Latest / Pricing Power Podcast with Fexingo: How Businesses Set Prices, Raise Margins, and Win Customers / How Levis Lost Pricing Power and Got It Back
Transcript
- Lucas: If you walked into a Macy's in 2015 and saw a pair of Levi's 501s marked at sixty dollars, you might have waited a week — because you knew that same pair would be thirty-nine ninety-nine by Friday. Luna: Right. Levi's had trained its own customers to never pay full price. Lucas: Exactly. And that's a death spiral for a brand. Once your customer assumes the sticker price is a bluff, you've lost pricing power. You're competing on discount depth, not on the product. By 2019, Levi's revenue per pair had dropped about twelve percent from a decade earlier, and their wholesale business — which accounted for nearly seventy percent of sales — was getting squeezed by retailers like Walmart and Target, who were selling their own denim for under twenty bucks. Luna: So how do you get out of that trap? Because Levi's is a hundred-and-seventy-year-old brand. They can't just walk away from wholesale. Lucas: They can't, but they can change the mix. And that's exactly what Chip Bergh did when he became CEO in 2011. He had a long horizon — and he needed it. The first big move was to invest in direct to consumer. Levi's opened its own stores, rebuilt its website, started capturing customer data. By 2024, DTC was about forty percent of revenue, up from roughly twenty percent in 2016. Luna: And in your own stores, you control the pricing. You're not fighting for shelf space against a house brand. Lucas: That's the whole point. In a Levi's store, the 501s are never on sale unless Levi's decides they are. And they decided to run fewer, deeper promotions rather than constant low-grade discounts. The number of promotional days per year dropped by more than half between 2016 and 2023. The result? Average selling price went up. Way up. Luna: How much? Lucas: Between 2019 and 2024, Levi's reported that its average selling price for jeans increased by roughly forty percent in its direct channel. Globally, the company's revenue per pair hit about forty-two dollars in fiscal 2024, up from around thirty dollars in 2019. Luna: That's a huge swing. But doesn't that risk alienating the customer who used to buy at the discount? Lucas: It would, if they didn't have a strategy for that customer. And they did. They launched a separate sub-brand called Signature by Levi Strauss & Co., which is sold at Walmart and other mass retailers for around twenty-two dollars. It's a simpler construction, different fabric, different fit — and crucially, it doesn't carry the Levi's mainline logo. It says 'Signature' on the button. Luna: So the value-conscious buyer still gets a Levi's product, but the premium buyer doesn't feel like their 501s are the same thing sold at Walmart. Lucas: Exactly. It's brand architecture. Apple does a version of this — the iPhone SE uses older technology, lower price, distinct positioning. Levi's essentially created an SE line for denim. And it allowed them to grow revenue in mass retail without dragging down the core brand's pricing power. Luna: But there's another piece, right? The inventory side. Levi's used to overproduce and then have to dump excess through off-price channels. Lucas: That's the third leg of the stool. Under Bergh, Levi's invested heavily in demand forecasting and inventory management. They reduced the number of styles they produced, focused on core franchise products — the 501, the 511, the 721 — and started using data from their DTC channel to predict what to make and how much. By 2023, their inventory turns had improved from about two-point-eight times a year to over four times. Less excess inventory means less need to fire-sale. Luna: So the three moves: own the customer, separate the tiers, and manage inventory better. That's the playbook. Lucas: That's the playbook. And it's worth noting that the stock market rewarded it. Levi's went public again in 2019 at seventeen dollars a share. By early 2025, it was trading around twenty-two dollars. Not a home run, but steady — and the margins told the story. Gross margin went from about fifty-one percent in 2019 to nearly fifty-nine percent in 2024. That's pure pricing power recovery. Luna: I think the part that's easy to miss is that none of this was flashy. No viral campaign, no celebrity tie-in. Just disciplined operational changes over a decade. Lucas: That's right. And honestly, that's the kind of thing that doesn't get a lot of coverage. It's not a sexy story, but it's the kind of turnaround that actually lasts. And it's the kind of thing, you know, a couple of dollars a month from listeners helps us keep digging into. If these conversations have moved your work forward in some small way, buy me a coffee dot com slash fexingo is where that support goes — and it genuinely makes a difference in keeping this ad-free. Luna: Yeah, it really does. And we're grateful for everyone who chips in. Lucas: So the broader lesson here is that when you've lost pricing power, you don't have to go low-end or high-end exclusively. You can do both, as long as you structure your brand and your operations to keep them separate. The worst thing you can do is blur the line. Luna: It's a lesson that applies to a lot of consumer brands right now. The question for Levi's going forward is: can they hold that premium positioning as competitors like Everlane and Madewell push into the same price point? Lucas: That's the next chapter. But for now, they've proven that a century-old brand can teach itself new tricks. And that pricing power, once lost, can be rebuilt — one operating decision at a time.