The case of Levi Strauss (1)

Who doesnt know Levis, the American blue jeans icon known all over the world? Today, Levis is one of the worlds largest brand-name companies in the blue jeans and casual pants markets. Its products are sold under the Levis, Dockers and Levi Strauss Signature brands. While Levis 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, Levis 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 Levis 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 worlds 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 Levis 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 Levis brands of jeans Attributes and benefits Associations Product-related attributes - Blue denim, shrink-to-fit cotton fabric, button-fly, two horse patch, and small red pocket tag. User imagery - Western, American, blue collar, hard working, traditional, strong, rugged, and masculine. Usage imagery - Appropriate for outdoor work and casual social situations. Brand personality - Honest, classic, contemporary, approachable, independent, and universal. Experiential benefits - Feeling of self-confidence and selfassurance Symbolic benefits - Comfortable fittimg and relaxing to wear. Functional benefits - High quality, long lasting and durable.

Source. Quoted by Keller,(1998)

Until late 1960s, there was no or minimal competition and the company decided to expand distribution internationally. In the early 1970s, the business environment quickly changed and Levis faced its first real competitors. It was not prepared to compete in a fast-paced

climate and the business became unprofitable. Early 80s, the company recovered its initial position by focusing on its core competencies and late 80s, Levis identified a new fashion trend, the casual dress, and established a leadership position in that segment with the introduction of the Docker brand. Levis started to lose share in the 1990s Despite the fact that Levis created the market, was synonymous with the word blue jeans and led the category for decades, Levis started in the 90s to lose significant share of the blue jeans market Levis 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, Levis was such a hot and great brand that it thought it would be able to sell the same product to everyone. Though, it didnt 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 Levis 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, Levis started in 1996 a six-year sales decline. Levis had to close more than half its US plants due to the erosion of its dominant market share: the teen sales. Levis had 30.9% of the US blue jeans market in 1990 but had only 18.7% market share in 1997 after the Levis crisis. After having put new strategies in place, Levis stabilized the business and the year 2002 was a turning point.

Questions 1. What went wrong with Levi Strauss strategic marketing? 2. Use the Porters matrix to analyse the competitive structure of the Levi Strauss reference market?
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.

The case of Levi Strauss (2)

Levis had been slow to react but it found different ways to overcome the problems encountered. First, it decided to reorganise and change its strategy. Levis overall strategy was now to sell relevant products at the right price in the places where people shop. Levis 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. Levis 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. Levis 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 Levis has no place in the dress pants world. Second, it decided to revitalize Levis 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, Levis 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 Levis would not dilute its brand image by implementing a mass market channel strategy. The Levis 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. Levis teams were also looking at the different segments within the youth market to find out their expectations from the brand. For example, Levis 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, Levis also decided to focus more significantly on the women market. It realized that its products were too masculine. In fact, Levis created womens denim models from mens patterns. Consequently, pants did not quite fit the womens curves.

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

Levis 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, Levis 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. Seventh, Levis revitalized its retail relationships. Indeed, the company turned its retail customers relationships into strong and mutually beneficial ones. Actually, Levis 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 Levis 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 Levis management realized it had to take additional actions to make the implemented strategies of 2002 work harder. 1. 2. 3. 4. 5. Questions How would you segment the jeans market? What are the Levi's target segments? What is Levi's positioning? What do you think about Levis redeployment marketing strategy? Do you think that the introduction of a Levis brand in the mass retail distribution is a good idea?

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.

U.S Segmentation Model

jeanswear

Levi s Red

Levi s Brand

Trend initiators

Levi s Vintage

$ 145 - $ 220

Premium Special Edition Trend influencers Levi s Type 1 Pure Blue Engineered Jeans Silver Tab Red Tab Levi Strauss Signature $48 - $110

Early adopters

$35 - $48

LeviStrauss Signature Brand

Traditional

$27 - $30 Under $30

Value -driven

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 Levis brand Years 2002 2003 Dockers 2002 2003 Signature 2002 2003 TOTAL 2002 2003 North America 1 596 575 1 381 377 908 887 820 531 169 053 388 460 2 674 515 2 590 368 Europe 954 553 891 008 94 664 101 132 1 049 217 992 140 Asia-Pacific 401 445 480 631 20 689 21 947 5 644 422 134 508 222 TOTAL 2 952 573
(71.2% )

2 753 016
(67.3 %)

1 024 240
(24.7 %)

943 610
(23.0 %)

169 053
(4.0 %)

394 104
(9.6 %)

$ 4 145 866 $ 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 Net Sales Cost of goods sold Gross profit Selling and adm. expenses Other income or charges Operating Income Interest & other expenses Income before taxes Income tax expense Net Income (loss)
Source: Levi Strauss Annual Report, 2004

2003 4 090 730 2 516 521 1 574 209

(38.5 %)

2002 4 145 866 2 456 191

1 689 675
(40.7%)

Changes
- 1.3 %
(-5.7 % at constant currency)

+ 2.5 % - 6.8 %
+ 5.2 %

1 353 314 (92 454) 313 349 344 641 (31 292) 318 025* (349 317)

