Why Levi’s Is Looking Beyond Denim

Levi’s could also be one of many oldest retail manufacturers, however for its subsequent chapter, it needs to look extra like its youthful opponents.

Few would dispute that the corporate, based by Levi Strauss in 1853, might use a refresh. Current style tendencies haven’t all the time been sort to denim manufacturers: analysts anticipate Levi’s to report a scant 1 p.c improve in gross sales when it releases monetary outcomes for 2023 on Thursday. Margins are slipping too, as wholesale retailers, which drive 60 p.c of the model’s income, slash costs to convey prospects again to shops.

It’s an enormous problem for Michelle Gass, the previous Kohl’s chief government who’s taking excessive job at Levi’s from longtime head Chip Bergh later this month in a rigorously orchestrated succession. The plan to drag Levi’s out of its stoop centres round steering extra gross sales to its personal web site and shops. By a minimum of 2027, the corporate needs 55 p.c of income to come back from direct-to-consumer channels (Thursday’s outcomes will present a standing examine on that venture; within the third quarter, DTC gross sales rose 13 p.c from a 12 months earlier, whereas wholesale fell 8 p.c).

What Levi’s sells is altering too. To persuade prospects — particularly youthful ones — to buy with the model instantly, it’s attempting to vary its notion as a go-to for denim and denim solely. Which means promoting extra shirts and clothes, in addition to attire from Past Yoga, the athleisure model it acquired for $400 million in 2021. It additionally means pivoting focus from promoting timeless classics, a few of which haven’t modified considerably in a long time, to speedy manufacturing of on-trend objects.

“We’re going to see within the subsequent coming months, how do you’re taking the long-lasting Levi’s denim and convey it into one other adjacency proper outdoors of denims,” mentioned Aaron Sorensen, chief behavioural scientist and head of enterprise transformation at administration consulting agency Lotis Blue Consulting. “That’s actually the place the model’s going to go, and the place they see alternatives.”

Selling a Way of life

By 2027, Levi’s needs objects like button-ups and graphic T-shirts to signify 25 p.c of general gross sales, up from 20 p.c in 2021. The intention is to duplicate the success Levi’s has had in areas like India, the place most shoppers purchase a high with each backside they buy.

However doing so would require adjustment. Levi’s has employed new distributors with higher experience in making tops and clothes to scale back the manufacturing cycle on these items to a 12 month timeline at most, which is able to make sure the model can extra shortly inventory and replenish shops with fashionable seasonal merchandise.

“Our go-to-market timeline, it’s too lengthy in the present day,” Gass mentioned on an earnings name final October. “It was constructed to serve a U.S. wholesale bottoms enterprise that may transfer lots slower than in the event you’re a direct-to-consumer international denim way of life enterprise.”

Stocking extra of those non-denim clothes may also be a key driver for Levi’s DTC enterprise, significantly in shops, the place they will function a differentiator from what’s accessible at their retail companions.

Shops have been a key contributor to the expansion of Levi’s DTC enterprise, mentioned Jim Duffy, managing director at funding financial institution Stifel. Levi’s has greater than 1,000 owned and operated shops, which accounted for 31 p.c of gross sales within the remaining quarter of 2022, whereas direct e-commerce made up 8 p.c. Levi’s opened 61 new shops within the first 9 months of 2023, and plans to open a minimum of 400 extra shops by 2027.

Levi’s efforts to refashion itself as a worthwhile DTC way of life model will largely come right down to the efficiency of its personal merchandise, mentioned Sorensen of Lotis Blue Consulting. The corporate owns different manufacturers, together with khaki’s vendor Dockers and activewear upstart Past Yoga, which contributes about $500 million in annual gross sales and are rising greater than 10 p.c 12 months over 12 months.

However Levi’s nonetheless has to show if it could possibly ramp up DTC gross sales, significantly in e-commerce, with out dragging down income.

“Cynics will probably be sitting there listening as to whether this narrative round transformational progress … goes to work, or if it’s an excessive amount of for the corporate to undertake,” Sorensen mentioned. “The query will probably be can Michelle and this management crew execute towards every little thing within the technique?”