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Levi’s Deploys Digital Sampling; Focuses on Core Inventory

Experience and new technology will play valuable roles in how Levi Strauss & Co. (LS&Co.) navigates business during the COVID-19 pandemic.

In Levi’s Q1 earnings call Tuesday, LS&Co. president and CEO Chip Bergh touted the brand’s heritage and resilience as factors that will help the brand come out on top during this uncertain time.

“We have something nobody else in this industry can claim—a company history of 167 years,” Bergh said. “We’ve seen it all the Great Depression, two world wars, earthquakes, fires, and yes, even the 1918 flu pandemic. Not only did we pull through all of these, we use crisis to galvanize a path forward, and we will do it again.”

Since mid-March, in response to the coronavirus pandemic, the company has temporarily closed all its doors, both company-operated and franchise, in the Americas and Europe, as well as most doors in Asia outside greater China, South Korea and Japan. Despite this, Q1 gross margin increased 110 basis points to 55.7 percent, the company’s highest quarterly gross margin in its recent history, reflecting the benefit of price increases, direct-to-consumer and international sales growth, and a reduction in sales to the off-price channel.

Moving forward, LS&Co. has a solid balance and an experienced leadership team on its side, Bergh said.

“No one can control the virus or even the economic fallout. But we can control how we react to the crisis,” he said. “I am very optimistic about our prospects for the future—both navigating through the crisis in the short-to-medium term and in the long-term recovery. And I believe we are well positioned, if not better position than most companies in our industry.”

Here, Bergh describes four factors that are already having a positive effect on business.

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Technology tryouts

Innovation will be part of Levi’s recovery plan. The brand’s F.L.X. technology, Bergh noted, will be an advantage during this time, as it be able to bring newness when stores reopen regardless of when that is.

The company is also leveraging digital tools throughout the organization and accelerating the rollout of new technology developed in its Eureka Innovation Lab, including photo-realistic 3D renderings of denim garments and samples.

“This allows us to digitize the sampling process, enabling us to sell to merchants from images, rather than requiring physical samples,” Bergh said.

LS&Co. used this technology in its most recent assortment meeting, which Bergh said would normally bring around 100 merchants marketers to its San Francisco headquarters from around the world, and is followed by cascading meetings over multiple weeks with regional and local counterparts.

“By leveraging this digital technology to hold the meeting virtually, we were able to engage everyone simultaneously and complete this process in one meeting, taking weeks out of our go-to-market cycle,” he said. “The feedback was that this may have been the best assortment meeting ever, and we may never go back to live meetings.”

This technology and others like it, Bergh added, will drive efficiency and speed to market, and reduce waste, while improving the company’s operations through and beyond the coronavirus pandemic.

Inventory watch

“We’ve aggressively cut costs before and we’re on it now,” Bergh said, adding that the company does not have its “head in the sand.”

This includes taking a strategic approach to inventory. The company has cut all unfulfilled purchase orders for the second half of the year. “We are trying to aggressively manage the second-half inventory in terms of inbound, just recognizing that all of our customers are going to have to work off this inventory from their stores being closed,” he said.

The good news, however, is more than 70 percent of the company’s inventory is core replenishment and it can carry over to the next season, Bergh said.

Staying connected

“We haven’t gone dark either,” Bergh said. “We’re investing in strengthening our bond with our fans during these moments of isolation.”

A mainstay on the festival circuit, Levi’s is filling the void left by the cancellation and postponement of music festivals this spring with a month-long virtual musical festival, the Instagram Live 501 concert series. “Each week night at 5:01 p.m. [PT], artists such as Snoop Dogg and Bret Young are performing live in their Levi’s connecting with our fans while they’re doing their part to stay home and curb the spread of the virus,” Bergh said.

Sentiments from these sessions have been positive, he added. “We’re finding more users re-viewing these live sessions every day. This is something that is authentic, truly something only Levi’s could do.”

The company is also replicating digital strategies that worked in China during lockdown, like providing online DIY tutorials to customize jeans.

Legacy factor

“We had a great first quarter,” Bergh said. “Our business was humming coming into the crisis, again, reaffirming the robust strategies that we are executing and the momentum we had prior to the crisis erupting globally. But beyond the strength of our business, and the underlying momentum, here is why I’m confident that we will emerge stronger on the other side: we have one of the world’s most iconic, most loved brands in Levi’s and consumers will come back to brands that they love and trust.”

Bergh is a proponent for finding opportunities in moments of crisis. During this time, he said the company will consider pulling back on underperforming franchise businesses, upgrading real estate locations, and finding new talent in a decimated job market.

“The crisis gives us an opportunity to not just renew the business, but to reset it for the future…We will play to our strengths, leveraging the strength of the brand, our connection with our fans and the digital capabilities and omnichannel capabilities that we’ve invested in over the last few years,” he said.