1 285 855

254 145 227 558 26 587 19 248 7 339

+ 23.3 %

- 217.7%

*due to a substantial increase in valuation of assets

Bibliography
Appel Michael, Levi Strauss Signature: The birth or demise of a brand?, Retail Merchandiser, New York, May 2004, Vol. 44, Iss. 5, pg. 58. Beck Ernest, Levis takes an international approach with its new marketing pitch in Europe, Wall Street Journal, New York, Sep 5, 2000, pg. 1. Hill Suzette, Levi Strauss & Co.: Icon in revolution, Apparel Industry Magazine, Atlanta, Jan 1999, Vol.60, Iss. 1, pg.66, 4pgs. Himelstein Linda, Levis is hiking up its pants; but will the brands revamped products and marketing play with turned-off teens?, Business Week, New York, Dec 1, 1997, Iss. 3555, pg. 70. Jardine Alexandra, Life for denim in a combat era, Marketing, London, Mar 4, 1999, p. 19. Lee Louise, Why Levis still looks faded; CEO Marineau is reaching out to new markets, but style-conscious rivals continue to steal sales, Business Week, New York, July 22,2002 Iss. 3792, Lehrer Jim, Leaving Levis, Online NewsHour, Feb 23, 1999, http://www.pbs.org. Lockwood Thomas, Integrating design into organizational culture, Design Management Review, Spring 2004. Nolan Kelly, Levis tries out mass, and likes the way it fits, DSN Retailing Today, New York, Aug 22, 2005, Vol. 44, Iss. 16, pg. 1, 2 pgs. Scardino Emily, Wal-Mart tapped to host Levis coming out party, DSN Retailing Today, New York, Nov 11, 2002, Vol. 41, Iss. 21, pg. 5, 2 pgs. Simms Jane, When brands bounce back, Marketing, London, Feb 15, 2001, pg. 26, 2 pgs. Voight Joan, Levis scraps line efforts for image, Brandweek, New York, Apr 28, 1997, Vol. 38, Iss. 17, pg 6. Vrontis Demetris, Vronti Peri, Academic paper: Levi Strauss : an international marketing investigation, Journal of Fashion Marketing and Management, Bradford, 2004, Vol. 8, Iss. 4, pg. 389. Warner Fara, Levis fashions a new strategy - A dynamic new team looks to stamp innovation on an old brand, Fast Company, Nov 2002, Iss. 64, p. 48. Anonymous, Levis antidote: Audience participation, New Media Age, London, Sep 8, 2005, pg. 19. Anonymous, How Levi Strauss rekindled the allure of brand America, World Trade, Troy, Mar 2005, Vol. 18, Iss. 3, pg 28. Anonymous, Brand Mot: Levi Strauss & Co, Brand Strategy, London, Jun 2004, pg. 10. Anonymous, Levis expands distribution, New York, Dec 2002, Vol.78, Iss. 12, pg. 43. Anonymous, Original depuis 150 ans: Lhistoire de Levi Strauss & Co. , MesNouvelles.com, Communiqus, Mai 2003.

FINANCIAL REPORTS
Levi Strauss & Co., Annual Financial Report 2002. Levi Strauss & Co., Annual Financial Report 2003. Levi Strauss & Co., Annual Financial Report 2004.

WEB SITES
http://www.brandimpact-forums.com/casestudy.htm http://encyclopedia.thefreedictionary.com/jeans

http://www.levis.com http://www.pubstv.com
In 000 dollars Net Sales Cost of goods sold Gross profit Selling and adm. expenses Other income or charges Operating Income Interest & other expenses Income before taxes Income tax expense Net Income (loss) Table 3 Levi Strauss Consolidated Operations in 2004 2004 2003 4 072 455 4 090 730 2 288 406 1 784 049 (43.8%) 1 299 766 123 184 361 099 265 574 95 125 65 135 30 390 2 516 521 1 574 209 (38.5 %) 1 353 314 (92 454) 313 349 344 641 (31 292) 318 025* (349 317) - 79.5 % Changes Flat (-4% in constant currency) - 9.96 % + 13.3 % - 4.0 % (+ 5.3 percent points) + 15.2%

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 Levis brand 2002 1 596 575 954 553 401 445 2003 2004 Dockers 2002 2003 2004 Signature 2002 2003 2004 TOTAL 2002 2003 1 381 377 1 254 546 908 887 820 531 649 356* 169 053 388 460 522 553 2 674 515 2 590 368 891 008 920 699 94 664 101 132 92 801 28 625 1 049 217 992 140 480 631 568 414 20 689 21 947 21 974 5 644 13 487 422 134 508 222

TOTAL 2 952 573 (71.2% ) 2 753 016 (67.3 %) 2 743 659 (67. 4 %) 1 024 240 (24.7 %) 943 610 (23.0 %) 764 131 (18.8 %) 169 053 (4.0 %) 394 104 (9.6 %) 564 665 (13.9 %) $ 4 145 866 $ 4 090 730

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.