Levi's leans on marketing as economic conditions worsen

Levi Strauss Co., the global denim apparel brand, is feeling the pressure of global economic headwinds as the impacts of inflation, supply chain issues and the strong US dollar squeeze the business. 

According to the company’s Q3 2022 Earnings Conference Call, adjusted gross margin contracted by 60 basis points from the year before due to the impact of inflation, while supply chain problems were responsible for about US$30 to $40M in missed sales.

Moreover, the company’s European sales fell 19% year-on-year as consumers cut discretionary spending because of the worsening economic outlook for the region. The numbers reflect a challenging environment across the apparel category. 

“As we move through the third quarter, a confluence of pressures from inflation to falling consumer sentiment, to rising interest rates began to result in softer consumer demand, while our industry continues to experience supply chain disruption and a heightened promotional environment," said Chief Executive Chip Bergh. "Not surprisingly, this made for a challenging quarter,” he added. 

Betting on long-term marketing investment

Bergh is betting on the long-term power of the "casualization" trend to drive the category forward. Marketing will play a big role in that, he predicted.

“We're the market leader and I believe it's incumbent upon market leaders to drive category growth,” Bergh said. 

He added that Levi's would continue to focus on innovation and strong marketing - a combination which "should drive growth". 

“We're going to continue to invest in the long term and we're going to continue to make investments in DTC and e-commerce, because those are strategic for us and we're going to continue to invest in building our brands.”

Avoiding the discount spiral 

Levi’s does not want to get sucked into a spiral of discounting, despite some of the supply chain issues affecting its seasonal products and a promotion-friendly environment heading into the Q4 holiday retail season. 

“At the end of the day, we are about the strength of our brand and an overly promotional or hot promotion brand is not good for brand integrity," Bergh argued. “And so we're going to do our best to protect gross margin without being uncompetitive in the marketplace.”