Can Levi’s get its mojo back?

Levi Strauss has warned it will take longer than planned to reach a $10bn revenue target after the higher cost of living put pressure on western consumers, as it presses ahead with hundreds more store openings and a plan to increase the brand’s appeal to women.

The retailer’s new chief executive, Michelle Gass, told the Financial Times that an existing target to hit $9bn to $10bn in revenues by 2027 would be pushed back. The Californian denim maker reported annual revenues of $6.2bn for the year to November 26 2023, while net income fell to $250mn, from $569mn the year before.

Gass, who joined Levi’s in 2023 as CEO-designate before taking the top job earlier this year, said the company would “do our homework again” before giving investors a more precise timeline because “since those [initial] goals were shared, there has been a lot of disruption in the industry”. 

Finance and growth chief Harmit Singh said: “In terms of the timing, we’ll announce it, probably, you know, about a year from now, but it will be pushed out a couple of years.”

He blamed largely flat revenues over the past 18 months partly to “the consumer being under pressure, especially in the western world”. While US consumers were “in a better place” than earlier this year — especially those earning more than $100,000 annually, who are Levi’s target customers — more cost-conscious US shoppers continued to be under pressure, he said.

“The consumer in Europe is probably a little bit more cautious,” he added, despite inflation coming down quicker than in the US, while “Asia and Latin America” were generally fine. 

Gass said she was confident “that we’re going to get there [$10bn], because I just see so many opportunities across the board”. 

Under Gass, Levi’s is accelerating a plan to sell its wares, which include the classic 501 jeans for about £90, through more of its own shops as well as more dresses and jumpsuits to women all over the world, and non-denim products.

Her predecessor, Chip Bergh, spent 12 years as chief executive implementing a turnaround of the once struggling brand and making it popular with consumers again. The company listed on the New York Stock Exchange in 2019 and set its original revenue target of $9bn to $10bn by 2027 three years later. It has a market capitalisation of about $8bn.

“The company was losing market share, it had really challenged [profit] margins, it was highly levered,” said Laurent Vasilescu, a managing director at BNP Paribas Exane. “Chip [Bergh] with Harmit [Singh] put processes in place to improve distribution, margins, pay down the debt and they were able to IPO. That would have never been the case 10 years prior.”

Vasilescu believes Levi’s $10bn sales mark is realistic. Many other companies and investors had to recalibrate their expectations after the global pandemic and the war in Ukraine, he added.

Gass, who previously ran US department store chain Kohl’s and was a senior executive at Starbucks, helping to expand the coffee chain internationally, said it was “a phenomenal opportunity to come in with the foundation as solid as it is”.

She said her priority was to “really rewire the entire business to now be a best in class, direct to consumer retailer” after predominantly selling through wholesalers for decades.  

The company, which has about 1,200 stores and around 1,200 franchise outlets, plans to open 500 to 600 more of its own shops in territories including Asia, Latin America and Europe in the next few years. It suspended its activities in Russia in 2022 and has since wound down operations in the country.

Gass insisted that wholesale partners were just as important to its global growth plan. “For me it’s not an either or,” she said. “There have been others who have been more declarative of things like ‘we’re going big on direct to consumer and pulling out [of wholesale]’. We see wholesale as an amplifier. They are going to reach consumers where we wouldn’t just be able to.”

The decision by sportswear giant Nike to focus on selling directly to consumers instead of through third-party stores such as Footlocker has backfired, alienating many of its third-party sellers.

Shares in Levi’s are about 10 per cent lower than when they first listed but have also gained almost 50 per cent over the past 12 months.

Gass also plans to win more women customers given they currently only account for about a third of sales. “It sounds so simple but if you’re going to really win with women, you need to win head to toe,” she said, adding that they want sales to achieve gender parity.

“Yes, women like to wear jeans, but they like to wear skirts, dresses. And as someone who wears these things, I was like, ‘where are these skirts?’ when I joined, and now you can find a lot more — we are just scratching the surface.” Gass also wants to sell more garments beyond jeans as shoppers increasingly opt for head-to-toe denim outfits.  

Levi’s, which owns activewear brand Beyond Yoga and chinos label Dockers, wants to increase operating margins from 10 per cent currently to 15 per cent over time.

The brand started life in 1853 when Levi Strauss, an immigrant from Bavaria, opened a dry goods company in San Francisco and together with tailor Jacob Davis created a product that became blue jeans. 

Levi jeans have long been a fashion icon, with the 501 jeans gracing the cover of Bruce Springsteen’s 1984 album Born In The USA and singer Beyoncé naming a song after the brand on her album this year.

Vasilescu added: “Denim, the fabric itself, is having a moment. All the trends are in its favour and Levi’s is one of the few brands that actually gets to embrace this style shift that happens every 10 years or so.”

Levi’s has sought to cultivate close relationships with celebrities and fashion influencers over the years in a bid to promote and sell some of its more premium clothes. On September 25 it is opening its fifth so-called Haus of Strauss space in the 17th century Libéral Bruant mansion in Paris’s Le Marais district. The 1,300 sq metre space will include a made-to-order service for jeans costing €595 ($665), a workshop and a showroom. Shopping is by appointment only: the spaces often act as private retail spaces for celebrities buying their own bespoke creations such as the band Kasabian for the Glastonbury music festival this year.