Recent spate of retail bankruptcies is just the ‘tip of the iceberg’, says Levi Strauss boss


Levi seeks to capitalize on industry turmoil that results in years of change in months

Content of the article

A wave of retail bankruptcies is just the ‘tip of the iceberg’, chief executive Levi Strauss has warned, as the fashion company seeks to capitalize on the industry turmoil that is taking hold. result in years of change in a matter of months.

Advertisement 2

Content of the article

Speaking days after two of Levi’s denim competitors, Lucky Brand and the US arm of G-Star Raw, filed for Chapter 11 protection, Chip Bergh said: “The list (of recent failures ) is already long enough and I think it will get longer. longer.”

“What happened because of an impact on health and the economy is obviously devastating. But our whole attitude about it has been that the crisis creates an opportunity,” he added.

Content of the article

Levi himself has had a tough time during the pandemic. Its second quarter was the weakest in at least two decades, with net revenues down 62% from the same period last year.

With the company’s balance sheet in better shape than its struggling counterparts, with $1.5 billion in cash, Wall Street needs to be convinced it will emerge a winner from the crisis. Shares of jeans maker 501 have fallen 27% since their IPO on the New York Stock Exchange last year.

Advertisement 3

Content of the article

  1. A food court in a Calgary mall.

    “A renaissance is underway”: Can a revolution in the food court save the mall?

  2. Rent collections were as low as 20% in April for Oxford Properties, which co-owns Toronto's high-profile Yorkdale shopping centre.

    Here’s what it looks like when Canadian retailers file for creditor protection

  3. DavidsTea said it would reduce stores as it restructures.

    DavidsTea seeks protection from creditors as it closes stores and refocuses on online and wholesale sales

“There are reasons to say that in a stronger market, with fewer competitors, Levi could do well, but market share will not automatically transfer,” said Neil Saunders, general manager of retail at GlobalData.

Levi is far from the only one trying to make the most of the upheaval. Jay Schottenstein, executive chairman of American Eagle Outfitters, said recently that the company is planning “very aggressive campaigns” to grab a bigger slice of the fragmented denim business.

Advertisement 4

Content of the article

The crisis creates an opportunity

Chip Bergh

A resurgence of the coronavirus in the United States threatens to further disrupt the sector. The vast majority of the nearly 1,000 Levi’s stores operated by the company are open, but Bergh said he was “almost certain” the company would close some outlets again in the hardest hit areas if the cases continued to rise.

“What makes it so difficult is that you don’t know what’s around the next corner,” he added. “A lot of it is beyond our control – how long or if there’s a second wave, when a vaccine is going to come.”

The 62-year-old still has to make some big calls for the future. Clothing retailers and brands have to order inventory months in advance, which means they have to try to forecast demand for the Christmas shopping season right around now.

Advertisement 5

Content of the article

Bergh said he would rather have too little merchandise than be stuck with unsold goods. “I prefer to have a bit of a shortage and maintain our premium positioning. Marking up a pair of Levi’s for $14 USD to sell at (discount chains) Ross or TJ Maxx just isn’t good branding.

He acknowledged that the conservative approach risked losing sales. “We can leave money on the table. But if the demand turns out to be higher than expected, we will do our best to accommodate it. »

“Our business is not as seasonal as many clothing brands,” he added.

The Levi's label is seen on hanging pants at a Levi Strauss store in New York, United States, March 19, 2019.
The Levi’s label is seen on hanging pants at a Levi Strauss store in New York, United States, March 19, 2019. Photo by Brendan McDermid/Reuters files

Although the work-from-home boom has boosted demand for casual wear, jeans have not proven as popular as sweatpants during the lockdown. Denim fell sharply, alongside the broader apparel category, and U.S. clothing store sales fell 23% in June from a year ago.

Advertising 6

Content of the article

“Not many people wear denim around the house,” Sanders said. “It’s a fashionable fabric, but it doesn’t look very good. It’s quite rigid. »

Bergh sought to reshape that perception during his nine years in office, revamping Levi’s lineup with softer, stretchier options. “Denim is damn comfortable,” he said.

He said while the forced closure of Levi and third-party outlets through which it generated about 56% of net sales last year had hit the business, second-quarter e-commerce sales rose by one. quarter compared to the previous year.

Rivals’ bankruptcies, he said, were caused largely by excessive leverage – not an underlying lack of customer demand for the jeans.

“It’s a payback for companies with high debt,” he said, adding that he saw a particular opportunity in the women’s sector. “Most women’s specialty denim brands are relatively small and may not have the financial wherewithal to get by.”

Advertising 7

Content of the article

Los Angeles-based Lucky Brand Dungarees has announced that it has filed for Chapter 11 bankruptcy, with the company millions of dollars in debt.
Los Angeles-based Lucky Brand Dungarees has announced that it has filed for Chapter 11 bankruptcy, with the company millions of dollars in debt. Photo by Justin Sullivan/Getty Images Files

Levi has long branched out beyond men’s jeans, including into tops and accessories, but he recently made an unexpected diversification: face masks, styled on his bandana.

“Our original goal was to make masks for our employees, but we realized there was a business opportunity here. So we’re in the mask business,” Bergh said, adding that Levi’s face coverings were the top sellers on Amazon.

Levi is making new changes to his fashion lineup, including looser styles for fall, although he was planning this before the pandemic. “Lower cuts and cuts are all the rage right now – classic 80s and 90s style.” The San Francisco company, which has long positioned itself as a champion of sustainable development, also plans to deploy “cottonized” hemp, an alternative to cotton.

Advertising 8

Content of the article

“The days of fast fashion are over,” Bergh said. “We were already seeing it with Gen-Z, but (the trend) is going to become mainstream.”

The era of fast fashion is over

Chip Bergh

Bergh said Levi’s value brands, Signature and Denizen, would help protect the company if consumers cut back on spending, though he said people still pay for quality. “We took a 3% price increase in the US in January, and it was passed on.”

Levi himself keeps tight control over spending. The company said this month it would cut about 700 jobs from the company to save $100 million a year. Along with other retailers, the company has also sought rent relief from landlords.

“Most understand the situation and are inclined to provide some relief, but the degree varies.” As shops reopen after closing, he calls on landlords to be less rigid with rental terms and to tie rents to tenants’ financial performance.

“What is not yet clear is the broader commercial real estate fallout” from the pandemic, he added. “This impact has still not been fully digested by the market.”

About 70% of recent visitors to had never visited the site before, he noted. “I think you’re going to see consumers being very cautious about going back to (physical) stores.”

“What would have happened over five to ten years was compressed into six months.”

© 2020 The Financial Times Ltd.



Postmedia is committed to maintaining a lively yet civil discussion forum and encourages all readers to share their views on our articles. Comments can take up to an hour to be moderated before appearing on the site. We ask that you keep your comments relevant and respectful. We have enabled email notifications. You will now receive an email if you receive a reply to your comment, if there is an update to a comment thread you follow, or if a user follows you comments. Visit our Community Rules for more information and details on how to adjust your E-mail settings.


About Author

Comments are closed.