Blue Period
Levi Strauss & Co. is consistently ranked as one of the nation’s most admired employers, and it owns one of the world’s most powerful brands.
So why is the San Francisco-based company laying off 6,400 workers and closing 11 plants?
Events leading up to Levi’s gut-wrenching cutbacks illustrate what can happen when products fail to equal a brand image honed and kept alive in consumers’ minds.
“Some people say it’s the consumer’s changing buying patterns that cause the problems,” said Clay Timon, chairman and chief executive of Landor Associates, a San Francisco-based brand-onsulting firm. “But usually it’s the company itself. They forget that they have to listen to what consumers really want.”
Consumers will forgive favored brands the occasional misstep. But brand experts say savvy marketers use that “grace period” to reinvigorate their tired brands--by first restructuring the product mix and then retooling the brand’s image.
“That’s exactly what Lou Gerstner is doing with IBM and what Sears, Roebuck & Co. did so successfully with its ‘softer side of Sears,’ campaign,” Timon said. “And it’s the reason these well-known brands seem to continue through good times and bad.”
Privately held Levi, which stitched its first pair of denim “waist overalls” in 1850, doesn’t talk much about its $7.1-billion business.
Levi executives maintain that the company can dominate denim categories where it chooses to compete. The company’s 501 jeans remain an icon around the world, and Sears and J.C. Penney Co. both report increased sales of Levi’s product during the last year.
Levi’s 10-year-old Dockers brand has become synonymous with pleated khaki pants, and the year-old Slates line already dominates the dress pants business. It’s no accident, observers note, that Levi is focusing on khaki and dress pants that carry fatter profit margins.
But there’s no question that Levi has lost market share to longtime competitors like VF Corp.’s Lee and Wrangler brands and newcomers Lucky Brand Dungarees Inc. and Penney’s Original Arizona Jeans Co. label.
Levi now has an estimated 26% of the men’s denim pants market, the biggest of the jeans markets, down from a 1990 high of 48.2%, according to Tactical Retail Solutions, a New York-based firm that tracks retail sales.
“Levi hasn’t been as close to the customer as perhaps it should be,” said Marie Drum Beninati, an analyst with CSC Consulting in New York. “Boomers got older and started looking for more comfort than they can get from Levis. And while kids still wear jeans, it’s a different kind of jeans--wide jeans, jeans hanging down over their derriere, jeans made from other materials.”
Levi’s slide was greased by technological improvements that make it easier for competitors to enter the market with an array of products.
“The barriers to entering the denim business are very, very small,” said Tony Cherbak, a Costa Mesa-based retail industry analyst with Deloitte & Touche. “All you’ve got to do is buy denim fabric, find a manufacturer, and you’ve got yourself a basic five-pocket jean.”
The only thing separating one pair of five-pocket denims from another is the label. And Levi is under assault at both ends of the market.
In just six years, J.C. Penney grew its inexpensive Arizona Jeans into a $1-billion line. Sears’ 2-year-old Canyon River Blues is now the company’s single largest private label apparel line, with more than $200 million in sales.
“You have different customers,” said Penney spokesman Duncan Muir. “Some want to spend $40 for a pair of Levi’s. Others want to spend $22 to $30 for Arizona.”
At the high end--retailing for $50 and more--upscale names like Calvin Klein, Tommy Hilfiger, Mossimo, Ralph Lauren and Donna Karan now own 4% of the jeans market.
Although Levi has signaled its willingness to let others fight for the lower-cost market, it isn’t writing off the high end.
This last summer, Levi introduced a special-edition 501 pant based on the original 1955 design and retailing for a whopping $169. And the company is expanding the Personal Pair Levi’s program, which offers cut-to-fit pants for customers willing to pay $65 or more.
Levi Chairman Robert Haas said Monday that the dramatic cuts are needed to put production in line with demand and to safeguard the company’s long-term future. But industry observers maintain that Levi’s painful cuts indicate more than a mere repositioning. The company has announced that it is putting its advertising account, which has been handled for 67 years by Foote Cone & Belding, San Francisco, in review.
“What they announced on Monday was amputation, not surgery,” said Isaac Lagnado, president of Tactical Retail Solutions. “And it was a bit of a sad day for the American garment industry and the business of branding.”
Revitalizing its brand is nothing new for Levi--it’s been doing that periodically since the 19th century. But the process can be difficult for executives who must carefully distinguish between the product and the brand.
“That’s the conflict,” said Alvin Schechter, chairman of Interbrand Schechter Inc., a New York-based consulting firm. “The distinction is that a product is made in a factory and a brand is made in the human mind.”
Levi’s forays into khaki and dress pants show that the company isn’t afraid to test new ground. And the company has tried--with mixed results--to broaden its line in the past.
During the 1950s, it flirted with pants made in Jell-O gelatin’s bright colors. In the 1960s, it experimented with wash-and-wear slacks and had a brief fling with paisley pants made of polyester.
Its biggest adventure came during the late 1970s, when it acquired a string of brand names--North America, Resistol, Oxxford and Frank Shorter--that it sold a decade later to focus on bluejeans.
After piling up sales increases in the early 1990s, Levi began tripping up. It infuriated many small shop owners when it limited its products to larger chains. Then it irritated some big chains with strict pricing policies that gave shop owners little leeway.
“For a long time, they were the only game in town,” Cherbak said. “They were able to demand prices and dictate display. But as other brands ate into their market, retailers could turn elsewhere or make their own private label brands.”
Competitors say the company is moving too slowly in today’s supercharged retail environment.
“Their problem is that they’re too big,” said Gene Montesano, a founder and co-owner of Lucky Brand Dungarees and Bongo, two Vernon-based bluejeans lines that will generate an estimated $125 million in combined revenue.
“They can’t turn on a dime,” Montesano said. “If they get a good idea today, well, they can’t get the committee together until the 28th, and then it’s a matter of getting everyone else on board. By the time they’re ready to move, the time is past.”
A 1995 company history acknowledges that quality alone won’t sell jeans. Levi now must uncover the elusive forces that drive customers to buy products--things such as what will make them feel good or whether the product will help to change their lives for the better.
Longtime Levi observers aren’t ready to count the company out.
“When dynasties like the Yankees get into trouble, people jump all over them,” said Dutch Leonard, chief executive of Burlington Global Denim, which supplies fabric to bluejean manufacturers.
“What Levi’s is doing is repositioning the brand,” Leonard said. “They’re taking the necessary steps before the next big step forward. And I wouldn’t bet against these guys.”
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The Jean Pool
Levi Strauss has seen market share for its men’s jeans shrink dramatically during the 1990s.
Men
1990
Levi: 48.2%
VF**: 22.1%
Private labels: 3.2%
Other: 26.5%
*
1997
Levi: 26.2%
VF**: 31.0%
Private labels: 19.1%
Designer: 4.1%
Other: 19.6%
Women
1990
Levi: 8.5%
Private labels: 3.1%
VF**: 14.0%
Designer: 14.1%
Other: 60.3%
*
1997
Levi: 9.3%
Private labels: 30.1%
VF**: 16.2%
Designer: 4.0%
Other: 40.4%
Source: Tactical Retail Monitor
* Estimate
** Lee and Wrangler brands
Selling the Blues
Even as Levi Strauss has stumbled, the market for denim apparel has grown steadily in recent years, fueled by upscale products from competitors such as Calvin Klein and less-costly private labels, including Original Arizona Jeans, J.C. Penney’s line.
U.S. Jeans Sales (In billions of dollars)
1996: $10.65
*
Denim Apparel Sales (In billions of dollars)
1996: $16.69
Source: NPD Group
