Levi’s distribution transformation faces more delays
Operational challenges continue to make the transition more difficult and Levi Strauss & Co. will not begin to see the benefits of its distribution network overhaul until 2027. The transformation “continues to be impacted by a number of things, including the complexity of our stock-keeping unit, or SKU, portfolio and a fire at one of our distribution facilities,” CEO Michelle Gass said during the company’s third-quarter earnings call Oct. 7.
The retailer shuttered its Hebron, Ky., distribution center at the end of the third quarter, a key move in its shift away from a completely company-operated distribution network to a hybrid model with third-party facilities. The change, however, has not happened as quickly as was first expected.
The fire disrupted operations during some of the company’s most critical weeks, Gass said. Though, she said, the recovery has been going well. Levi’s also said in a securities filing that the inventory damage was covered by insurance and that the incident had no material impact on its financial results. At press time, the company had not publicly identified the affected facility and did not respond to an inquiry seeking clarification.
Groveport in the middle of transition
Levi’s is concentrating on ironing out operational kinks at its Groveport, Ohio, distribution center, which took over the jobs of the Kentucky site, with the closing of the Hebron facility.
Gass said he was confident the facility could meet the company’s needs and called the shutdown of Hebron a major step in the transition. “The company could start to see real benefits from the restructuring in 2027,” she said, adding that it’s a realistic time frame.
The latest delay is the second delay to Levi’s distribution network overhaul. The company said in January it expects the transition to be done by the end of 2026. The timeline was already a revision of earlier plans after the company had to keep running its own Hebron facility because the move to Groveport was taking longer than expected.
Shipping delays and higher costs continue to be a concern
The lengthy transition continues to imperil Levi’s supply chain and commercial relationships. The problems arising from the delay have caused, and may continue to cause, disruptions to shipping, cancelations of orders and additional costs, the company warned in its securities filing.
These problems could also impact Levi’s relationships with wholesale customers, especially if problems fulfilling orders continue as the company attempts to stabilize operations at Groveport.
The situation highlights the operational complexity of the redesign of distribution network while maintaining the service levels. But for Levi, the challenge is not only closing plants and moving business. The company also needs to make sure its distribution network can handle a wide range of products without hurting delivery performance or raising operating costs.
Other retailers are pushing for a change in the distribution network
Levi’s isn’t the only brand re-evaluating its distribution footprint. Other large retailers, including La-Z-Boy and AutoZone, are also restructuring their logistics networks, but in different ways.
La-Z-Boy is reducing the size of its distribution footprint, by trimming the number of facilities it operates and truncating the distances products travel. The drive is intended to make its logistics operations more streamlined.
AutoZone, by contrast, said this year that it was working to grow its network of distribution centers across the United States, taking a different approach to strengthening its domestic distribution capabilities.
Levi Strauss & Co. said it remains focused on completing the transition and resolving operational issues at Groveport. The company has set 2027 as the point at which improvements should begin to be seen, but the latest delay highlights the challenges of carrying out a large-scale distribution transformation while continuing to deliver reliable service to customers.
