Levi Strauss’ gross margins are expected to come under pressure from higher inventory levels, increased promotions, and a stronger dollar, even as its jeans became more expensive.
The company is expected to face a fall in quarterly sales for the first time in six quarters, as penny-pinched shoppers shift away from pricier jeans to more formal clothing and non-denim styles. The company benefited from the need for people to renew their wardrobe post lockdown, but the strength in terms of the customer needing to go back to denim and replenish will be much lower now.
While macro pressures have not impacted all apparel categories equally, denim has been a category feeling the brunt of a change in consumer spending patterns. The US jeans market is expected to decline slightly in 2023. The market is estimated to grow at a modest 3.8 per cent between 2022 and 2027, after a 12.5 per cent expansion over the last five years. Shoppers are buying more cargo pants and corduroys as they refresh their wardrobes with more non-denim bottoms.
With the United States on the edge of a recession, shoppers, pressured by high inflation, are spending less on discretionary items like clothing, with the denim category, in particular, set for a slowdown following a demand surge in 2021.