Levi’s is outsourcing more of its logistics capabilities as it pivots further toward a DTC-first mindset .
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The global denim brand said it is shifting its primarily owned and operated distribution and logistics network in the U.S. and Europe to “one that will be more balanced between our own and leading third-party logistic providers,” chief financial and growth officer Harmit Singh said during a June 27 earnings call.
Singh said the new hybrid strategy allows Levi Strauss & Co. to secure logistics investments “in a capital-efficient manner,” by leveraging third-party logistics firms (3PLs), thus freeing up the company’s own resources to invest in growing its direct-to-consumer (DTC) channel.
“This will also enable us to reduce our fulfillment costs per unit compared to running the facilities ourselves,” Singh said. The CFO noted that the switch would immediately deliver a cash infusion of over $90 million this year, primarily as a reimbursement of the capital spent to build a new distribution center in Dorsten, Germany.
The company invested $48 million in enhancements to its 575,700-square-foot facility in Erlanger, Ky. last July in another attempt to fortify its DTC plans. That building specifically fulfills e-commerce orders for customers in the Eastern U.S. and is designed to lighten the load for other facilities in Hebron, Ky., Canton, Miss., and Henderson, Nevada warehouses by housing inventory from those locations, if needed.
Growth plans in the DTC channel seem to be on track for Levi’s. In the company’s second quarter , DTC saw sales increase 11 percent on a constant-currency basis to $672.5 million, reflecting nine consecutive quarters of comparable sales growth.
DTC comprised 47 percent of total net revenues of $1.44 billion in the second quarter, up from 43 percent throughout 2023. The company is aggressively targeting wider growth in the channel, setting a target for 55 percent of sales in 2027.
Singh did not specify which locations the 3PLs will fit in going ahead, and Levi’s has been quiet about which partners it is referring to when it comes to outsourcing distribution and logistics capabilities, particularly in the U.S. However, it recently unveiled one of the companies set to assist in its European operations.
In early June, contract logistics provider GXO took on the responsibility to manage operations at the newly opened, fully automated, 750,000-square-foot Levi’s distribution center in Dorsten.
The firms entered a 20-year partnership with the new deal. The lifetime value of the partnership is expected to be nearly $1 billion, said GXO CEO Malcolm Wilson in a May earnings call. The Dorsten site is expected to accommodate 650 employees.
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The company will manage all logistics services for Levi’s at the facility, and will distribute apparel and accessories across retail, digital, e-commerce and marketplace channels, as well as wholesale.
In the near-term, the changes across Levi’s supply chain require the parallel operation of two unnamed facilities—a new distribution center and an old facility—for the rest of 2024, resulting in a transitory increase in distribution costs with a negative 2-cent impact to earnings per share (EPS) in the full year.
“We expect we will begin to see a favorable 2-cent impact to EPS in 2026, which will progressively increase in 2027 and beyond as distribution costs come down and inventory efficiencies improve as we better service our omnichannel needs,” Harmin said.
Levi’s channel pivot comes as another globally renowned brand, Nike, is pulling back on a prior commitment to throw its eggs in the DTC basket.
The Swoosh endured a poor performance for the direct-to-consumer segment in its fourth quarter, seeing revenue fall 8 percent year over year to $5.1 billion. After pulling out of (or downsizing) multiple retail partnerships following the debut of its Consumer Direct Acceleration strategy in 2020, the retailer has since returned to retail banners including Macy’s and DSW over the past year, and placed more product in Foot Locker .
Nike has been taken such heat from investors that a class-action lawsuit was filed last month against the company for misrepresenting its ability to generate sustainable revenue growth in the pivot to DTC.
Meanwhile, aside from the DTC push, Levi’s saw a light headwind to second quarter gross margins, impacted by roughly 20 basis points (0.2 percentage points) in air freight, “given some of the Red Sea issues that we’re seeing,” Singh said.
“We are actually chasing into product,” said Singh. “Believe it or not, some of the product offers are selling so quickly that we’re chasing into it so we are air freighting a little bit more.”
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