Levi Strauss & Co. may have made its mark on the fashion world with denim work clothes, but it has continuously moved with the times, updating and expanding its product line to reflect changing consumer tastes. Founded in San Francisco in 1853, Levi’s today manages a worldwide supply chain that, due to Covid-19, recently had to adapt to changes in customer shopping preferences as well. Sales remained strong during the pandemic—after all, homebound consumers still needed comfortable clothes—but the shift from store-based sales to online purchasing led the company to enhance its omnichannel distribution capabilities and accelerate its digital transformation.
Overseeing that transition while managing distribution for a large swath of the world is Torsten Mueller, the company’s vice president of distribution and logistics for Europe and South Asia-MEA. Mueller has been responsible for the operational and strategic development for all assets in the EMEA (Europe, Middle East, and Africa) region since 2017. Last year, he was given additional responsibility as managing director, Levi Strauss Supply Chain Services & Operations GmbH.
An accomplished senior executive officer with international expertise across three continents, Mueller leads distribution projects, develops logistics strategies, and manages Levi Strauss’s European network strategy. He recently spoke with DC Velocity Group Editorial Director David Maloney about the company’s transformation and provided an inside look at its new automated distribution center in Germany that’s scheduled to open in November 2023.
Q: Levi Strauss is a 168-year-old company. How do you continue to reinvent the company and develop products that are relevant to consumers?
A: We continue to lead the industry through product, innovations, and bold marketing, putting the customer at the center of everything we do and placing us at the forefront of retail innovation. We are driving deeper connections to our consumers than ever before through our products, marketing, and digital and physical experiences. We are seeing increased demand for our iconic products, while building new icons and establishing denim trends. We continue to build out our omnichannel capabilities to make the shopping experience more seamless, convenient, and safe. We are leveraging AI [artificial intelligence] to continue to accelerate our digital transformation within the direct-to-consumer channel. We still have plenty of opportunity to amplify our reach and grow our share across geographies, categories, genders, and channels, increasing our flexibility and resilience.
Q: How do you view the current apparel market?
A: Our second-quarter performance was better than we expected, reflecting broad-based strength across our business as we continue to see recovery from the pandemic. In addition to seeing strong denim and casualization trends, we are also benefiting from the ongoing execution of our strategic initiatives. And we are excited to see consumers returning to our stores as markets reopen, with sequentially improving traffic trends.
Q: Many retail stores closed or operated on a limited basis during the pandemic lockdowns. How did that affect your customers’ buying patterns?
A: While the pandemic continues to impact our business, we are encouraged by accelerated revenue recovery in the quarter, with all regions and channels growing versus the prior year.
We are ready to serve our consumers where and when they want to connect with us, and we continue to build out our omnichannel capabilities to make the shopping experience more seamless, convenient, and safe.
E-comm growth rates accelerated sequentially from Q1, reaching 42% versus the second quarter of fiscal 2020. Net revenues through all digital channels grew 75% versus the second quarter of fiscal 2020. This was driven by strong performance across all regions. And our digital penetration as a percentage of total sales was approximately 23%.
Q: Higher e-commerce sales mean higher online returns. How have you addressed that in your operation?
A: We have made significant progress in optimizing our return capabilities in both Europe and the United States. As consumers are increasingly expecting a seamless returns process between online and offline, we are working to meet consumers where they are, ensuring they have the best experience end-to-end with our brand.
We launched a “Happy Returns” program that allows consumers to return merchandise at more than 2,500 drop-off locations without any packaging or packing slips required. We also piloted several other initiatives. A contactless returns initiative enables consumers to skip the line and return products with minimal interaction with our store teams. We also piloted a local pickup program in the Bay Area using [the post-purchase e-commerce platform] Narvar. It allows for consumers to schedule an at-home next-day pickup for a Levi.com return.
Q: Levi’s, like many companies, is undergoing a program of digitalization. How is it progressing, and can you share your priorities for that initiative?
A: We’re using digital, data, and AI to dramatically improve the consumer experience and deepen connections—leveraging every touch point to better connect and engage with our fans. Through data and AI capabilities, we've created a more cohesive and personalized consumer experience on our app and with our loyalty program.
