Levi Strauss tightens budget, stops footwear line, closes factory in Plock, Poland

Levi Strauss, owner of Levi’s, Dockers and Beyond Yoga, has reported a 7.8% revenue drop for Q1 2024, down to $1.56 billion (€1.44 billion), with losses of nearly $10 million. On Thursday however, a few hours after Michelle Gass, the group’s CEO since January, announced these results, Levi Strauss’s NYSE share price climbed to a 12-month high.

It is fair to say that ‘Project Fuel’, the plan deployed in January to improve the global denim giant’s efficiency, also via a significant workforce reduction, is reassuring the financial market. The additional details Gass provided on Wednesday seemed to justify this confidence.

Organisation-wise, Levi Strauss originally said it would reduce its total workforce by 15%, mainly by slashing middle-management jobs. Harmit Singh, the group’s CFO, in an interview with financial analysts, said that measures have already been taken in this direction, cutting the number of Levi Strauss employees worldwide by 12%.

Job cuts are indeed Project Fuel’s most remarkable feature, but the plan incorporates other radical policies too. Levi Strauss has in fact announced it will terminate the Denizen brand, notably present in Asia and other international markets, and also heralded another two high-impact policies.
Firstly, Levi’s has stopped its footwear business, regarded as too small and not relevant to its core business. Levi’s will be active in this category only via future collaborations.

Secondly, the group announced it is closing the factory in Plock, Poland, in order to “optimise the supply chain and make it more flexible while reducing costs.” The Plock plant has a long history with Levi Strauss. It opened in 1991, has had up to 1,000 employees, and could produce some 300,000 units a year. According to Polish media, the plant, which currently employs 650 people, will stop taking orders in June and will close in November.

Singh said that these changes are expected to “help unlock the true potential of the Levi’s brand on a global scale. These policies are putting us on track to achieve approximately $100 million in cost savings in 2024, and even more in 2025.”

The group indicated that its gross margin is improving, and that, besides tapping the advantages deriving from the reorganisation, it is starting to benefit from its work on retail distribution and the supply chain.

“Our performance this quarter is proof that the strategy of promoting our brands, operating as a direct-to-consumer business and diversifying our portfolio, is bearing fruit,” said Gass. She highlighted how well Levi Strauss performed in its direct-to-consumer (DTC) business, where revenue grew by 8% over Q1 2023, with online sales rising by 12% and sales of womenswear products across the entire direct retail network growing by 14%.

Boosting direct sales

Levi Strauss is keen boost its DTC performance, notably because the group is convinced this will enable it to improve profit margins. Levi Strauss is planning to open about one hundred new stores in 2024, including a new Levi’s flagship on the Champs-Elysées in Paris, due to be inaugurated in a fortnight.

“[The Champs-Elysées] store will offer Levi’s fans in France and around the world the best and most complete expression of our lifestyle denim range. The store we recently opened in one of the busiest shopping districts in Kyoto, Japan, allows customers to enjoy an immersive shopping experience. These shops, and others to come, showcase our commitment to delivering world-class shopping experiences in the world’s most popular destinations, while developing a scalable and profitable store portfolio,” said Gass.

Levi Strauss is planning to open most of these new stores in Asia, where the group believes the best opportunities lie. Together with e-tail, they are set to deliver half of Levi’s DTC revenue growth this year, which is forecast at around 10%.

The other half of Levi’s DTC revenue growth must therefore come from increased sales in the brand’s existing stores. How does Levi’s plan to achieve this?

First of all, by relying on its mainstays, according to Gass. “The jeans market in the USA was stable compared to the previous year, after several years of volatility. During this period, Levi’s gained two percentage points in its share of the men’s market, and one point in the women’s. We are also making progress in our key consumer segment, young people. In Q1, we gained market share among 18 to 30-year-olds. This growth is due to the innovation we bring to the category as well as to our ongoing commitment to keep the brand at the heart of denim culture,” said Gass. She indicated that sales for the 501 model grew by 23% compared to the same period a year earlier, and underlined the 40% jump in sales of loose-fit products, such as baggy jeans, much appreciated by younger consumers.

Expanding non-jeans range a challenge

Levi’s is keen to boost its DTC business chiefly because it enables the brand to sell other categories besides trousers, generating additional revenue. Levi’s is now putting the emphasis on its denim total looks as well as promoting other categories, which currently account for over 40% of the brand’s sales.

“We are the authority in jeans, and we are expanding our expertise to become an authority in denim, full stop. Categories like skirts and dresses are growing at three-digit rates. We are introducing new styles of denim blouses, tops, gilets, and more,” said Gass. “We are going ahead with a complete reboot of our tops business, and we are witnessing positive initial results, as growth in the tops category is higher than for the rest of the brand, with DTC revenue increasing by approximately 10%,” she added. Levi’s has also hired a vice-president in charge of tops design.

The group is now relying heavily on direct sales, both in-store and online, to better reach consumers. This means it faces significant logistical challenges, such as reducing out-of-stock on key products, and accelerating the product development cycle’s time-to-market. The group will also have to reassure its multibrand partners. While Levi Strauss’s wholesale business fell by 18% in Q1 2024, it still accounts for most of its revenue.

“Having a DTC-first mentality doesn’t mean focusing on the DTC business alone. The wholesale channel will continue to play a very important role in giving resonance to our brand, and reaching consumers where we couldn’t otherwise do it ourselves,” concluded Gass.