Levi’s Finds Opportunities in DTC, Strategic Price Cuts and Lower Rises
Despite inventory and wholesale challenges, Levi’s is gaining market share.
In Levi Strauss & Co.’s (LS&Co.) Q2 earnings call last week, CEO Chip Bergh said the Levi’s brand took market share leadership in women’s jeans for the “first time probably in decades,” with one share point of growth to 7 percent. Levi’s gained two market share points in men’s during the quarter to 22 percent or more than double the No. 2 brand.
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Strong demand is coming from the $100,000-plus income consumer, particularly in Levi’s mainline stores. This demand, Bergh added, is helping drive share gains in the premium end of the jeans category in the U.S. while maintaining share leadership with the target 18- to 30-year-old demographic.
Sales for Levi’s bottoms grew in the low single digits with women’s growth slightly outpacing men’s. Bergh noted that demand for lower-rise women’s jeans is growing. The brand also saw momentum with new dresses, cargos and overalls.
Making improvements
Bruised by higher inflation and a U.S. distribution center inventory backlog resulting in out-of-stocks and fewer new products, Levi’s reported that wholesale sales decreased by 22 percent during the three months ended May 28. U.S. wholesale represents less than 30 percent of the denim giant’s total revenues, down from 40 percent a decade ago.
Though Levi’s growing DTC business and strong wholesale growth in Asia and Latin America is offsetting U.S. wholesale sales, Bergh said the company is taking steps to reset the wholesale business and remain competitive. Specifically, LS&CO. is cutting prices on some Red Tab Tier 3 wholesale products. Bergh said are these items are the “most price elastic and where the price gap versus competition widened too far,” meaning that adjusting prices will be key to restoring growth.
Don’t expect to see price reductions in other parts of the business. Bergh said Levi’s will not lower prices at U.S. mainline stores, “nor the vast majority of our U.S. wholesale assortment including the 501 and women’s fashion fits, which are all less price sensitive.” International businesses will not see price cuts either, as Bergh said Levi’s sees strong pricing power.
Inventory levels are also improving. Order fill rates are “now nearly back to historical levels,” which will allow Levi’s to deliver this month new products for the key back-to-school and holiday seasons, he said.
Healthy businesses
Levi’s global DTC business saw strong double-digit growth in Q2, boosted by positive comp sales and traffic growth across company-operated stores in all geographic segments. Bergh said the U.S. DTC segment saw strength in flagship and tourist destinations.
Supported by a new chief digital officer, e-commerce grew 21 percent in Q2 thanks in part to higher traffic, better conversion and an expanded offering online.
A new state-of-the-art Kentucky digital fulfillment center serving the East Coast will begin shipping this month. “This completes bringing our U.S. e-commerce business in-house, which will drive more agility and inventory positioning, reducing lead times, improving customer satisfaction and accelerating digital margin expansion over time,” Bergh said.
