case levi strauss-uk

Professor J.J. Lambin – Strategic Marketing

The case of Levi Strauss (1)

Who doesn’t know Levi’s, the American blue jeans icon known all over the world? Today, Levi’s is one of the world’s largest brand-name companies in the blue jeans and casual pants markets. Its products are sold under the Levi’s, Dockers and Levi Strauss Signature brands. While Levi’s conveys an image of quality and innovation, the brand is mostly recognized for its status as the original pioneer brand among international customers. With sales in more than 100 countries, Levi’s is a global company with three geographic divisions: the Americas, Europe Middle East and Africa and Asia Pacific.

In 1853, during the California gold rush, Levi Strauss set up his own business in San Francisco. He sold durable and tough pants that became a standard dress for miners, dockworkers, railroad workers and “cow boys”. However, the first blue jeans were born in 1873. At that time, Jacob Davis, a Levi’s customer, suggested Levi Strauss to patent the process of putting copper rivets in pants for strength. They went into business together and founded what would become the world’s most popular clothes.

After the World War II, American products met a great success in the world and enjoyed a strong popularity in Europe. Jeans symbolized American freedom and conveyed many of the core values of American democracy. Therefore, people wore Levi’s jeans as a symbol of their freedom and individuality. Hollywood also had a huge impact on the popularity of blue jeans. By wearing blue jeans, James Dean, for example, in “The Rebel Without a Cause” brought fame to blue jeans and other popular actors did the same. With such images, blue jeans became synonymous with rebelliousness, danger, adventure, and most of all, a non-conformist youth culture.

The identity of Levi’s brands of jeans

Attributes and benefits Associations - Product-related attributes - User imagery - Usage imagery - Brand personality - Experiential benefits - Symbolic benefits - Functional benefits

- Blue denim, shrink-to-fit cotton fabric, button-fly, two horse patch, and small red pocket tag.

- Western, American, blue collar, hard working, traditional, strong, rugged, and masculine.

- Appropriate for outdoor work and casual social situations.

- Honest, classic, contemporary, approachable, independent, and universal.

- Feeling of self-confidence and self-assurance

- Comfortable fittimg and relaxing to wear.

- High quality, long lasting and durable. Source. Quoted by Keller,(1998)

Until late 1960’s, there was no or minimal competition and the company decided to expand distribution internationally. In the early 1970’s, the business environment quickly changed and Levi’s faced its first real competitors. It was not prepared to compete in a fast-paced climate and the business became unprofitable. Early 80’s, the company recovered its initial position by focusing on its core competencies and late 80’s, Levi’s identified a new fashion trend, the casual dress, and established a leadership position in that segment with the introduction of the “Docker” brand.


Levi’s started to lose share in the 1990’s

Despite the fact that Levi’s created the market, was synonymous with the word blue jeans and led the category for decades, Levi’s started in the 90’s to lose significant share of the blue jeans market Levi’s felt that it was benefiting from such a high brand awareness and brand leadership position that nothing could happen to itself.

New trends started to develop in the market, especially in the teenage market. In the 90s, Levi’s was such a hot and great brand that it thought it would be able to sell the same product to everyone. Though, it didn’t take into account that young people were more fashion-oriented than before. Indeed, it neglected the teenagers’ aspirations, which is a non-sense for a brand once synonymous with rebellious youth movement. The blue jeans were not cool anymore and became out of fashion. It was more suitable for parents than for fashion teens. US teens describe Levi’ jeans as “too straight”, “not baggy enough”, “too plain” and “preppy”. Young people were looking for a product allowing them to show their identity, to set their own style and trends. They could not show their individuality anymore by wearing pant of their parents. Then, a new fashion style emerged at the expense of the traditional blue jeans: the trend toward wide-leg, baggy jeans and combat pants. This new fashion was one of the answers to teenagers’ needs. In fact, it reflected an underground style representing what young people were looking for: authenticity, functionality and non-conformity. It was first adopted by skateboarders and clubbers and after by the youth market as a whole.

The type of competition also changed. Competitive threats were not only coming from the classical competition such as Wrangler or Lee. Numerous new companies entered the jeans market. First of all, top-end designers such as Gucci or Armani launched their own high-fashion denim ranges. Companies such as Diesel or Miss Sixty also developed high-fashion jeans at high price. Other brands also entered the market such as Benetton, H&M, Zara in Europe while Tommy Hilfiger, CK Calvin Klein, Guess, Polo Jeans, Gap, Old Navy and Guess were expanding in the denim in the US. Finally, the discounters also began to sell private labels. "Ignoring competitive threats is the beginning of the end. Success leads to arrogance and arrogance leads to failure."

