Why Levi's is opening 100 new stores even as pandemic online sales boom keeps growing

Shoppers are doing more and more purchasing online amid the pandemic, and that has both companies and investors trying to best mix e-commerce and the traditional retail store business moving forward.

In 2008, e-commerce sales made up just 3.6% of total retail sales in the U.S., according to data from eMarketer.

Amazon saw its business grow tenfold in the 2010s, Walmart further established its online platform, new entrants like Wayfair emerged and almost every retail brand ensured it had a digital presence, as e-commerce boomed. By 2020, online sales made up 14% of total retail sales.

The Covid-19 pandemic sped that growth up even more, with e-commerce sales now expected to make up 15.3% of total retail sales by the end of this year, according to eMarketer. That is not expected to slow down — that figure is predicted to increase to 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 so building an omnichannel experience has been critical during the pandemic,” Harmit Singh, CFO of Levi Strauss & Co., said at the recent CNBC @Work Summit.

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, has focused on scaling up its investments in its digital experience while also keeping a priority on what a customer experiences shopping in person.

In Levi’s 2020 fiscal year, nearly a fourth of its sales came via online shopping, whether directly through Levi’s platform or through the digital presence of its wholesalers. In 2015, online sales made up less than 10% of its business.

Last year, Levi’s introduced a new experiential store in Palo Alto, California, as part of its push towards more direct-to-consumer sales and less wholesale. There are several digitally-focused features of the “NextGen” store, including integration with the company’s app, curbside pick-ups and contactless returns, and an inventory assortment that is driven by local customer data.

Singh said that the company opened 100 new stores last year and has plans to open more than 100 this year. Some of those stores will be the new experiential ones, the company previously announced.

“We scaled up our investments in driving more of a digital experience,” Singh said. “We were able to test things and scale things at speeds we would have not said was possible pre the pandemic, and I think it’s really helped companies like ours because I think we’ve been able to get a lot more agile and been able to deliver the promise that we’ve set out to our consumers.”

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

Singh said that the omnichannel strategy on the consumer-facing side of the business led the company to take a look at legacy distribution centers — some that were only fulfilling products for wholesale customers, while other distribution centers were servicing the needs of e-commerce consumers. It recreated the omnichannel approach for its West Coast distribution after it began the ship-from-store strategy, and he said it leads to inventory efficiencies and a low cost of service.

“I think things like that will make a big difference. Now we’re scaling our ship-from-store around the world and we’re setting up more omnichannel distribution centers in Europe and other parts,” Singh said.

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

“Our in-store experiences is so strong; it’s fundamentally where the company has been focused for many, many years,” she said. “Making sure that we’re investing in online and having as much of a high touch experience online as we do offline was critically important to make that consumer experience more seamless between online and offline.”

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

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

“During the last 12 months, the priority has been very much online and adding capability to our online channel, and at the same time, trying to assess how brick and mortar would recover, where brick and mortar would recover, and where we should be investing and where we should be disinvesting,” she said.

Estee Lauder, which owns brands like Clinique, Mac, Origins, and its eponymous beauty line, said that 28% of its $16.22 billion in net global sales in its fiscal 2021 year came from online channels, according to its earnings report. In North America specifically, online sales made up 40% of Estee Lauder’s total business, according to company filings.

While online sales for Estee Lauder have more than doubled compared to 2019, physical retail is still a key component of the company’s business. Twenty-one percent of its global sales in its most recent fiscal year took place in department stores, while sales in travel retail environments, such as duty-free shops in airports, made up 28% of its total sales.

How the balance between e-commerce and traditional brick-and-mortar sales continues to evolve will be an important question that retail companies ask themselves as more shopping shifts online.

Earlier this year, the owner of Saks Fifth Avenue split apart the luxury retailer’s website into a separate business apart from its 40 stores. In the move, it said the new digital company would be valued at $2 billion, or 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 had previously said that Macy’s online business could be worth about $14 billion, almost double the company’s current market cap.

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

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