Levi's Shifts to Direct Sales, Plans 100 Stores in 2024

Key Takeaway

• Levi Strauss shifts focus to direct-to-consumer sales, now nearly half of total sales, aiming for greater market responsiveness and consumer insight.
• Plans to streamline product offerings by up to 25%, enhancing efficiency and margins by reducing inventory complexity.
• Expanding retail footprint with 100 new stores in fiscal 2024 and investing in online platforms and customer experiences to attract a younger, more diverse demographic.

Direct-to-Consumer Strategy

Levi Strauss is intensifying its focus on selling directly to consumers, a move that now accounts for nearly half of the company's sales. This strategic pivot is part of Levi's broader effort to diversify its product offerings and respond more agilely to market trends. The company's Chief Financial and Growth Officer, Harmit Singh, emphasized the importance of this shift for gaining insights into consumer preferences, such as the growing demand for casual wear and baggier jeans. This direct sales approach also allows Levi's to bypass the uncertainties associated with wholesale customers, which have been facing challenges like sluggish sales and reduced foot traffic.

Streamlining Product Offerings

In its quest to stay ahead of fashion trends, Levi Strauss is planning to increase its investment in market research while simultaneously reducing the variety of products and colors it offers. This strategy aims to speed up the introduction of new products to the market, potentially cutting the current development time in half. Singh highlighted the company's efforts to "rewire" for efficiency, including paring down inventory to focus on more successful products. This approach has already led to a reduction of about 15% in unique product offerings, with the possibility of reaching a 25% cut. This inventory management is expected to improve margins by eliminating underperforming items that often result in markdowns.

Expanding and Innovating Retail Presence

Levi Strauss is not only refining its product range but also expanding its retail footprint and enhancing its online presence. The company plans to open at least 100 new stores in fiscal 2024, alongside investing in its online business and customer loyalty programs. These investments, which range from 3.5% to 4.5% of revenue, are geared towards supporting the growing direct-to-consumer business. Additionally, Levi's is leveraging its retail stores to offer a more experiential shopping experience, where customers can customize their purchases. This strategy has helped the brand attract a younger demographic and increase its appeal among female shoppers, who now constitute a third of its global customer base.

Navigating Challenges and Opportunities

Despite the promising direction of its direct-to-consumer business, Levi Strauss faces challenges, including a recent slowdown in denim spending that has pushed the timeline for its revenue goal. The company is also undergoing cost-cutting measures, including workforce reductions expected to save around $100 million in fiscal 2024. However, Levi's remains committed to innovation and responsiveness to consumer trends, as evidenced by its successful introduction of performance tech products and the expansion of its apparel lineup to include items like skirts and dresses. The brand's cultural relevance, underscored by a mention in Beyoncé's new country album, is seen as a potential sales booster, reflecting the power of organic endorsements.

Management Quotes

• Harmit Singh, Chief Financial and Growth Officer of Levi Strauss:

  "It’s about rewiring the company." "As a consumer, if you look at those colors, you can’t tell the difference. So we said, ‘OK, we’ll reduce it.’" "The mindset is: when you introduce something new, look at something you can take out."

Street Views

• Oliver Chen, TD Cowen (Neutral on Levi Strauss):

  "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... It’s an approach that works best when brands are culturally relevant first."