Levi's posts record DTC revenue, sees consumer 'bifurcation'

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.”