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Levi’s Bets on DTC; Won’t Scale Back Photo Shoots

Levi Strauss & Co. (LS&Co.) reported a boost in direct-to-consumer (DTC) and international sales in its first-quarter earnings call last week. 

First-quarter revenues rose 6 percent to $1.7 billion. The company’s “record-breaking” DTC revenue made up 42 percent of global turnover. Its international business grew 11 percent in constant currency, accounting for 56 percent of total revenues.

“Our performance this quarter clearly demonstrates our strategies are working, driven by the strength of our brands, the growth of our direct-to-consumer business and the benefits of a globally diversified business model,” said Chip Bergh, LS&Co. president and CEO. 

Harmit Singh, LS&Co. chief financial and growth officer, added that for the full year LS&Co. expects nearly 60 percent of Levi’s brand revenue coming from international and DTC to account for mid-40 percent range of its total business.

“Our DTC channel and international businesses are both fast growing with tremendous opportunity given our under-penetration in these categories and importantly our high gross margin businesses,” he said.

Digital focus

While the company opened 25 Levi’s brand stores globally including five in the U.S in Q1, investments to enhance the digital experience are paying off. 

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“Even with consumers returning to our stores in large numbers, our e-commerce business grew 14 percent, driven by broad-based global growth and across all brands, including, which was up double digits,” Bergh said.

Membership in Levi’s Red Tab loyalty program is also up almost 40 percent in Q1 to nearly 25 million members. Bergh said the brand sees higher spend among loyalty members. 

Levi’s digital strategy has not been smooth sailing, however. The company recently received backlash for its plan to test AI-generated models on its e-commerce sites to improve diversity and inclusive representation. Comments on Twitter and Instagram urged Levi’s to instead support diversity by hiring and paying diverse models. 

Levi’s responded by saying the pilot is not a “means to advance diversity or as a substitute for the real action that must be taken to deliver on our diversity, equity and inclusion goals and it should not have been portrayed as such.”

Rather, the company said AI can potentially augment its efforts by allowing it to quickly publish more images of products on a range of body types. Levi’s said it does not plan to scale back the number of photo shoots it stages each year.

Global stage

In Q1, Levi’s international wholesale business helped mitigate the impact of softer U.S. wholesale revenue, Bergh said. 

Europe, excluding Russia, saw revenues grow 6 percent with most markets growing including Levi’s largest—France, the U.K. and Germany—returning to growth. The three markets saw low-single-digit growth. Spain and Italy were up by double-digits. 

Asia revenues climbed 22 percent, driven by all markets other than China. India led the growth. The brand is seeing China bounce back in traffic since the zero Covid policy was lifted, however.

What’s new

Bergh said Levi’s achieved “share leadership in the U.S. amongst the key 18- to 30-year-old target consumer group” and it continued to grow share in women’s denim bottoms, “closing the gap to the number one position.” 

A “cadence of newness” supported efforts to gain market share. Bergh named wider legs, the shift from high to mid rises, and new fits like the women’s XL Balloon as growth drivers. Non-denim items like chinos and cargo are also up by low double-digits.

Meanwhile, its bread and butter continues to set records. Bergh said Levi’s men’s bottoms business delivered a record Q1, while women’s bottoms achieved its highest revenue of any quarter. 

One bottom is benefiting from special attention this year. Levi’s launched its largest coordinated global marketing campaign, “The Greatest Story Ever Worn,” for the 150th anniversary of the Levi’s 501 in February. Bergh said Q1 net revenues were up 25 percent on top of 50 percent growth last year and revenues for the 501 this year are expected to reach close to $800 million, which is nearly 70 percent higher than pre-pandemic on a reported basis.

“As we move through the year, we’re infusing energy and newness into our iconic 501 through new launches for him and her inspired by historical fits,” Bergh said. “We also have a robust lineup of collaborations planned like our recent drop with the iconic streetwear brand Stussy, which sold out in one hour and an exciting partnership with NewJeans, the popular K-Pop girl band furthering our ambition to engage younger consumers.”