined on inventory, Singh said. “The mindset is: when you introduce something new, look at something you can take out."

Write to Jennifer Williams at jennifer.williams@wsj.com

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