Levi scales omni-channel outside of US and is confident on Vaccine Economy prospects

By Derek du Preez

April 12, 2021

Audio version

6 min reading

The Vaccine Economy is giving hope to retailers globally, which have had to endure sustained store closures and suppressed consumer demand for months on end. And we are beginning to get a sense how some international retailers are framing their recovery, which is being spurred by growth in digital channels. 

Denim giant Levi Strauss is one such brand which has taken time during the pandemic to double down on its digital and omni-channel ambitions, recognising that COVID-19 will likely have cemented different buying behaviours for years to come. 

That being said, it hasn't been an easy year for the company. Revenues have been down, it has suffered huge losses and hundreds of jobs have been cut. However, CEO Chip Bergh believes the company is in a good position for the future, citing how it has adapted to the changes in the economy and is now rapidly scaling its omni-channel business outside of the US.

We reported recently how Levi is focused on structural improvements in its cost base to drive stronger EBIT margins, and so is reallocating resources to high ROI investment areas such as automation, AI and digitization. The company's latest results added some more detail to these plans. 

And whilst net revenue fell about 13% to $1.31 billion for the first quarter ending February 28th, this did beat analysts expectations and the company's share price rose in extended trading. 

Commenting on Levi's earnings and progress this year, CEO Chip Bergh says:

I'm very pleased with the pace of recovery in our business and our strong financial performance this quarter, particularly in light of a very strong pre-pandemic year ago base. The actions we've taken during the pandemic are having a positive impact on our results.

We exceeded our expectations across the board despite one third of our stores in Europe being closed. Our strategies of leading with our brands, acting with a Direct to Consumer [DTC] first mindset and continuing to diversify our business are working.

Bergh adds that confidence in the business is higher than it was just a few months ago, for a number of reasons - not least because of renewed consumer demand in the US and Asia. Bergh adds:

We're encouraged by the positive news of the progress of the vaccine rollout in many parts of the world. Consumer excitement and optimism is returning in ways it hasn't since well before the pandemic, and we're seeing a denim resurgence as more people are going out. 

Consumers are eager to shop the brands they trust and love while sticking to the more conscious consumption they embraced during the pandemic. These trends play to our strengths and are reflected in our strategies.

An omni-channel future

Levi notes that its direct-to-consumer strategy is continuing to take hold, aided by the acceleration of its omni-channel capabilities. The aim is to ensure that consumers can get Levi's product "wherever and whenever works for them". 

Levi's own e-commerce business grew 25% in the first quarter and increased to 10% of total company revenues. Bergh says: 

An increasing share of consumer demand continues to be fulfilled by omni-capabilities we've rolled out in the last year. These include shift from store, associate ordering, BOPIS [buy online, pick up in store], and 2-day shipping. We initially launched these in the U.S. and are now expanding them globally.

We recently saw our largest week of sales from associate ordering, a capability that helps ensure we don't miss a sale and caters to how younger consumers are shopping, behaviors we expect will stick beyond the pandemic. We're just scratching the surface. As these omni-capabilities scale, they are becoming increasingly more meaningful.

Bergh adds that Levi is continuing to adopt new AI tools to build on this DTC strategy and has rolled out a new product recommendation engine on Levi.com, which now personalizes the individual experience online based on consumer profiles, browsing and purchase patterns. This has already driven an increase in revenue and conversion, he adds.

The company's loyalty program and use of mobile app is also delivering results. Bergh says: 

Loyalty program membership increased by 35% in the last quarter to more than 5 million members globally and revenue contribution from our mobile app is exceeding expectations and continues to grow month-over-month. We are reaching a younger consumer who is engaging with us more times per month and longer per visit. We're using the app as a seamless connector for the online to off-line experience and are piloting new convenience-oriented, in-store features like contactless returns and self-checkout.

Growth

Levi's digital ecosystem grew 36% during the quarter and now comprises a 26% total of first quarter revenues, up from 16% a year ago. Bergh notes that the "opportunity in digital remains huge" and Levi is aiming for it to grow to a third of its total business. 

Harmit Singh, Levi CFO, also notes:

We have said that we could grow direct-to-consumer to around 60% of our total revenue over a period of time, so we feel good about it. And as that grows, we think our own e-commerce business doubles in size. And once our e-commerce business doubles in size, we think our own e-commerce business gets to the 12% EBIT margins that we're talking about. 

Having largely focused on the US to test out its latest digital investments, Levi is now scaling these into Europe - where direct-to-consumer is a popular way for consumers to shop. Singh adds: 

We've done a ton in the U.S. on omnichannel, BOPIS, I think you've talked about, think about loyalty, think about the app that we have launched, et cetera. We're in the process of scaling that now across Europe.

Ship from store is what we launched during the pandemic. It's across the U.S. and now markets in Europe are deploying it. For example, in the next month, Belgium, Netherlands, Spain, France, will all have ship from store. So we're really focused on expanding omnichannel globally. 

That's going to take some technology dollars. We've got that in our capital forecast. But where it really makes a big difference is the direct engagement with our consumer. Especially the younger consumer, and we think that really bodes well for the brand longer term.