Additionally, Levi's restricted distribution policy further eliminated market share opportunities. The current distribution strategy focuses on seeking a more high profile presence in the form of boutiques located within department stores and an emphasis on the brand as the strongest element. “To preserve and enhance consumers’ impression of the brand, the majority of our products will be sold through dedicated distribution, such as Levi’s Only Stores and in store chops.” Explosive growth of discount mass-merchants Wal-Mart and Target, as well as specialty retailers like The Gap, further eroded business opportunity and future profits.

As a result, Levi’s started in 1996 a six-year sales decline. Levi’s had to close more than half its US plants due to the erosion of its dominant market share: the teen sales. Levi’s had 30.9% of the US blue jeans market in 1990 but had only 18.7% market share in 1997 after the Levi’s crisis. After having put new strategies in place, Levi’s stabilized the business and the year 2002 was a turning point.

Questions

1. What went wrong with Levi Strauss strategic marketing? 2. Use the Porter’s matrix to analyse the competitive structure of the Levi Strauss’

reference market? 3. Use the competitors identification matrix to assess the competitive threats

confronted by Levi Strauss .


The case of Levi Strauss (2)

Levi’s had been slow to react but it found different ways to overcome the problems

encountered. First, it decided to reorganise and change its strategy. Levi’s overall strategy was now to sell “relevant products at the right price in the places where people shop”. Levi’s expanded its distribution channels and product ranges in order to reach more consumer segments. Indeed, it added new retail shops in the United States, launched new products at a lower price in Europe and expanded its market penetration in China and Pakistan.

In the fall 1996, Levi Strauss announced that it will launch a new line of men’ dress slacks under the brand Slates. The pant will be marketed to men in their forties who grown tired of the traditional look of dress pants. “We found there was a void between Khakis and suits”, says Westfall, the President of Slates. Levi’s is launching a 22 million marketing campaign for Slates. It is building in-store displays at 240 department stores across the US and launching an advertising campaign in the fall of 96. Levi’s hopes the new slacks will capitalize on the growing trend to corporate down-dressing. Westfall said,… the slacks could be for dress-up occasions at super-casual companies, or for dress-down days at more formal firms. Competitors say Levi’s has no place in the dress pants world. Second, it decided to revitalize Levi’s image and brands by keeping constantly innovating. Indeed, innovation was considered as the key way to differentiate the brand. In 2002, the company decided to launch new products more often to appeal to teenagers and young adults. In fact, new designs would appear every six weeks. This was essential in some markets where consumers expect new styles more frequently (i.e. the juniors’ market). Third, Levi’s decided to launch a new brand, marketing a new value-priced blue jean called Levi's Signature. The new Levi's Signature would be introduced in Wal-Mart and would be available at other discount retailers within the first quarter of 2003. The goal of the value priced Signature line was to use the equity of the Levi's brand to compete with national brands and private label pricing. The new brand was available in Wal-Mart stores in 2003 and in Europe in 2004. Experts wondered if Levi’s would not dilute its brand image by implementing a mass market channel strategy. The Levi’s answer was that the Levi Strauss Signature would be run as a separate brand. Indeed, jeans would be distinctive from the traditional line by having no red tab or leather patch.

Fourth, it re-segmented the market by delivering a specific product for every consumer segments1. The segments identified were trend initiators, trend influencers, early-adopters, traditional and value-driven. Levi’s teams were also looking at the different segments within the youth market to find out their expectations from the brand. For example, Levi’s decided to pump up the Silver Tab line because it considered it had more stylish among young consumers and to expand the line with more tops, new khaki pants and more fashion styles. Fifth, Levi’s also decided to focus more significantly on the women market. It realized that its products were too masculine. In fact, Levi’s created women’s denim models from men’s patterns. Consequently, pants did not quite fit the women’s curves. Levi’s had to overcome its bad habits by launching models with better fits and hipper fashion. Men also got more attention by getting sexier styles for jeans.

Sixth, Levi’s also considered that it had to be more cost competitive. Therefore, it decided to close eight plants in 2002 and it moved also out of domestic manufacturing. Preppy is a chiefly American adjective traditionally used to describe the characteristics of White, Anglo-Saxon, Ppatrician Protestants (usually with some personal or familial connection to New England, even if only historic) who attend or attended major private, secondary university-preparatory schools


Seventh, Levi’s revitalized its retail relationships. Indeed, the company turned its retail customers’ relationships into strong and mutually beneficial ones. Actually, Levi’s and the retail accounts have worked together in order to provide a better shopping experience for consumers.

Finally, it decided to change its advertising campaign by focusing more on the Levi’s brand than on the different products. It designed a new high-fashion advertising campaign especially aimed at teenagers. The company wanted to reinforce its image and stress its brand values (rebellious mind, tough cow-boy, ..) After the different actions, the business started to stabilize but Levi’s management realized it had to take additional actions to make the implemented strategies of 2002 work harder.

