Levi to Move Half of N. America Operation

Levi Strauss & Co., the 150-year-old icon of rugged American fashion, announced Monday that it will shift much of its manufacturing operations out of North America. It will shut half of its 22 plants and lay off 5,900 workers, 30% of the company’s U.S. and Canadian work force.

The move marks a dramatic setback for the U.S. apparel-manufacturing business and continues the retreat of a company that once prided itself on maintaining a vast American work force.

It also accelerates a trend of production job losses in the apparel industry that has continued for more than a quarter of a century. Levi’s new plants most likely will be in South America and the Caribbean, company officials said.

San Francisco-based Levi, which pioneered the jeans industry, now is a case study of a dominant company in decline. Over the last few years, the company has seen its famous jeans lose ground to more nimble companies, such as Gap Inc. and Tommy Hilfiger Corp., which were quick to catch on to young consumers’ demand for cargo and wide-leg style denim pants. Many other Levi customers sought lower-priced, private-label jeans at J.C. Penney, Sears and Wal-Mart.

“The problem with Levi’s is that neither you nor I are wearing them,” said Kurt Barnard, a retail consultant and president of Barnard’s Retail Trend Report. “I think they were too arrogant in assuming the name Levi--with its renown around the globe--would carry them forever. That was very shortsighted, very foolish.”

Some analysts also faulted Levi for moving too slowly to join its competitors in shifting production from the U.S. to foreign markets. Levi’s unionized American employees receive health insurance, pensions and other benefits along with pay averaging more than $9 an hour--an estimated five to 10 times more than apparel workers overseas.

“They are a wonderful corporate citizen,” Barnard said. “I think they should have closed many more plants, 17 or 18 at the very least, but can you imagine the impact on the American economy?”

Still, most analysts think the company is strong enough to rebound.

“They’re far from a crisis situation,” said David Mass, one of the owners of Fabric Marketing Research in New York. “Their major product line has run into problems, but they’ve got a lot of good things working for them.”

Union officials, who have worked cooperatively with Levi Strauss over the years, blamed the company’s actions on business pressures brought on by competitors that use low-wage foreign laborers. They said that kind of competition only increased with legislation such as the North American Free Trade Agreement, which was passed in 1993 to spur more commerce among the United States, Mexico and Canada.

Bruce Raynor, secretary-treasurer of the apparel industry union UNITE, said the Levi plant-closing announcement “points out what UNITE said [would happen] when we opposed NAFTA and fought fast-track trade extension.”

Last month, Levi President and Chief Operating Officer Peter Jacobi announced his retirement, saying the time was right given the family-owned clothier’s attempt to recapture the youth market.

Recently, Levi, one of the world’s biggest clothing manufacturers, saw sales of its Dockers khakis and Slates dress pants lines rise to record levels. But, analysts said, the company seemed to be helpless to stop the continuing sales losses with its basic line of jeans.

Monday’s announcement comes a week after Levi reported that 1998 sales dropped 13% from the year before, from $6.9 billion to $6 billion, mostly because of weak demand for its jeans. The company has slumped since hitting a sales peak of $7.1 billion in 1996.

Levi retains its position as the market leader for a single brand, but its 25% share of the U.S. jeans market is only about half what it was in 1990.

Late last year, the company unveiled several efforts aimed at attracting younger consumers, including its first catalog and online sales campaigns, a push to sell through specialty shops and the addition of brands.

But at the same time, the company warned of cost-cutting measures that would enhance its marketing efforts and streamline its ability to bring new products to market.

In November, a glut of the company’s classic five-pocket jeans forced a two-month shutdown of seven U.S. plants that employ 4,000.

The company also last year closed two plants in Texas as well as four in Western Europe. In 1997, Levi shut 11 U.S. plants, laying off 6,400 employees.

Even as Levi started to close operations two years ago, company executives stressed that the closures were due to an inventory glut and that U.S. jobs would not be replaced by cheaper foreign labor. But by 1998’s round of closures, they were no longer making that promise.

“We’ve held on as long as possible in North America, but it’s clear now that given market trends, we need to be more competitive and reduce our manufacturing costs,” said Levi spokesman Gavin Power. “Most of our competitors shifted overseas long ago.”

Levi’s latest closures include four plants in Texas, two in Tennessee and one each in Georgia, Arkansas, Virginia, North Carolina and Ontario, Canada.

The job losses at Levi continue a long-term industry trend. The nation’s apparel production employment peaked in 1973 at 1.3 million and now is down to about 725,000.

For Levi’s workers, who receive benefits and pay that are perhaps the best in the apparel industry, the long-rumored shutdowns are a devastating blow.

“If you worked in the garment industry, you wanted to work for Levi,” said Sandra Spector, a business agent in El Paso with UNITE, which represents about 2,000 of the 5,900 workers losing their jobs.

Workers at Levi will receive severance and other benefits almost unheard of in the traditionally tightfisted world of garment manufacturing.

The $245-million U.S. employee benefits package includes eight months’ notice; as much as three weeks’ severance pay for every year of service; up to 18 months of medical coverage; an enhanced early-retirement program; and up to $6,000 for training, education and business start-up expenses.

The Levi Strauss Foundation also will contribute as much as $5 million in grants to “ease the social and economic impact” on the 11 communities affected by the closures, the company said.

Consultant Margaret Gilliam said Levi has run into trouble by thinking of itself as a premier brand worthy of premier distribution, rather than serving the mass-market customer who shops at Wal-Mart.

“It’s a good-quality product, but it’s a middle-of-the-road brand, and middle-of-the-road brands should be sold to middle-of-the-road retailers,” Gilliam said.

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Plant Closings

Levi Strauss & Co. announced that it will close 11 of its 22 factories in North America this year, elimination 5,900 jobs.

Texas: Harlingen, Wichita Falls, McAllen and the Cypress plant in El Paso

Tennessee: Mountain City and Johnson City

Georgia: Valdosta

Arkansas: Morrilton

Virginia: Warsaw

North Carolina: Murphy

Canada: Cornwall, Ontario

Source: Levi Strauss & Co.