Levi Strauss Embraces Hybrid Logistics Model to Enhance DTC Channels
Levi Strauss & Co. is making a strategic shift in its logistics operations, moving from a primarily insourced distribution network to a hybrid model that includes third-party logistics (3PL) providers. This move, announced during a June 27 earnings call, is designed to leverage external capital for investing in direct-to-consumer (DTC) channels while reducing fulfillment costs per unit.
Strategic Shift to Hybrid Logistics Model
Harmit Singh, Levi's Financial and Growth Officer, highlighted the company's pivot towards becoming a DTC-first organization. He explained that the new hybrid logistics model would allow Levi's to enhance its distribution networks by incorporating omni-channel capabilities and upgrading existing capacities.
"As we continue our pivot to a DTC-first company, our distribution networks need investment, including upgrading existing capacity with omni-channel capabilities," Singh stated during the call.
Benefits of the Hybrid Model
Levi's transition to a hybrid logistics model aims to balance cost-efficiency with the need for robust DTC infrastructure. By integrating 3PL providers, the company can:
Reduce fulfillment costs per unit.
Utilize third-party capital to invest in and expand DTC channels.
Maintain a flexible logistics network that can adapt to demand fluctuations and shipping disruptions.
Industry Trends and Comparisons
Levi's strategy mirrors broader industry trends where companies re-evaluate their fulfillment approaches. For example, DavidsTea insourced its operations in 2023, which initially led to lower revenues but eventually increased gross profit due to lower per-unit costs. Conversely, Levi's seeks to strike a balance by maintaining some insourced operations while leveraging 3PL expertise to optimize efficiency and cost-effectiveness.
Enhancing Supply Chain and Inventory Management
Levi's has been focused on improving its supply chain operations, especially after facing challenges due to elevated inventory levels in 2023. The company has since made significant strides in managing its stock more effectively. A key part of this effort was the opening of a 575,000-square-foot e-commerce fulfillment center in Kentucky, aimed at serving East Coast orders and bringing more of its U.S. e-commerce business in-house.
CEO Insights
Michelle Gass, President and CEO of Levi Strauss, emphasized the positive impact of the new logistics strategy on profitability and inventory management. She noted that the healthier inventory levels and improved supply chain operations have made the DTC channel significantly more profitable compared to the previous year.
“Importantly, this channel is significantly more profitable than last year, amplified by our healthier inventory levels and the improvement in our supply chain operations,” Gass told analysts.
Conclusion
Levi Strauss & Co.'s shift to a hybrid logistics model represents a strategic move to enhance its DTC channels and optimize supply chain operations. By incorporating third-party logistics providers, Levi's aims to reduce costs, improve efficiency, and maintain flexibility in its fulfillment processes. This approach not only supports the company's broader DTC strategy but also positions it to better handle future demand swings and shipping disruptions.
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