Levi’s NextGen store, Palo Alto, CA – Photo: Levi Strauss & Co.
Is Levi’s poised to become a consumer-direct powerhouse?
Is Levi Strauss about to do a Nike?
The denim brand has not announced it is ending its wholesale relationships with large numbers of retailers. It has, however, made clear that it sees a bigger opportunity to expand its business by selling its clothing directly to consumers.
Direct-to-consumer (DTC) sales represented about 40 percent of Levi’s total sales in 2020 and the company is looking to grow that to 60 percent this year, CEO Chip Bergh told CNBC.
Levi’s online sales grew 25 percent during the first three months of this year, representing 10 percent of the company’s total, Mr. Bergh told analysts on an earnings call yesterday.
The brand’s DTC also includes company-operated outlets and other stores. Levi’s has focused on expanding and improving its omnichannel capabilities. The company rolled out ship-from-store, associate ordering and two-day shipping last year in the U.S. and is now taking those services global.
The denim giant is looking for more space to grow and plans to add 40 stores and 200 outlet locations across the U.S. Mr. Bergh said that high commercial vacancy rates provide the company with opportunities to find space at favorable prices.
Creating better experiences in stores and online is critical to Levi’s consumer-direct push.
“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,” Mr. Bergh told analysts. “We’re just scratching the surface as these omni-capabilities scale, they [are] becoming increasingly more meaningful.”
Levi’s use of artificial intelligence technology is helping to “accelerate” its digital transformation, according to its CEO.
“A new product recommendation engine on levi.com now personalizes the individual experience online based on consumer profiles and browsing and purchase patterns showing increases in revenue and conversion,” he said.
Levi’s loyalty program membership grew 35 percent during the first quarter to more than five million members. Mr. Bergh said that revenues coming from Levi’s mobile app has exceeded internal expectations and shown month-over-month growth.
“We are reaching a younger consumer who is engaging with us more times per month and longer per visit,” he said. “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.”
- Levi Strauss & Co. Reports First-Quarter 2021 Financial Results – Levi Strauss & Co.
- Levi Strauss & Co (LEVI) CEO Chip Bergh on Q1 2021 Results – Earnings Call Transcript – Seeking Alpha
- Levi Strauss wants to capitalize on commercial vacancies as it expands footprint, CEO says – CNBC
- Nike says goodbye to more longtime wholesale partners – RetailWire
Discussion Questions
DISCUSSION QUESTIONS: What do you see as the challenges and opportunities facing Levi Strauss as it seeks to expand its consumer-direct business? Are companies such as Nike and Levi’s outliers or do you expect to see an increasing number of brands going direct to consumers and around wholesale middlemen?
Poll
BrainTrust
Gene Detroyer
Professor, International Business, Guizhou University of Finance & Economics and University of Sanya, China.
Rachelle King
Retail Industry Thought Leader
I believe Levi’s has the brand gravitas, technological capability and leadership to pull this off. Reducing wholesale distribution may hurt sales in the short run, but the opportunity for Levi’s to take back control of their brand, distribution, and forge even stronger direct relationships with consumers is worth it. I can see Levi’s becoming more of a Lululemon. And while Levi’s and Nike can pull this off, not every brand has the ability to do this – nor should they necessarily even try. Wholesale still has its place.
I don’t think it’s any small coincidence that the “younger consumer” is mentioned twice in this narrative. This is clearly a plan aimed at evolving the business for future shopping and buying. And happily, that includes many more physical locations. Seems like “and” is the more operative word, rather than “or” when it comes to managing how brands reach consumers.
Levi’s follows the very successful Nike playbook of taking more direct ownership of their brand, experience, marketing, and interactions with their loyal customers. There are clear value propositions in engaging directly with your loyal customer base, and this has become a necessary investment in today’s changing retail marketplace.
By removing some of the dependencies on the wholesale model, Levi’s, Nike, and many other brands to follow will have a laser focus on the customer engagement model, driving outstanding experience across physical and digital channels, and have greater control of the branding and messaging.
The major challenges and investments will certainly be on the execution side. By going DTC, critical investments will need to be made in the supply chain, digital marketing, social media, physical stores/showrooms, and laser-focused on the customer.
LIke Nike, Levi’s has the brand cachet (amazing how they have maintained this as trendier jeans brands have crashed and burned) to build a robust direct business. They are also making the right investments to be able to scale direct. Unfortunately, there are just not any apparel retailer brands that are “must shop” anymore so brands like Levi’s are taking it upon themselves to own the narrative. Smart. Other brands will be doing this as well.
My partner Rich will remember this better than I do because he ran a department store in the ’70s, but there was a time when Levi’s were scarce. Demand was high and retailers were scrambling to get them wherever they could. Today, Levi’s jeans are like popcorn, you can find them everywhere.
It’s completely understandable that the company wants to regain control. Have you seen a Levi’s display at Kohl’s on a busy day? It’s obliterated, who wants that for their brand? On the other hand, I am happy to see that Levi’s is expanding sales beyond online. Having worked for The Gap during its Levi’s days, I know how many styles and sizes a shopper has to try on before you find your perfect fit!
Levi’s (and Nike) are training the consumer. They are building habits that will eliminate competition in the customer’s mind. The decisions will not revolve around which of several brands to buy. They will have established the “go-to” place. It will become an automatic habit for the customer. If they go Levi’s (or Nike) and are satisfied, there is no chance for the competition. That is clearly the objective.
Brands of these magnitudes can do it. They have the talent and resources to implement such a complete strategy. It will be extremely difficult for the competition to break this buying cycle.
