Levi’s AI Chief Says Algorithms Helped Increase Sales

Levi Strauss & Co. said the use of artificial intelligence in critical areas such as pricing has helped the clothing maker drive sales growth and improve its margins.

A key to the effort is a massive data store the company has built on Alphabet Inc.’s

Google Cloud, according to Katia Walsh, Levi’s chief strategy and AI officer. It includes inventory and sales information from Levi’s stores, as well as some stores operated by other retailers, she said.

The repository contains information Levi’s shoppers share with the company. It also includes a range of external data, derived from public and private sources, that tracks consumer buying patterns and behavior, weather and climate forecasts, economic trends and more.

This cache, Ms. Walsh said, is vital to deploying Levi’s enterprise-wide AI capability. Applying machine learning and automation to the data has helped the company improve consumer marketing personalization, make informed pricing decisions, predict demand and optimize execution, all of which have helped the company, she said.

The company uses machine learning, a subset of AI, which uses statistics and probability to automatically spot patterns in data and make predictions, Ms Walsh said.

For example, the system found that a particular T-shirt with a thicker fabric had become popular with female consumers in China. The company had considered discontinuing the product. The machine learning analysis convinced the company to continue offering it in China, where sales have remained strong, Ms Walsh said.

The company wouldn’t be able to spot such trends without machine learning, given the number of products the company sells online and in some 50,000 retail locations in more than 110 countries, Ms Walsh said.

Levi Strauss also uses the data storage and machine learning to support pricing and shipping decisions, including the best locations to ship its products. Instead of shipping an online order from a distribution center, it can ship a product from a store near the buyer’s address. This helps the company better manage local inventory and control shipping costs, but also often results in shoppers receiving their orders earlier.

“AI plays an important role,” said Ms. Walsh. The application of AI to pricing “allowed us to discount not as broadly and as deeply as has been common in the past,” she said.

The use of AI has given the company a new opportunity to accurately target customers, said Ms. Walsh. “That contributed to higher sales,” she says.

Levi said it accelerated its AI initiatives with the arrival of Ms. Walsh in 2019. Before joining the company, she led data and artificial intelligence efforts at Vodafone Group PLC and Prudential Financial Inc.

Ms. Walsh has a Ph.D. in strategic communication with a specialization in quantitative methodology.

Levi’s net income, which took a hit during the height of the pandemic, is on the rise. The company is currently in a quiet period pending the release of its fourth quarter results, but Levi said in October that it expected net sales for the fourth quarter, which ended Nov. 28, to drop 20%. would rise to 21% compared to the $1.39 billion. in net sales, it reported in the three-month period ending Nov. 29, 2020. That would put net sales in the range of $1.66 billion to $1.68 billion. It reported net sales of $1.57 billion for the fourth quarter of 2019 and $1.59 billion for the last quarter of 2018.

“Artificial intelligence and technology initiatives have enabled us to transform our business. It is a priority for the business as we create value for all of our stakeholders,” said Harmit Singh, Levi’s chief financial officer.

Jim Duffy, a director at investment firm Stifel Financial Corp. who covers Levi, said the company’s gross margin — a measure of the amount left over from sales after deducting the cost of goods sold — is improving. He said gross margin is an indication of how smart a company can match inventory with demand and how well it predicts trends to avoid discounts.

Levi’s gross margin for the third quarter ended August 29 was 57.6%, up from 54.3% in the same period a year earlier and 53.0% in the third quarter of 2019.

Mr. Duffy expects the company’s gross margin for 2021 to be 57.7%.

write to John McCormick at john.mccormick @wsj.com

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