Levi's Opening 100 More Retail Stores As Its Wholesale Numbers Drop
Levi Strauss & Co. has been busy this year bucking the tide of retail closures, and said it will have opened a total of about 100 new U.S. locations by the end of 2019. The openings represent a retail thrust by the clothier as its wholesale business declines, including sales to struggling concepts such as department stores.
According to Levi's CEO Chip Bergh, the company's direct-to-consumer performance in the U.S. remains very strong, up 7% for the year, with e-commerce outlets and full price stores all growing.
When he joined Levi's eight years ago, U.S. wholesale was almost half of the company's entire global business, Bergh said during the company's most recent earnings call.
"Today, it's around 30% of the company's business, and this will continue to trend down as other parts of the business grow at a faster pace," Bergh said.
He said the company's U.S. strategy in the next few quarters will include testing smaller footprint stores.
"Growing our U.S. direct-to-consumer business allows us to move toward premiumizing the marketplace, and remains one of our important strategies to offset headwinds in U.S. wholesale by continuing to reduce our concentration in that channel."
In other words, the company is betting that consumers will continue to be willing to pay full price for jeans in Levi's stores, as opposed to picking them up at a discount in a non-specialty store.
Bergh blamed the overall softness in U.S. department stores and chains, primarily due to the well-known downward traffic trends in the sector, for the weakness in Levi's wholesale sales. In particular, he cited a large, financially distressed retailer that he did not name, possibly meaning Sears.
Despite the weakness in wholesale, Levi's did well during its most recent quarter. Third quarter net sales rose 4% year over year to $1.45B. Direct-to-consumer sales — including from the company's website and its physical stores — were up 10% worldwide.
In the Americas, net revenue dropped 3% because of declining wholesale, but that was offset partly by direct-to-consumer growth. Net revenue grew 14% in Europe and 9% in Asia.
The company also touched on its business in Asia during the call, in particular how protests have affected sales in Hong Kong. Chief Financial Officer Harmit Singh said business in China grew modestly and remains a huge opportunity, as it still represents only about 3% of total company revenues.
"Traditional wholesale, franchise and e-commerce each grew double digits," Singh said. "Most markets in the region grew. The strongest growth in Asia this quarter was in India, partially due to a seasonal change in shipments within the prior year.
"Hong Kong was a notable exception in the region," Singh said. "The ongoing protest there impacted traffic and caused some of our stores to close temporarily, costing the region a vital point of growth."