Levi Strauss & Co. will be laying off about 15% of its workforce as a result of shuttered stores and sharply decreased demand, the company said in its second quarter earnings report.
"We started the year with strong momentum, but the pandemic and economic crises had a significantly negative impact on our second quarter results," CEO Chip Bergh said. "To enable us to become a leaner and more market-responsive organization, as well as give us greater confidence in our cost structure, we [will] reduce our non-retail, non-manufacturing workforce by about 700 positions, which we expect will generate annualized savings of $100 million."
- In an interview, CFO Harmit Singh told Yahoo Finance the move would allow for a "reallocation of resources to digital transformation, direct to consumer business growth."
Singh, who has headed the San Francisco-based denim retailer's finance department since 2013, said the mass layoff, on the heels of a 62% revenue drop, has been the company’s "toughest call" during the pandemic crisis.
"Many of those affected play an integral role in the company," he said. "But when we looked at our cost base, it was just too difficult. It's important for us to ensure we have power to allocate and reallocate resources as we focus on emerging stronger, and growing market share, while also ensuring, when revenues recover, we're a more profitable company."
When it comes to the disruption to wholesale, Singh is not surprised. "The COVID crisis is accelerating what would already happen in the U.S. wholesale marketplace," he said. "With retailers closing doors, the focus shifts to winners. We have great relationships, and are set up to grow our market share as the landscape changes, because we are focused on growing our category head to toe."
Singh added, "value is sometimes defined by price, but for us, it's more than the price ... It's providing the consumer with what they need. We’ve been around for over 160 years, and think we have the ingredients for driving market share in the denim category and beyond."
Consumers during the stay-at-home mandates have pivoted towards comfortable clothing, particularly elastic materials as opposed to denims. One reporter asked whether Levi's is looking to pivot more into that category to meet consumer demand.
"When the athleisure trend started many years ago, we looked at establishing an athleisure line with what customers want: the attributes of comfort, stretch, and thinness and that’s what we did when we reset our women’s line," Singh said. "We adopted the features she wanted, reset our women's business, and that's taken off, even during the COVID crisis."
Singh said Levi’s women’s business has been "on fire," and denim as a clothing category has maintained its share. However, the company remains focused on growing beyond its denim offerings.
"As a company, we're focused on driving the growth in market share beyond denim," he said. "As market leaders in denim, it's all about making sure the products are relevant as consumer habits change."
Looking to the future, Singh cited consumer values as a key performance indicator. "We talk about conspicuous consumption a lot," he said. "It's about ensuring our brand is strong, our products are relevant, and consumers are focused on the digitized experience."
Singh mentioned Levi's plans of opening 100 of their own doors in the U.S., as Levi's-only stores. He said these new locations would be around 3,000 square feet, wide spaces around the country, which would allow for six feet of distance between shoppers.
Back to school shopping remains an important revenue stream for apparel companies and, despite the current sector challenges and uncertainty around in-person schooling, Singh still predicts a jump in sales at the end of the summer.
"Today's consumer wants a fresh, new, relevant product, and we’re offering that for all demographics and ages," he said. "We have seen demand for products, and our view is that we will continue seeing demand, even if shopping is digital."
To support this theory, Singh mentioned June went better than expected for Levi's, both in terms of revenue and profit line.
"We continue to believe, as we go through the crisis and get on the other side, we will continue growing market share," he said.