Levi’s results reflect power of premiumisation

Amid squeezed margins in production and too much unsold inventory in retailers' warehouses, the denim maker Levi Strauss has reported strong revenue increases of 15% in Q2, where strong sales in the US reflected a growing appetite for premium products and the normalisation of less formal clothes.

Why it matters

With material costs surging, Levi’s was typical of the market in raising its prices. Levi’s experience shows how going premium, as built through brand advertising and the experience of the company’s owned stores, is a critical strategy for brands in mature categories, especially in an economic downturn.

What’s going on

• While trends in fashion as much as in working life have kept demand for denim high, says CEO, Chip Bergh, speaking to investors: “more consumers are now wearing jeans more often in professional settings.”
• Out of its many brands, value-focussed brands were starting to show slowing growth: a hint that lower-income customers are starting to cut back.
• DTC is showing growth ahead of the company’s total, reflecting the return of travel and a desire among shoppers for the brand’s owned experience, especially in tourist hubs like it’s original San Francisco store.

Key quote:

“The Levi's brand is stronger than it has ever been, and the demand is stronger than it has been in my career here at LS&Co,” said CEO Chip Bergh on a call with investors.

“We've been moving with agility to capitalize on global casualization trends, fueling strong growth for Levi's, while also driving strong underlying category growth that continues to outpace apparel.”

Sourced from Seeking Alpha