Like most apparel retailers, Levi Strauss & Co.’s (LS&Co.) second quarter has been defined by the coronavirus pandemic and the economic fallout. The company slashed 15 percent of its global non-retail and non-manufacturing workforce and suffered a $364 million net loss for the quarter.
But there are glimmers of hope and opportunity as Levi’s finds its omnichannel grove and consumers return with a new set of values that resonate with timeless and enduring denim.
In the earnings call Tuesday, LS&Co. CEO and president Chip Bergh said the company is “cautiously optimistic” about the trends it is seeing at reopened stores and in its e-commerce business. The company has roughly 90 percent of its stores opened globally, and performance during the reopening phase has tracked better than expected.
Recovery will continue to rely heavily on e-commerce—which grew 25 percent for the quarter—and a hybrid of digital and physical retail.
With virtually all of its retail stores and most wholesale doors closed for the vast majority of the quarter, LS&Co. was forced to accelerate its e-commerce and omnichannel capabilities.
Some of these steps, Bergh said, have been in the works and others Levi’s quickly launched in response to consumer preferences.
During the brick-and-mortar closures, the company turned its stores into micro-fulfillment centers leveraging its ship-from-store capabilities to fulfill online orders and move through inventory.
In total, Bergh said 30 percent of Levi’s online demand was fulfilled by stores in the month of May, contributing to e-commerce growth of 79 percent that month. The company pushed forward with curbside pickup, too, which is now available at 80 percent of Levi’s stores.
For consumers who wanted a more hands-on approach to virtual shopping, Levi’s introduced a virtual concierge during the quarter, offering shoppers the chance to have one-one-one interactions with store employees from the comfort of home. Bergh said the company is seeing strong conversion rates through this channel.
Now that stores are reopening, the LS&Co. is adjusting this concierge concept by testing appointments in select stores. This allows consumers to “skip the line” and get immediate access into the store, and in the next few weeks the company will begin piloting same-day delivery for consumers.
All of this work, Bergh added, has continued into Q3 as the company rolls out the option to buy online, pick up in store at all of its U.S. locations in the coming months..
In order to be more agile and responsive to consumer demands, LS&Co. has experienced somewhat of a “digital transformation” during the quarter.
Bergh said the company is leveraging the use of data, analytics and machine learning in more aspects of its business, including applying a data-driven approach to determining optimal promotion levels.
During an e-commerce promotion event in Europe, he said the company was able to “amplify” revenues, units sold and profits four times the results from the previous year.
Artificial intelligence is also being used to enhance LS&Co.’s omnichannel operations.
The company is using AI in its U.S. stores to ensure it is “optimizing margins in fulfilling orders in the most efficient ways,” which Bergh said has been critical with the recent rollout of ship from store.
LS&Co.’s U.S. data for denim shows that current demand for jeans is flat, which is arguably positive as greater attention has been placed on loungewear and at-home fashion during the pandemic.
“Denim has maintained its share of apparel sales and it’s unchanged if we just look at the three-month period post-COVID versus the same three month period a year ago,” Bergh said, “That percentage hasn’t changed.”
The pandemic and subsequent economic crisis, however, are causing changes in consumer preferences. Consumers, Bergh said, will want value, which he pointed out does not necessarily mean consumers will trade down.
“The pandemic is convincing more and more people, especially young people, that it’s better to buy fewer, more versatile, higher-quality products of value—items that consumers can imagine wearing for years, like a Trucker jacket, before handing it down to their grandchildren,” he said.
As a result, value, sustainability and conscious consumption will be the pillars of Levi’s fall marketing campaign. Marketing efforts will center around WellThread, an expanded range of products made with cottonized hemp, including Levi’s popular jean fits, Trucker jackets and denim shirts.
The brand will also address the casualization of fashion with looser denim styles pulled from the ’80s and ’90s, and more relaxed tops.
Though Levi’s is a standing giant in the denim category, the recent slew of bankruptcies that have swept across the category, including Lucky Brand, True Religion and G-Star Raw’s retail unit, could bode well for the heritage brand’s market position.
“I am really confident we are going to build share through this,” Bergh said.
The company, he added, will be “aggressive in pursuing incremental and diverse distribution opportunities” with a focus on elevating Levi’s in premium doors and on expanding distribution in the value channel, where Bergh said the company has “significant opportunities to capture market share.”