How Levi Strauss envisions its European logistics’ evolution
Levi Strauss & Co. (LS&Co.) is consistently growing at double-digit rates in Europe. In Q4 2021, the group recorded a 16% leap in sales, contributing to the group's overall annual revenue of €5.8 billion. For Q1 2022, the U.S. group, owner of Levi's, Dockers and Beyond Yoga, has reported a 13% increase in sales, which were worth $469 million. As well as growing steadily, Levi Strauss is also busy transforming its business model. Through its extensive monobrand store network and energetic e-tail activity, the group’s direct-to-consumer (DTC) sales are becoming increasingly significant.
In the quarter closed on February 28, the group’s DTC sales grew by 46%, mainly fuelled by a renewed rise in in-store traffic in many regions, especially thanks to tourists in resort areas, but also by the success of the Levi's app, intensifying the brand’s direct relationship with its customers.
In Europe, online sales did fall by 8% in Q1, but they had skyrocketed last year, growing by 84%. Online sales now account for 29% of total revenue in Europe, a region where 85% of the business is generated by western European nations. In order to respond to the increase in volumes and support the evolution of its business model, LS&Co. has laid the first stone of a new, 70,000-square-metre logistics centre in Dorsten, Germany, built on an old mining site.
The facility is being developed by LS&Co., the Delta Development Group and the city of Dorsten. It is set to become operational in April 2024, and has been designed to cater to the omni-channel model adopted by the group. Diana Dimitian, managing director of Levi Strauss for Southern Europe, and Torsten Müller, in charge of distribution and logistics for the European, Asian, Middle East and African markets, spoke to FashionNetwork.com about the challenges facing the new centre, with the U.S. group’s continued expansion in the backdrop.
FashionNetwork.com: With the new centre opening in Germany, what will change in Levi Strauss & Co.'s distribution network?
Torsten Müller: LS&Co. has expanded over the past few years, with much of the growth coming from our European region, leading us to conclude that we needed greater storage capacity there. To keep pace with this growth, the group undertook a thorough review of its logistics organisation, to identify potential solutions to increase our capabilities. This study led to the decision to build a new, state-of-the-art distribution centre in Europe, putting a strong emphasis on sustainability. The facility is ideally located in an area that will enable the group to reach more than 160 million consumers within a 500 kilometres radius. The site will employ up to 650 workers.
FNW: Which facilities does the group currently operate in Europe? How do you deliver your products to your retail and multi-brand partners, and to end-consumers? How many units did you ship in 2021?
TM: In Europe, we work with service providers, with the exception of a warehouse in the UK. Dorsten will be the second logistics centre in Europe that we will be operating ourselves. This is a major strategic decision, because we are destined to reach a size requiring that we take care of distribution ourselves. Our policy is not to disclose the number of units we are shipping in the region, but to give you an idea, our future logistics centre will have the ability to supply the European market with up to 55 million units, once it will be running at full capacity.
FNW: In 2021, what was your revenue in Europe and how did you generate it?
Diana Dimitian: Last year, LS&Co. recorded a revenue of $1.7 billion in Europe, equivalent to 30% of the group's total revenue. A successful result that reflects the strength of our brand in the region, since we were able to climb back to pre-pandemic revenue levels in just one year. We did this by implementing our strategy, notably by diversifying our product categories, from tops to trousers, from menswear to womenswear, and by growing our business with a specific focus on DTC sales.
FNW: What growth rates are you envisaging for 2022?
DD: In early April, we released our results for Q1 2022. We recorded another very strong quarter in Europe, with a 13% rise in reported data and a 21% one at constant exchange rates. Overall, our European activity continues with a forward momentum. Pre-order figures were sizeable in Europe, and our in-store traffic is constantly improving. In particular, we are witnessing robust growth in France, Italy and southern Europe. We have a positive outlook for 2022, as we continue to benefit from a number of consumption trends that put us in a unique position on the market, notably the ‘casualisation’ of looks but also renewed demand for office wear and new denim trends. We are also pleased to see footfall growing again in European stores, as the restrictions necessitated by the pandemic are gradually being lifted.
FNW: With regards to your omni-channel plans, what challenges are you facing?
TM: Increasing DTC sales is one of our priorities. We therefore think that expanding and constantly boosting our omni-channel capabilities is a major growth opportunity. Our new, highly automated and sustainable logistics centre in Germany has been designed to shorten delivery times and increase flexibility. It will play a central role in supporting our omni-channel strategy in Europe.
FNW: In terms of direct sales, how do you manage this activity?
TM: We do not disclose the relative shares of the DTC and wholesale inventory at our logistics sites. From a revenue perspective, we can say that globally, in 2021, the wholesale channel, including sales to franchisees, accounted for 64% of total revenue, and DTC sales (via directly owned and operated stores, and online) for 33%.
This week we reported a 35% increase in global DTC net sales compared to Q1 2021, reflecting a 48% increase in sales via directly-operated stores, and a 10% one via online orders. Net wholesale revenue worldwide increased by 15% compared to Q1 2021.
FNW: How do you optimise services, environmental impact and costs?
TM: Our new logistics centre will be built according to sustainable design principles, and will be certified to the highest standards, such as Leadership in Energy and Environmental Design (LEED) and WELL Health-Safety. The facility itself adopts cradle-to-cradle design solutions, featuring building materials that promote circularity and have a positive impact on climate and on water consumption.
Product shipping is of course another area of interest when it comes to reducing the overall environmental impact of our logistics. There is no single solution, each step must be carefully considered. LS&Co. has introduced several initiatives worldwide to address this issue. For example, we have initiated a project aimed at redesigning our cartons, to pack them more tightly together and optimise the use of space during transport. Alternatives to air freight, such as railways and marine transport in particular, are also considered whenever possible. In Europe, we are also introducing new omni-channel delivery solutions, such as online ordering with ship/return-to-store options, which provide further opportunities to optimise deliveries.
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