Levi's ramps up ship-from-store to move inventory trapped in dark stores

Dive Brief:

Order cuts, ship-from-store capability and supply chain visibility will help Levi's "emerge from the storm strong or stronger than going into it," CEO Chip Bergh said on a Tuesday earnings call. The company withdrew forward-looking guidance while 70% of its 565 stores are closed due to the coronavirus pandemic.
Levi's will ship some e-commerce orders from stores starting next week to move inventory trapped in closed stores and hedge against any changes in local regulations that could shut down fulfillment centers not shipping essential goods, Bergh said. Direct to consumer e-commerce accounts for more than 40% of the company's sales total sales, according to Bergh.
The company has "aggressively cut purchases and canceled orders for the second half of 2020" to keep a lid on inventory and deferred plans to open a new distribution center in Europe in an effort to reduce capital expenditures by 30%, according to CFO Harmit Singh.

Dive Insight:

Many earnings calls have been somber since retailers began closing entire store fleets to stop the spread of COVID-19. Meanwhile, Levi's call sounded more like a pre-battle speech from a wartime general.

"We've seen it all: the Great Depression, two world wars, earthquakes, fires and yes even the 1918 flu pandemic. Not only did we pull through all of these, we use crises to galvanize a path forward and we will do it again," Bergh said.

Levi's global footprint and supply chain will grant the company needed agility during the coronavirus challenge, according to the CEO. "Our global diversified supply chain is agile enough to enable us to wisely manage inventory and to maximize our opportunity for working capital efficiency," he said.

Part of the reason may be that Levi's has the kind of product, operation (retail, e-commerce and wholesale) and global retail footprint that happens to be well-suited to weather this kind of unprecedented demand drop. Levi's reduced inventory by 7% year-over-year in the first quarter with 70% of existing stock representing "evergreen" styles that can roll into future seasons, Singh said.

As future orders are being reduced and canceled the company is working with vendors to keep supplier relationships in place.

"We have a program in place for our vendors to get early payments at favorable market rates and several vendors have taken advantage of this already. We're looking at ways to expand this program to the benefit of vendors," Singh said, who added the company is donating $1 million to organizations that support apparel supply chain workers.

Bergh said the company hasn't yet had any issues procuring goods or materials and some product intended for the second half of the year has already been produced.

But being well-positioned to survive an unprecedented pause in retail activity doesn't mean Levi's is immune to the contours of the coronavirus mitigation efforts that threaten all "non-essential" retail. Levi's has furloughed all U.S. hourly retail employees and wholesale merchandise coordinators, stopped cash compensation for the board and cut many executive salaries.

"Frankly trying to forecast this is nearly impossible," Bergh said. "No one can control the virus or even the economic fallout, but we can control how we react to the crisis."