We’re also now using AI to forecast the initial demand for each product next season. Results from our first-wave test showed that AI-driven demand forecasting improved accuracy, so scaling it should enable more precise inventory investment. It should also lead to a reduction in markdowns and clearance items, prevent waste, and enhance sustainability, all of which improve our margins. This will be powerful in combination with AI’s ongoing contribution to our pricing and promotion efforts.
Q: Have you had difficulty finding workers for your distribution facilities? What have you done to attract and retain new talent?
A: We mostly work with a 3PL [third-party logistics service provider] in Europe, who manages the staffing process. While it is an overall challenge to find good workers, we have been fortunate so far in that we have been able to meet demand and fill open positions. In general, our 3PL successfully uses a mixture of temporary contracts, full-time equivalents, and agency work staff that helps us to find the right mix.
For the Levi Strauss team, we rely on a mix of offers and tools that help us retain talent. For example, we emphasize our competitive contracts, [our stature as] a great company to work for, and [our ability to offer an] attractive career path and a chance to work on interesting and challenging projects.
We have been very fortunate with the team we have working for us in Europe and Asia/Africa.
Q: Your area of distribution responsibility spans three continents (Europe, Asia, and Africa as well as the Middle East). Do you approach distribution differently depending on the market?
A: Our approach is sometimes different, as we are trying to meet the customers’ and commercial teams’ requirements and they vary from channel to channel and from country to country—for example, with value-added services, delivery requirements, and so on.
In the meantime, we are trying to standardize as much as possible, such as with inbound freight, delivery times, etc. We are a service-driven organization, and as such, we focus on maintaining the flexibility to respond to the market’s needs.
Q: You are building a new omnichannel distribution facility in the Münsterland region of Germany. What led to the decision to build this new DC?
A: We are creating this new facility in response to Levi Strauss’s growth over the past four to five years and our need for additional capacity. We also wanted to operate a true omnichannel facility in the heart of Europe—to be precise, we wanted to be able to serve all or most of Europe from this new building, with the exception of the U.K., due to Brexit.
Our operations there are due to go live by the end of 2023. The facility will provide 1,450,000 square feet of distribution space, with the option to add another 430,000 square feet. It will have a throughput capacity of 55 million units per year.
Q: I understand the facility will be built in two phases. Can you explain why you’re doing it that way?
A: We are building in two phases so that we’ll be able to scale to demand and adjust our volumes accordingly. We also wanted to be able to leverage the experience [gained in] phase one when we go to choose the material handling systems for phase two.
Q: What technologies will be used in the new facility, and why were they chosen?
A: We will be using goods-to-person equipment [TGW’s FlashPick order fulfillment system], as all of our research indicated that this would be the most flexible equipment for the truly omnichannel facility we’re looking to build. Furthermore, we will be using a mix of shuttles and cranes to “flex” volume as needed. The design includes equipment that will be RFID-enabled to help us keep up with developments in the market and realize efficiency gains.
Q: Why did you select TGW as your design and material handling partner?
A: We went through a very stringent and months-long review and bidding process. Of all the offers we reviewed, TGW’s was the clear and convincing winner.
With TGW, we found a partner that offered the best technical and performance-driven solution. It also provided competitive pricing and the best cost/benefit equation. TGW has a great team to work with, one with lots of expertise. Plus, the company’s corporate values align with Levi’s.
Q: This facility has been designed with sustainability in mind. Can you tell us why that’s important to Levi’s and describe some of the eco-friendly features that were incorporated into the design?
A: Levi Strauss has been, and will continue to be, a leader in sustainability across all functions. With a project like this, we have a unique opportunity to make a statement about the importance of sustainability to our business. We will be applying for LEED [Leadership in Energy and Environmental Design] platinum certification for the facility.
As for sustainable design features, the facility will include geothermal heating and green roofing, and will be built in accordance with cradle-to-cradle construction principles by a developer from the Netherlands.
We are not only looking at sustainability, but also at employee well-being, and we will be applying for WELL certification for this new building. [The WELL building standard is a roadmap developed by the International WELL Building Institute for creating and certifying “healthy” buildings.] Our goal is that our associates will really like coming to work because this is a good place to work and a place to be proud of.