Questions 1. How would you segment the jeans market? 2. Do you think that the introduction of a Levi’s brand in the mass retail distribution is a

good idea? 3. What do you think about Levi’s redeployment marketing strategy? This case was written by the Professor Isabelle Schuiling and by Julie Lardinois, assistant in the Marketing unit at the IAG Louvain School of Management. This case was compiled from published sources.

Trend initiators

Trend influencers

Early adopters

Traditional

Value-driven

Levi’s Red

Levi’s Vintage

Levi’s Type 1Pure Blue

Engineered JeansSilver Tab

Levi Strauss Signature

Red Tab

$ 145 - $ 220

Levi

’s Br

and

U.S Segmentation Model jeanswear

Levi

Stra

uss

Sign

atur

e Br

and

Premium Special Edition

$48 - $110

$35 - $48

$27 - $30

Under $30

Adapted from 2002 Annual Report Levi Strauss & Co.


Table 1

Levi Strauss net sales in dollars per region and per brand in 2002-03 Brands Years North America Europe Asia-Pacific TOTAL

2002

1 596 575 954 553 401 445 2 952 573 (71.2% )

Levi’s brand

2003 1 381 377

891 008 480 631 2 753 016 (67.3 %)

2002

908 887 94 664 20 689 1 024 240 (24.7 %)

Dockers

2003 820 531

101 132 21 947 943 610 (23.0 %)

2002

169 053 - - 169 053 (4.0 %)

Signature

2003 388 460

- 5 644 394 104 (9.6 %)

2002

2 674 515 1 049 217 422 134 $ 4 145 866 TOTAL

2003 2 590 368

992 140 508 222 $ 4 090 730

Source: Levi Strauss Annual Report, 2003 * Due to the elimination of Slates dress pants business which contributed to $24.2 million to the decline.

*

Table 2 Levi Strauss Consolidated Operations in 2003

In 000 dollars 2003 2002 Changes Net Sales

4 090 730 4 145 866 - 1.3 %

(-5.7 % at constant currency)

Cost of goods sold

2 516 521 2 456 191 + 2.5 %

Gross profit

1 574 209 (38.5 %)

1 689 675 (40.7%)

- 6.8 %

Selling and adm. expenses

1 353 314 1 285 855 + 5.2 %

Other income or charges

(92 454)

Operating Income

313 349 254 145 + 23.3 %

Interest & other expenses

344 641 227 558

Income before taxes

(31 292) 26 587 - 217.7%

Income tax expense

318 025* 19 248

Net Income (loss) (349 317)

7 339

Source: Levi Strauss Annual Report, 2004 *due to a substantial increase in valuation of assets


Table 3

Levi Strauss Consolidated Operations in 2004 In 000 dollars 2004 2003 Changes

Net Sales

4 072 455 4 090 730 Flat (-4% in constant

currency) Cost of goods sold

2 288 406 2 516 521 - 9.96 %

Gross profit

1 784 049 (43.8%)

1 574 209 (38.5 %)

+ 13.3 %

Selling and adm. expenses

1 299 766 1 353 314 - 4.0 % (+ 5.3 percent points)

Other income or charges 123 184 (92 454) Operating Income

361 099 313 349 + 15.2%

Interest & other expenses

265 574 344 641

Income before taxes

95 125 (31 292)

Income tax expense

65 135 318 025* - 79.5 %

Net Income (loss) 30 390 (349 317)

Source: Levi Strauss Annual Report, 2004 *due to a substantial increase in valuation of assets.

Table 4 Levi Strauss net sales per region and per brand in 2002-04

Brands Years North America Europe Asia-Pacific TOTAL 2002

1 596 575 954 553 401 445 2 952 573

(71.2% ) 2003 1 381 377

891 008 480 631 2 753 016

(67.3 %)

Levi’s brand

2004 1 254 546

920 699 568 414 2 743 659 (67. 4 %)

2002

908 887 94 664 20 689 1 024 240 (24.7 %)

2003 820 531

101 132 21 947 943 610 (23.0 %)

Dockers

2004

649 356*

92 801 21 974 764 131 (18.8 %)

2002

169 053 - - 169 053 (4.0 %)

2003 388 460

- 5 644 394 104 (9.6 %)

Signature

2004

522 553

28 625 13 487 564 665 (13.9 %)

2002

2 674 515 1 049 217 422 134 $ 4 145 866

2003 2 590 368

992 140 508 222 $ 4 090 730

TOTAL

2004

2 426 455

1 042 125 603 875 $ 4 072 455

Source: Levi Strauss Annual Report, 2004 * Due to the elimination of Slates dress pants business which contributed to $24.2 million to the decline.

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