👖 Levi’s pricing power
Hey Snackers,
From Trader Joe’s salads to Fords to Pelotons, product recalls are nothing new. One recall we don’t have to worry about: Bugatti is calling back a $3M 2018 Chiron — literally just one — to inspect its screws. The supercar maker sells just 80 whips a year.
Stocks ticked up yesterday after a Fed-driven selloff. In DC, the Senate confirmed Ketanji Brown Jackson to the Supreme Court, making her the first Black woman to serve on the US’s highest court.
Levi’s bet on brick-and-mortar and personalized denim is driving a sales boom — putting the brand in retail’s sweet spot
Bringing the ’90s back… in those high-school low-rises. Levi’s scored big last quarter as you splurged on jumpers and jean jackets for IRL date nights. Its CEO said that despite hiking prices, customers still shelled out more $$ for their jeans and cotton tees — and expects strong sales to continue. Total sales jumped 22% even after the denim icon took a $60M hit to combat supply snafus. Digi-sales jumped 16%, making up a quarter of Levi’s revenue. Still, Levi’s shares are down 20%+ over the past year.
501-fitting appointment… Retailers lost billions during the pandemic as we swapped distressed denim for old college sweats. Since Levi’s couldn’t control its wholesaler’s closures (like: Kohl’s and Nordstrom), it focused on selling directly through its own channels, both online and in stores. As part of that strategy, Levi’s built its first handful of upgraded locations it’s dubbed “NextGen,” and it plans to roll out 30 more this year:
- Tailor shop: Customers pick from a brunch-style menu of services like: custom embroidery, alterations, even converting old jeans into Coachella-worthy jorts.
- Endless AI-sles: Levi’s uses artificial intelligence to predict what style and price will sell best in each location (think: shorts in Silver Lake, trucker jackets in Brooklyn).
- Payoff: Sales at company-operated Levi’s stores jumped 48% last quarter, while D2C sales made up 39% of total sales.
Levi's is in retail’s sweet spot… Its customers are paying higher prices and buying directly. That sweetens profits, since there’s no one in the middle to take a cut. But to justify higher prices and boost direct sales, retailers need to premium-ify the shopping experience (or at least give it some pizazz). Instead of buying $30 Levi’s from Ross, you might choose the Levi’s store to get a flower patch sewn into your jean jacket.
The biggest city in China is locked down — and the groaning supply chain is about to feel it
It’s Day 12… and there’s no sign of Shanghai’s lockdown lifting. Almost two weeks ago, China locked down its largest city and financial capital to contain its biggest Covid outbreak in two years. Since then, China’s zero-Covid policy has brought life to a halt for 26M people, virtually freezing one of the world’s most important manufacturing hubs.
- Drones and robo-dogs are circulating to remind citizens to obey the rules and curb their “soul’s desire for freedom.” Many residents are running low on food because delivery services have been disrupted (and they can’t go to the grocery store).
- Office sleepover: Some bankers are stuck sleeping under their desks and brushing teeth with their coworkers.
Indefinite lockdown, definite damage… Shanghai accounts for 4% of China’s GDP and 10% of its exports, so the lockdown threatens to slow the entire country’s economy. But the rest of the world could be affected, too, since Shanghai is an industrial nerve center.
- Closed factories: Tesla, Volkswagen, and German industrial giant ThyssenKrupp have shut their Shanghai plants for two weeks and counting; production has slowed for 80% of Shanghai-based manufacturers.
- Empty ports: Cargo volume in Shanghai’s port — among the world’s busiest — has dropped by a third since mid-March. Shipping giant Maersk says the lockdown will also reduce trucking in and out of the city by 30%.
- Mounting losses: After this clampdown and a similar quarantine in Shenzhen last month, half of US companies in China have reduced their annual sales estimates.
Supply struggles could speed the “decoupling”… of the West’s business ties with China. If a pandemic and a war didn’t persuade global businesses to strengthen their own supply chains, this Shanghai shutdown might. Chinese citizens have no choice but to obey their government and its robo-dogs. But multinational companies have options — and a growing list of reasons to reduce dependence on China.
What else we’re Snackin’
- Print: Warren Buffett is on a shopping spree: Berkshire Hathaway disclosed an 11% stake in HP, sending HP’s shares up 15%. Buffett, who was once famously tech-averse, is now HP’s largest shareholder.
- Fume: Shell expects to take a ~$5B hit from its Russia exit. The writedown is a first look at the impact the war in Ukraine is having on Western oil companies as they cut bait on their Russian exposure.
- Find: Google is rolling out a “multisearch” feature the lets users scan the web with a pic and text at the same time (think: I want this dress, but in blue). The search giant says shopping is a major biz priority.
- Drive: Walmart’s raising pay for its truck drivers up to $110K/year — about the same starting salary of a junior Wall Street banker — as the trucking industry deals with a severe driver shortage (adding to supply woes).
- Ball: As American as Apple TV+: Apple’s experiment with live sports starts tonight. The streamer’s broadcasting two MLB games — free for non-subscribers — as it looks for an edge over larger streamers.
Friday
- Wholesale inventories
Authors of this Snacks own: shares of Apple, Walmart, Google, Tesla, Berkshire Hathaway, Ford, and Nordstrom
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