Levi's Lease Demonstrates Durability Among San Francisco's Consumer Brands
San Francisco has had its share of bad economic news lately, but in spite of a battering inflationary environment that has dampened discretionary spending, the city’s clutch of consumer brand headquarters is standing strong, at least for now.
Levi Strauss & Co.’s renewal this week of its lease at Levi Plaza is a prime example of the household names that appear poised to weather the storm without cutting down on their Bay Area office footprints, even as consumer sentiment remains depressed.
“Macroeconomic factors like waning consumer demand and absorbed spending pullback is probably going to have an impact on all of retail, and amongst the retail sectors, I think apparel is going to be one of the sectors that is going to get hit the hardest,” said Gautham Vadakkepatt, director of the Center for Retail Transformation and associate professor of marketing at the George Mason University School of Business.
But, Vadakkepatt noted that as retail struggles nationwide, investments and labor are going to be the areas companies will focus on to shore up the bottom line, with store closures also being a key cost-saving measure.
“I would think that underperforming stores will be heavily scrutinized, right? Because, once you can get opportunities to break the contract, and other things, that's a cost-saving that can occur. So investments, labor and then actual stores, would be the three domain areas that I would think where you will see cuts coming,” he said.
The 355K SF Levi Plaza renewal has been brewing over the past 18 months, when it was initially reported in 2021 that Levi Strauss and landlord Jamestown entered into an agreement to re-up the denim maker’s stay in San Francisco, though the terms of the deal were not finalized until this week.
And now that the deal is finally done, it is for 12 years, two more than Levi's previous lease. The two parties had reportedly been unable to come to an agreement on the rental rate.
Levi’s President and CEO Chip Bergh expressed bullishness on the brand’s performance in the coming months, despite underperforming over the past two quarters, attributed in part to growing return-to-work trends.
“Our business skews to men, men are going back into the office wearing jeans and we expect that denim is going to recover,” Bergh said.
However, in a sign of the times, Levi’s may also be planning to sublease 100K SF, according to the San Francisco Business Times. And other well-known brands with offices in the Bay Area have made changes that could impact their offices.
But The Gap doubled down on its headquarters at 2 Folsom St. in San Francisco earlier this year, executing a massive interior redesign to entice remote workers back into the office.
San Francisco-based retailers have shuttered offices in the city in recent years amid financial struggles, such as when Macy’s closed its tech offices in 2020, relocating its employees from 680 Folsom St. to corporate offices in New York and Atlanta, though the company did maintain its retail footprint within the city.
Still, Williams-Sonoma, another hometown brand, posted strong Q2 numbers, noting a strong pipeline for its commercial office product line, due to the flight-to-quality trend among office operators.
“And in our commercial office pipeline, we are encouraged to see the momentum continue as companies return to the office and workspaces are reimagined. To drive the B2B growth, we are focused on the continued development of our sales team and expansion of our contract-grade product assortment,” Williams-Sonoma President and CEO Laura Alber said in the company’s earnings call last quarter.