Levi's Won't See Distribution Overhaul Payoff Until 2027

Levi Strauss & Co. now expects to see benefits from its distribution network overhaul no earlier than 2027, CEO Michelle Gass said on the company's Oct. 7 Q3 earnings call.

The company closed its Hebron, Kentucky, distribution center at the end of Q3, but two problems have slowed the transition: the sheer number of SKUs Levi's manages, and a fire at one of its distribution centers.

The fire "was a big disruption in some of our most important weeks," Gass said on the call. She noted the recovery has gone smoothly. According to a securities filing, the damage to inventory was insured and the financial impact was not significant. Levi's did not respond to an inquiry about which facility was affected by the time of publication.

What does the delay mean for the network?

Levi's is shifting from a fully owned distribution center model to a hybrid approach combining owned and third-party-run facilities. After closing Hebron, the company is now working through operational complexities at its Groveport, Ohio, facility, which absorbed the Kentucky site's work.

"I think 2027 is very reasonable and realistic to start seeing the benefits. And like I said, closing that Hebron facility was an important milestone to say we have the confidence that Groveport will fulfill our needs," Gass said.

This is the second time Levi's has pushed back the overhaul's completion date. In January, the company said it would finish the move by the end of 2026 after it was forced to keep the Hebron site running because the Groveport transition was taking longer than expected.

The filing spells out the cost of continued delays: shipping delays, order cancellations and increased costs — all of which have strained, and may continue to strain, Levi's relationships with wholesale customers.

Who else is reworking distribution?

Levi's is not alone in overhauling its distribution footprint:

• La-Z-Boy is shrinking its network, cutting both its total number of distribution facilities and the total mileage its products travel.
• AutoZone said this year it is expanding its U.S. distribution center network — the opposite direction from Levi's and La-Z-Boy.

For Levi's, the bet now rests on Groveport proving it can handle the load — and on 2027 arriving without a third delay.