E-commerce is underdeveloped and remains a “huge upside opportunity” for Levi Strauss & Co. as it moves to focus on areas offering sustainable, profitable growth.
In his first formal interview since joining Levi’s as president and chief executive officer nearly 18 months ago, Chip Bergh told WWD, “We are underdeveloped online, significantly underdeveloped in comparison to some competitors who do as much as 20 percent of their business in e-commerce.”
Without giving a specific figure for e-commerce penetration of Levi’s $4.61 billion in annual sales last year, Bergh allowed that the figure was in the “low-single digits.”
The remarks came following Levi’s disclosure that profits for the fourth quarter grew 20.5 percent despite a 3.5 percent drop in revenue as sales in the Asia-Pacific region were pulled down by weak demand, currency translation and the decision to discontinue the Denizen business in the area.
“We have made a big investment in e-commerce,” he said, “and it will be seen this year, first in Europe, then in the U.S. and globally. We’re looking to put together a true omnichannel consumer experience that’s consistent with what you would see in our stores. We’re looking for consistency between the channels and globally.”
Bergh noted progress from product innovations such as Curve ID, its Water<Less environmental initiative and tie-ins with companies including Nike.
“A lot of this product was in the pipeline when I arrived,” he said. “In fact, it was one of the things that attracted me to the company.”
Once on the job, however, he was confronted with the need to streamline an organizational structure he deemed to be “overly complex” and resulting in high expenses that were complicated by rapidly escalating cotton prices.
Having reconfigured Levi’s organizational structure and having made numerous changes in personnel, including the appointments of James Curleigh and Seth Ellison as presidents of the Levi’s and Dockers brands, respectively, Bergh referred to 2012 as a “set-the-table, lay-the-foundation kind of year” that should pave the way for improvement in operations going forward.
For the three months ended Nov. 25, net income expanded $53 million from $44 million in the 2011 period. While a decline in cotton prices helped gross margin improve to 50 percent of sales from 46.6 percent a year ago, revenues fell to $1.3 billion from $1.34 billion despite a 1.4 percent increase in sales in the Americas to $818 million. Denizen’s closure and weak demand overall pushed Asia-Pacific sales down to $186 million from $231 million, a 19.5 percent drop-off that at constant currency was 18 percent.
Bergh told WWD that the company sees numerous opportunities to simplify its franchising operations in Asia and left the door open either for acquisitions of franchisees by the company or mergers among them.
In Europe, sales were up 2 percent in constant currency but declined 3.9 percent in U.S. currency to $294 million from $306 million.
For the full year, net income rose 4.3 percent to $143.9 million from $137 million as cost of goods sold declined 2.4 percent, to $2.41 billion, and selling, general and administrative costs were reduced by 4.6 percent to $1.87 billion.
Revenues were off 3.2 percent to $4.61 billion from $4.76 billion in 2011. They had risen in 2010 and 2011 after declining in 2009.