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DTC continued to be a driver of growth for Levi Strauss through the holidays and start of 2023, as the apparel company posted another record in the segment that includes owned stores and ecommerce channels.
DTC now accounts for 42% of global revenues for the maker of Levi’s and Dockers, which is up three points from last year. Here are a few highlights for the results for the quarter ended Feb. 26
Globally, DTC revenue was up 16% year-over-year on a constant currency basis, posting a record. This outpaced overall revenue growth of 9%.
In the U.S., DTC posted a record, with 15% revenue growth in the Americas as a whole.
Ecommerce grew 14% on a constant currency basis.
Loyalty membership grew 40% to nearly 25 million members, who are spending more than other consumers.
“The investments we're making to elevate our consumers' digital experience and strengthen their digital connection to our brands are paying off,” CEO Chip Bergh told analysts on the company’s earnings call. “...We continue to expand the breadth of our offering online while improving the user experience..”
Levi’s shift to emphasize DTC puts the company in a position where “where we are in control of the brand and how we engage with the consumer and how we show up. It shows up in the business results.”
The growth comes as Levi’s is continuing to expand owned brick-and-mortar stores, opening five in the quarter in the U.S., and 25 globally.
At the same time, it is implementing the infrastructure to facilitate omnichannel commerce, with a new enterprise resource planning (ERP) system currently being deployed in the U.S. following activation in Mexico and Canada. The ERP’s benefits include increased data insights and simplification for operators, said CFO Harmit Singh.
“Especially as we grow ecommerce and we grow our direct-to-consumer business, this gives us the foundational base to actually accelerate automation and connect with the consumer a lot better,” Singh said.
The growth in direct sales comes as the company is facing the same headwinds from inflation and interest rates as the rest of retail. Yet owned channels and a strong loyalty program that keeps repeat customers spending are providing a lift, especially as wholesale is softening in the U.S. Brand equity is also strong, as Bergh said people are still seeking out Levi’s.
"We are now the outright leader in the men's and women's 18- to 30-year old jeans market after gaining one point of value share in the past 12 months and past three months and we continue to grow share in women's denim bottoms, closing the gap," Bergh said. "We are now knocking on the door being the number one brand in the U.S. That has not happened in my entire 11-and-a-half years at this company."
Yet Levi Strauss is also observing consumers beginning to move into two camps amid continued inflation: Bergh said there is softness in Levi’s value categories, but growth in brackets above that, which includes consumers that tend to be favorable for the owned channels, including ecommerce.
“There's definitely a bifurcation happening, where the lower end consumer is making hard choices and either trading down or just not buying denim,” Bergh said. “But that middle-income consumer, which is kind of the sweet spot for the Levi's brand, is doing well and is still buying denim, and that is driving the growth of the Levi's business, the growth of our DTC business and the strength that we are seeing in our direct-to-consumer business.”
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Campbell Soup Company CEO Mark Clouse offered thoughts on messaging amid inflationary shifts in consumer behavior.
After months of elevated inflation and interest rate hikes that have the potential to cool demand, consumers are showing more signs of shifting behavior.
It’s showing up in retail sales data, but there’s also evidence in the observations of the brands responsible for grocery store staples.
The latest example came this week from Campbell Soup Company. CEO Mark Clouse told analysts that the consumer continues to be “resilient” despite continued price increases on food, but found that “consumers are beginning to feel that pressure” as time goes on.
This shows up in the categories they are buying. Overall, Clouse said Campbell sees a shift toward shelf-stable items, and away from more expensive prepared foods.
There is also change in when they make purchases. People are buying more at the beginning of the month. That’s because they are stretching paychecks as long as possible.
These shifts change how the company is communicating with consumers.
Clouse said the changes in behavior are an opportunity to “focus on value within our messaging without necessarily having to chase pricing all the way down.”
“No question that it's important that we protect affordability and that we make that relevant in the categories that we're in," Clouse said. "But I also think there's a lot of ways to frame value in different ways, right?”
A meal cooked with condensed soup may be cheaper than picking up a frozen item or ordering out. Consumers just need a reminder. Even within Campbell’s own portfolio, the company can elevate brands that have more value now, even if they may not always get the limelight.
The open question is whether the shift in behavior will begin to show up in the results of the companies that have raised prices. Campbell’s overall net sales grew 5% for the quarter ended April 30, while gross profit margins held steady around 30%. But the category-level results were more uneven. U.S. soup sales declined 11%, though the company said that was owed to comparisons with the quarter when supply chains reopened a year ago and expressed confidence that the category is seeing a longer-term resurgence as more people cook at home following the pandemic. Snacks, which includes Goldfish and Pepperidge Farm, were up 12% And while net sales increased overall, the amount of products people are buying is declining. Volumes were down 7%.
These are trends happening across the grocery store. Campbell is continuing to compete. It is leading with iconic brands, and a host of different ways to consume them. It is following that up with innovation that makes the products stand out. Then, it is driving home messaging that shows consumers how to fit the products into their lives, and even their tightening spending plans.
Campbell Soup is more than 150 years old, and has seen plenty of difficult economic environments. It is also a different business today, and will continue to evolve. At the end of the day, continued execution is what’s required.
“If it's good food, people are going to buy it, especially if it's a great value,” Clouse said.