At 168 years old, Levi Strauss & Co. (NYSE: LEVI) has some knowledge about its customers. But that knowledge was put to the test in 2020 as the pandemic took hold and consumers shifted buying strategies. Liz O’Neill, executive vice president and COO of the company, said Levi had to make some tough choices to manage though the COVID-19 pandemic before it could contemplate what the future would look like.
“[It was a] healthy triage mode which was walking this balance beam where we had to balance the interests of the enterprise … [and] also had to protect the interests of our partners and our supply chain,” she told a virtual audience on the first day of the National Retail Federation’s Converge 2021 conference. “In the very early days, we paid for our orders in full … and we committed to using the raw materials that had been secured on our behalf.”
O’Neill said Levi benefited from long-term relationships and strong communication with its suppliers that allowed the iconic denim brand to navigate the turmoil the pandemic wrought on the supply chain.
“That matching of supply and demand was extremely difficult in the early days, and I think it is still difficult, we’ve just become better at it,” she said.
Simply getting through the early days led to the second phase – identifying the future needs of consumers.
“[We realized] this could be the new normal for a while and then things [could] shift again,” O’Neill said, noting that Levi recognized it needed to accelerate digitization so it could pivot quickly if needed. That meant rapidly developing and deploying omnichannel capabilities.
“Consumers all ran to the other side of the ship; consumers who were shopping shopped online,” she noted, and that proved problematic for the apparel industry. “The apparel industry is extremely ‘touch and feel.’ … That is how we work traditionally, and while we certainly had been on a road map of digitizing our operations, it got a huge push forward because we had no choice.”
Levi’s CEO Chip Bergh told CNBC in January that the company’s Q4 2020 results nearly met the company’s “best-case scenario” that it developed when the COVID pandemic first started. Levi reported its e-commerce business was profitable in Q4 and for the full year. Digital sales made up 23% of fourth-quarter sales, up from 15% in Q4 2019, and increased 34% year-over-year. Those increases were important as 40% of the company’s global retail locations remained closed at the end of the year.
With a supply chain that suddenly needed to meet online sales growth, digitization became a solution, and it quickly showed its benefits, O’Neill said, pointing to speed to market, better planning and forecasting, and sustainability benefits as the key takeaways.
“We have been embracing and using predictive analytics, AI and machine learning … to be able to predict that supply and demand more closely,” she said. “Not only does this help our forecasting, but it gets our teams out of that heads-down work and more into heads-up [or forward-looking] work.”
It also created more agility within the Levi supply chain, allowing the company to be more predictive rather than reactive.
“Historically supply chains have been reactive,” O’Neill noted. “Now it’s shifting and we’re seeing more and more importance in trying to predict as much as you can. It goes back to getting closer to market.”
Supply chain disruptions continue to this day, but O’Neill said the close relationships with suppliers allowed Levi to easily substitute materials when needed to keep production lines moving. The digitization of the Levi supply chain also allowed it to quickly adjust shipping processes, ensuring product was heading to markets where it was selling.
One large question that manufacturers across the board are facing remains unanswered: How close should suppliers be to the end consumer? It is not an easy answer, O’Neill pointed out.
“Is it better to be closer and more expensive or further away and less expensive?” she asked, adding that innovation and data are part of the process to reach that decision. “It’s really leveraging all those different pieces to get you as close to the consumer as you can and as accurately as you can [with inventory].”
O’Neill repeatedly noted that the changes seen in the past 15 months all lead back to a single value proposition: How do you get the product closer to the end consumer and do so in a sustainable way?
There is no clear answer, but rather a journey that will continue to evolve, she said.
“Even though the tools are still emerging that we need, it is all about the leadership, it is all about the people. That trumps everything. It’s about articulating a vision,” O’Neill said, adding that company leadership needs to “make sure the people that are going to be part of the [change] are part of the solution.”
Change is a multiyear process, but it is one that can’t be done without digitization, and that requires additional leadership.
“For the people that are not as familiar with digitization, they don’t know what bus they need to be on, they don’t know why they want to be on that bus, so you have to show them,” O’Neill said.