Last week, I wrote an article about why Macy’s is laying off employees out of a desperation to save up for a new customer-centric strategy this year. And it turns out this leading retailer isn’t the only one.
Just a few days ago, Levi Strauss announced that they would be cutting over 10% of their workforce — almost 2000 employees — this year for the very same reason.
But if all of these companies appear to be struggling with the heavy financial burden of an effective customer strategy, why even bother? Well, as Levi’s recent transformation shows, the returns clearly outweigh the costs.
Why does Levi’s Believe D2C > Wholesale?
When I say Levi’s has been completely transforming their business strategy, I’m not kidding. Levi Strauss’ SG&A expenses were up nearly $50 million in 2023 Q4 compared the previous year’s Q4 results. And practically all these extra expenses could be attributed to their growing efforts in brand building and D2C sales growth.
The crazy thing is — for decades, Levi’s relied heavily on wholesale to generate revenue. Which means they’ve spent forever trying to establish strong wholesale partners and a competitive advantage in the wholesale space. So why would they suddenly give up on this advantage by completely switching their focus to D2C?
The answer is clear when you think about it like this.
- The accrual and retention of customers drive the growth of companies
- Analyzing consumer data generates transformative insights about effective customer strategies
- Data is most easily collected when your company is the one collecting it
Number 3 here is the most important to think about. Companies that originally began through e-commerce or D2C all have the same special advantage: data.
Selling directly to consumers, whether that’s through physical or digital retail, means you get full access to important data about your customers AND full control of how to market yourselves to them. And this data helps you to understand and predict the future behavior of your customers, which in turn helps you figure how to change the behavior of your customers to your advantage.
Companies that rely on wholesale aren’t as lucky.
What’s the Return on Investment?
So here’s why it was tricky for Levi’s.
Honing in on customer loyalty and retention doesn’t have to be expensive nor difficult, but for a huge brand that has historically always pushed their product out through various retailers, making this change was a daunting task. But once they started, they immediately began repeating the benefits.
In 2023, Levi’s invested heavily in their loyalty initiatives which not only added another 2 million customers to their customer loyalty program, but also gave them easy access to all sorts of data. And this data allowed them to 1) find out how to personalize customer experience and 2) improve retention all around.
By using machine learning and AI make use of their data, they managed to:
- Predict the most suitable recommendations for certain customer segments
- Improve uplift dramatically (by >115% for sales from online searches)
- Estimate what stage of the customer journey a customer is in (and use this information to personalize marketing frequency and content)
- Automate marketing campaigns (which improved their conversion rate by nearly 400%)
As a result, Levi’s saw an increase in global net revenues of nearly $50 million and an 11% increase in D2C sales during their last financial quarter.
What Can You Learn from Levi’s?
It’s obvious through these extreme cost cuts that not every company out there can afford to do what Levi’s did. But here’s the thing:
- If you’re running an ecomm or retail brand, you’re already 100 steps ahead of companies like Levi’s when it comes to data collection
- There are WAY less expensive alternatives to making use of this data (Cotera can help you here!)
- AND any investments you do decide to make in retention and loyalty pay off in both the short and the long run
Levi’s may have to save up now, but with their D2C efforts and sales surging quarter after quarter, there’s no doubt they’ll be reaping massive rewards in no time.