Diversified sourcing helps Levi's avoid disruption from China lockdowns

Dive Brief:

Levi Strauss' long-term shift away from sourcing in China has helped insulate the retailer from disruption during city-wide lockdowns in Shanghai, executives said in a Q1 earnings call last month.
The retailer has approximately "60 or so doors closed in China right now," CEO Chip Bergh said on the April 6 call, but does not expect lockdowns to have "any meaningful impact" on its supply chain. A spokesperson declined to provide an update on current operations in China.
Levi's has been slowly divesting manufacturing away from China and "playing our chips elsewhere on the global map," Bergh said. Less than 1% of product coming into the U.S. is from China, he said.

Dive Insight:

Levi's has strategic partnerships with key vendors, many of which have a multi-country footprint, Bergh noted. In times of disruption, it's allowed the retailer to more easily find alternate sources.

"So if a factory gets impacted by COVID-19, we can quickly shift," he said. "We can quickly move our pieces, our manufacturing to other places on the map."

Even before the pandemic, Levi's worked to reduce reliance on China as global trade uncertainties created new headwinds. The retailer reduced its manufacturing in China from 16% in 2017 to about 1% and 2% in 2019.

A global supplier base has helped Levi's stay well stocked to meet growing demand. Inventories at the end of the quarter are 20% above what they were during the same time last year, according to CFO Harmit Singh during the call.

"Our strong inventory position demonstrates our ability to manage global supply chain challenges and remains a competitive strength of our company," Singh said.

Still, "demand [is] outpacing supply," according to Singh, Singh noted that the retailer faced $60 million in estimated revenue loss last quarter due to supply chain issues.

"Our view is that supply chain related issues continue through the year," Singh said. ". . . [It's] difficult to predict how much demand we will not be able to service. The good news is, there is demand and we continue to grow."