Why Levi’s is opening 100 new shops as Covid on-line gross sales growth grows

A Levi’s brand on the window of a Levi Strauss & Co. retailer in London.

Chris Ratcliffe | Bloomberg | Getty Photos

Buyers are doing increasingly more buying on-line amid the pandemic, and that has each corporations and buyers making an attempt to greatest combine e-commerce and the standard retail retailer enterprise transferring ahead.

In 2008, e-commerce gross sales made up simply 3.6% of whole retail gross sales within the U.S., in accordance with information from eMarketer.

Amazon noticed its enterprise develop tenfold within the 2010s, Walmart additional established its on-line platform, new entrants like Wayfair emerged and virtually each retail model ensured it had a digital presence, as e-commerce boomed. By 2020, on-line gross sales made up 14% of whole retail gross sales.

The Covid-19 pandemic sped that progress up much more, with e-commerce gross sales now anticipated to make up 15.3% of whole retail gross sales by the top of this 12 months, in accordance with eMarketer. That isn’t anticipated to decelerate — that determine is predicted to extend to 23.5% of whole gross sales by 2025.

“The patron desires a seamless expertise. She or he desires to have the ability to work together with us in our shops in addition to on our web site and so constructing an omnichannel expertise has been important in the course of the pandemic,” Harmit Singh, CFO of Levi Strauss & Co., mentioned on the latest CNBC @Work Summit.

Mixing in-store and on-line buying experiences

Levi Strauss & Co., which operates roughly 3,000 shops and shop-in-shops along with promoting its merchandise on-line and in different department shops and retailers, has centered on scaling up its investments in its digital expertise whereas additionally conserving a precedence on what a buyer experiences buying in particular person.

In Levi’s 2020 fiscal 12 months, practically a fourth of its gross sales got here through on-line buying, whether or not immediately via Levi’s platform or via the digital presence of its wholesalers. In 2015, on-line gross sales made up lower than 10% of its enterprise.

Final 12 months, Levi’s launched a brand new experiential retailer in Palo Alto, California, as a part of its push in direction of extra direct-to-consumer gross sales and fewer wholesale. There are a number of digitally-focused options of the “NextGen” retailer, together with integration with the corporate’s app, curbside pick-ups and contactless returns, and a list assortment that’s pushed by native buyer information.

Singh mentioned that the corporate opened 100 new shops final 12 months and has plans to open greater than 100 this 12 months. A few of these shops would be the new experiential ones, the corporate beforehand introduced.

“We scaled up our investments in driving extra of a digital expertise,” Singh mentioned. “We had been capable of take a look at issues and scale issues at speeds we might haven’t mentioned was potential pre the pandemic, and I believe it is actually helped corporations like ours as a result of I believe we have been capable of get much more agile and been capable of ship the promise that we have got down to our shoppers.”

The steadiness between the in-store and on-line expertise in the course of the pandemic additionally has led to adjustments in the way in which Levi Strauss thinks about its distribution infrastructure, which has grown in significance amid provide chain challenges.

Singh mentioned that the omnichannel technique on the consumer-facing facet of the enterprise led the corporate to try legacy distribution facilities — some that had been solely fulfilling merchandise for wholesale prospects, whereas different distribution facilities had been servicing the wants of e-commerce shoppers. It recreated the omnichannel method for its West Coast distribution after it started the ship-from-store technique, and he mentioned it results in stock efficiencies and a low value of service.

“I believe issues like that can make a giant distinction. Now we’re scaling our ship-from-store all over the world and we’re organising extra omnichannel distribution facilities in Europe and different components,” Singh mentioned.

Estee Lauder has additionally pushed to make the net and in-store expertise extra seamless, including issues like digital try-on and having its magnificence advisors obtainable on-line, Tracey Travis, CFO of The Estee Lauder Firms, mentioned on the CNBC occasion.

“Our in-store experiences is so sturdy; it is essentially the place the corporate has been centered for a lot of, a few years,” she mentioned. “Ensuring that we’re investing in on-line and having as a lot of a excessive contact expertise on-line as we do offline was critically essential to make that client expertise extra seamless between on-line and offline.”

Deepening the net gross sales focus

“One of many issues that actually has occurred throughout this pandemic is we have seen an acceleration, in all probability [a] three- to five-year acceleration, when it comes to our on-line enterprise throughout all types,” Travis mentioned.

“Brick and mortar remains to be a really, crucial half” of Estee Lauder, however she famous how the pandemic shifted among the firm’s technique.

“Over the past 12 months, the precedence has been very a lot on-line and including functionality to our on-line channel, and on the identical time, making an attempt to evaluate how brick and mortar would get better, the place brick and mortar would get better, and the place we ought to be investing and the place we ought to be disinvesting,” she mentioned.

Estee Lauder, which owns manufacturers like Clinique, Mac, Origins, and its eponymous magnificence line, mentioned that 28% of its $16.22 billion in web international gross sales in its fiscal 2021 12 months got here from on-line channels, in accordance with its earnings report. In North America particularly, on-line gross sales made up 40% of Estee Lauder’s whole enterprise, in accordance with firm filings.

Whereas on-line gross sales for Estee Lauder have greater than doubled in comparison with 2019, bodily retail remains to be a key part of the corporate’s enterprise. Twenty-one % of its international gross sales in its most up-to-date fiscal 12 months happened in department shops, whereas gross sales in journey retail environments, resembling duty-free retailers in airports, made up 28% of its whole gross sales.

The longer term for e-commerce and retail

How the steadiness between e-commerce and conventional brick-and-mortar gross sales continues to evolve shall be an essential query that retail corporations ask themselves as extra buying shifts on-line.

Earlier this 12 months, the proprietor of Saks Fifth Avenue cut up aside the posh retailer’s web site right into a separate enterprise other than its 40 shops. Within the transfer, it mentioned the brand new digital firm can be valued at $2 billion, or roughly double its annual gross sales.

Final week, activist investor Jana Companions took a stake in Macy’s and despatched a letter to the corporate’s board calling for the same transfer. Jana had beforehand mentioned that Macy’s on-line enterprise could possibly be value about $14 billion, virtually double the corporate’s present market cap.

Macy’s e-commerce gross sales have practically doubled within the final 4 years, and the corporate forecasted 2021 gross sales to be between $8.35 billion and $8.45 billion.