Why Levi’s is opening 100 new stores as Covid’s online sales boom increases

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A Levi’s logo on the window of a Levi Strauss & Co. store in London.

Chris Ratcliffe | Bloomberg | Getty Images

Buyers are increasingly shopping online amid the pandemic, and businesses and investors are trying to best combine e-commerce and traditional retailing to move forward.

In 2008, online sales made up just 3.6% of total US retail sales, according to eMarketer data.

Amazon saw its business increase tenfold in the 2010s, Walmart bolstered its online platform, new entrants like Wayfair emerged, and nearly all retail brands achieved a digital presence as e-commerce boomed. booming. In 2020, online sales represented 14% of total retail sales.

The Covid-19 pandemic has further accelerated this growth, with e-commerce sales now expected to account for 15.3% of total retail sales by the end of this year, according to eMarketer. This is not expected to slow down – this figure is expected to reach 23.5% of total sales by 2025.

“The consumer wants a seamless experience. He or she wants to be able to interact with us in our stores as well as on our website and therefore building an omnichannel experience has been essential during the pandemic,” Harmit Singh, CFO of Levi Strauss & Co., said at the recent CNBC @Work summit.

Mix in-store and online shopping experiences

Levi Strauss & Co., which operates approximately 3,000 stores and shop-in-shops in addition to selling its products online and in other department stores and retailers, focused on increasing its investment in its experience digital while keeping a priority on what a customer experiences their purchases in person.

In Levi’s fiscal year 2020, nearly a quarter of its sales were made through online purchases, either directly through the Levi’s platform or through the digital presence of its wholesalers. In 2015, online sales represented less than 10% of its activity.

Last year, Levi’s opened a new experiential store in Palo Alto, Calif., As part of its efforts to increase direct-to-consumer sales and reduce wholesale. There are several digitally focused features of the “NextGen” store, including integration with the company app, curbside pickups and contactless returns, and a data-driven inventory assortment. local customers.

Singh said the company opened 100 new stores last year and plans to open more than 100 this year. Some of those stores will be the New Experiential Stores, the company previously announced.

“We have increased our investments to provide a more digital experience,” Singh said. “We were able to test things out and scale them at speeds that we wouldn’t have said were possible before the pandemic, and I think that has really helped companies like ours because I think we have been able to become much more agile and have been able to deliver on the promise we made to our consumers. “

The balance between the in-store and online experience during the pandemic has also led to changes in the way Levi Strauss thinks about his distribution infrastructure, which has risen to prominence amid supply chain challenges. .

Singh said the company’s customer-side omnichannel strategy led the company to look into existing fulfillment centers – some that only provided products to wholesale customers, while other fulfillment centers responded to consumer needs of electronic commerce. . He recreated the omnichannel approach for his west coast distribution after launching the in-store shipping strategy, and he said this led to inventory efficiency and low cost of service.

“I think this stuff will make a big difference. Now we are rolling out our shipping from the store around the world and setting up more omnichannel distribution centers in Europe and other regions,” Singh said. .

Estee Lauder has also worked to make the online and in-store experience more seamless, adding things like the virtual try-on and the availability of her beauty advisors online, said Tracey Travis, CFO of The Estee Lauder Companies, at the CNBC event.

“Our in-store experiences are so strong; that’s basically where the business has been focused for many years,” she said. “Ensuring that we invest online and that we have as much touch experience online as offline was of critical importance in making this customer experience more seamless between online and offline. “

Deepen the focus on online sales

“One of the things that has certainly happened during this pandemic is that we have seen an acceleration, probably [a] an acceleration of three to five years, in terms of our online business in all its forms, ”said Travis.

“Brick and mortar is still a very, very important part” of Estée Lauder, but she noted how the pandemic has changed part of the company’s strategy.

“Over the past 12 months, the focus has been mostly online and adding capacity to our online channel, and at the same time trying to assess how brick and mortar would recover, where brick and mortar would recover, where brick and mortar would be. mortar would recover and where we should be investing and where we should be divesting, ”she said.

Estee Lauder, who owns brands like Clinique, Mac, Origins and her eponymous beauty line, said that 28% of her $ 16.22 billion in net global sales in her 2021 fiscal year came from online channels, according to his report on the results. In North America in particular, online sales accounted for 40% of Estée Lauder’s total business, according to documents filed by the company.

While Estée Lauder’s online sales have more than doubled from 2019, physical retail remains a key part of the company’s operations. Twenty-one percent of its global sales in its most recent fiscal year were in department stores, while sales in retail environments, such as airport duty-free shops, accounted for 28% of its sales. total sales.

The future of e-commerce and retail

How the balance between e-commerce and traditional brick-and-mortar sales continues to evolve will be an important question that retail businesses are asking as more and more purchases move online.

Earlier this year, the owner of Saks Fifth Avenue split the luxury retailer’s website into a separate business outside of its 40 stores. In the move, he said the new digital company would be valued at $ 2 billion, roughly double its annual sales.

Last week, activist investor Jana Partners took a stake in Macy’s and sent a letter to the company’s board calling for a similar move. Jana previously said Macy’s online business could be worth around $ 14 billion, nearly double the company’s current market capitalization.

Macy’s e-commerce sales have nearly doubled over the past four years, and the company forecast 2021 sales to be between $ 8.35 billion and $ 8.45 billion.

Missed CNBC’s At Work Summit this year? Access full sessions on demand at https://www.cnbcevents.com/worksummit/


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