Branding comes first, and execution comes second. This new DTC model bodes ill for department stores, where younger customers are downright scarce.
Talk about cred. And by the way, that’s what it takes: credibility brought on by authenticity brought on by years of excellence. So to answer the question, how many brands can say that? Very few, but those that have that type of cred are in a prime position to call their own shots in the DTC world: Patagonia, Yeti, Nike, Rapha, Wegmans and even Target now. Levi’s is going to do just fine this century, as long as they don’t open too many stores. Careful on that one!
Levi’s is fast following Nike here. Disintermediation is the future for iconic brands and Levi’s is positioned to “just do that.” The challenge they face is the durability of their product. The onus is on the design team to keep creating fresh product or for management to make smart acquisitions that increase the lifetime value of the Levi’s customer.
The benefits of going direct to consumer for a manufacturer are clear – building a direct relationship with consumers, increased margins and ability to manage the pipeline of product all suggest a highly valuable business proposition.
At the same time, the challenge will be for these manufacturers to create a product line broad enough and a customer experience distinctive enough to drive repeat traffic for consumers. One of the benefits of consolidating product lines at a larger retailer is that consumers frequent those retailers more often because of the breadth of product and the likelihood that they will find something that they like or need. A single product line store by definition will end up struggling to drive similar customer repetition. This could become a barrier to profitability and growth.
I just predicted this trend less than two weeks ago.
Levi’s is one of those rare brands that have the brand strength and loyalty to go down this route. They are being smart by covering online, owned stores and third-party stores so they can get the best coverage by using technology and their brand to build the connection with the consumer in store and online together. Not many brands have this strength, which makes this something for the few and not the many. It will not become a major trend and will not threaten the traditional retail operations. If weaker brands tried to do this, retailers may well make the decision to delist them and take away their distribution, which would be catastrophic for most brands. The retailer brand war has always been there. Now that retailers own brands and brands own retail, it is part of the dynamic of retailing and is good for the consumer and the industry.
Levi Strauss needs to regain control of its brand – from pricing to merchandising – and consumer-direct is a great way to do it. Risky? Maybe, but the alternative is a slow and inevitable downward spiral into the gaping maw of a commodified denim hell. So from a strategic point of view, not only is it a no-brainer, it may be the only real choice. But — and this is important — the Nike/Levi’s strategy isn’t a guarantee of success for either company and it isn’t a strategy that will work for every brand.
Perhaps an unexpected diamond in the rough of this pandemic has been forcing brands to think differently about how they engage with consumers. This includes a hard look at the value propositions from long-standing retail partners to advancing activation of DTC.
One thing I believe to be true about established and dare I say iconic brands like Levi’s, is that they are usually the best ones to deliver on a full brand experience. Literally, they can dedicate an entire store to bringing the experience to life whereas in most traditional retail environments, that’s simply impossible. Consumers want more authentic relationships with brands. Over this past year, connecting through DTC has been a rewarding experience for both consumers and brands. There is something to understand and cultivate there.
That being said, Levi’s is not a retailer. There is a reason why established retail has been around as long as they have: they know what they’re doing. As DTC continues to grow, CPG companies and brands that endeavor down this path will eventually need to balance the novelty of direct-to-consumer relationships with the functional and often less celebrated responsibility of retail management.
Of course DTC had growth – we were in lockdown and they offer a great customer experience across channels. This is exactly what shoppers wanted. A seamless shopping journey that was simple, engaging, insightful, and offered delight.
But I guarantee you that not all categories sold well. Denim jackets and jeans, definitely. Tops and dresses – probably not.
If shifting towards a DTC growth strategy means moving away from wholesale then that is not the right strategy and it is very short sighted. Levi’s is not Nike in terms of its success across multiple categories.
The challenge with a brand like Levi’s is that it is driven by specific categories – not everyone wants to wear head-to-toe Levi’s. It’s a brand that works well in a department store or a retailer that has adjacent brands for outfits. This is where many brands go wrong where they don’t value their adjacencies and competitive like-brands. They work together.
And let’s face it, the Canadian Tuxedo is not for everyone.
For those brands that have a strong appeal (e.g., Nike, Under Armour — and Levi’s), DTC is definitely a path that is likely to be pursued and successful. Done properly, bypassing the middleman accomplishes several goals: 1.) one-to-one relationship with customers (personalization); 2.) improved visibility and agility across the supply chain; and 3.) reduced costs.
The future of DTC is just gaining steam. Hang on tight, this rollercoaster is about to really start accelerating.
Every consumer has a product ladder in their head, within which they rank products and brands in their mind at each step. For each category, they can rarely place more than 3 brands per category on their ladder. On that ladder, Nike and Levy’s occupy the top step for their categories. Only such companies can dare to cut ties with retail partners and go the DTC route and still be successful.
Now we have to keep in mind that there are newer consumers getting into the system all the time, like we have the Gen Zs and Millennials who are digitally native and endorse brands that engage them on an experience. I can’t say for Levy’s, but Nike is surely a brand of choice for that generation as per a recent study.
I’d be cautious about the analogy to Nike: the latter has somewhat of a cult following, and while Levi’s is certainly popular, I don’t think it has — or will have — that level of devotion. The main problem is technology: Nike can claim to make not just a better shoe, but a different one; Levi’s can offer only the former. But of course that’s no small thing: Levi’s has an excellent reputation and commands a premium price, so the potential for DTC seems high … just not quite AS high.
Part of how Levi’s has remained relevant is by being so readily available to so many different retailers. Even arguably watering the brand down by selling lesser versions at places like Walmart and Target. But it has kept them relevant.
They may want to be careful here. Levi’s is good, but it isn’t Nike.