Levi’s Pushes Towards D2C with Micro-Fulfillment and AI

Need to Know

• Over the last four months, Levi’s has had to accelerate its digital transformation plans in order to maintain sales and a connection with consumers.
• The biggest shift so far is on micro-fulfillment. In May, Levi’s shipped nearly a third of all online orders directly from its network of over 200 branded stores in the U.S.
• Levi’s is also tapping AI for better insight on promotional discounts, selling six times as much product during one sale thanks to consumer analytics.
• In an interview with the Wall Street Journal, Levi’s CFO talks about the retailer’s transformation, saying “if you think of our road map, it would have taken us a couple of years and we’ve kind of crunched it into a few months.

Analysis

Retail, as a whole, has been in trouble over the last four months. Thanks to the pandemic, more and more brands are suffering declining revenues due to shuttered stores and less income flowing to consumers.

Levi’s is no different. The clothing retailer best known for its jeans has felt the crunch, seeing revenue fall 62% last quarter. However, as consumers look to shop online in record numbers, Levi’s is embracing the shift by moving forward on digital transformation plans that would have taken years to execute before the pandemic.

“We’re using the crisis to accelerate the company’s transformation that started when [CEO Chip Bergh] came here in late 2011. If you think of our road map, it would have taken us a couple of years and we’ve kind of crunched it into a few months,” Levi’s CFO Harmit Singh told the Wall Street Journal.

Digital transformation at Levi’s obviously means focusing on online sales. But in order to facilitate that push, it meant rejigging fulfillment and the e-commerce status quo. Levi’s has over 200 physical branded store locations in the U.S., and in order to meet online demand, the retailer started shipping orders directly from stores.

“We are shipping from the store to the customer’s home—30% of all our e-commerce business in the U.S. in May shipped from the store,” says Singh. “That’s something we hadn’t done before.”

Levi’s is also offering curbside pickup from about 80% of its stores, while ‘buy online, pick up in-store’ is live at around 40 stores. The brand is even using Uber to facilitate same-day delivery in the U.S.

All of this is fairly standard in terms of the new retail normal. However, Levi’s is taking it a step further with a new virtual concierge that launched this quarter, offering consumers the ability to have one-on-one consultations with in-store employees to chat through purchases and look at products. This new platform is creating strong conversion rates, according to Levi’s CEO Chip Bergh.

Levi’s also got ahead of the pandemic with the launch of a loyalty app in early 2020, granting brand ‘Super Fans’ access to exclusive events and products as well as the ability to purchase app-specific releases directly on their phone.

AI is also a factor in the company’s digital transformation. Levi’s is using AI to analyze historic trends in promotional sales. During a recent sale in Europe, Levi’s went back and analyzed the numbers. By shifting a certain promotion that had previously performed well to a new product, Levi’s sold six times the inventory they normally do.

All of these efforts signal Levi’s growing desire to become a true direct-to-consumer brand. Although the retailer has hundreds of branded stores, a large percentage of its products are sold through third-party stores—many of which were shuttered during the pandemic. By focusing on e-commerce, loyalty, and fulfillment, Levi’s can connect with consumers in a new way and ensure that new business comes directly through the brand’s omnichannel efforts.

“We believe that the consumer experience should be seamless between where he or she orders and where he or she buys or picks up. So we are accelerating what we call the omnichannel capability,” says Singh. “That’s where you can go online, buy something and pick up in a store. We’re building our stores to become micro fulfillment centers. More important, it allows us to send the product to the consumer quicker because the store will be closer to where the consumer lives.”