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Denim Revolution: Levi’s Going Mass By Selling Wal-Mart

NEW YORK — All it took was a signature.<br><br>In a move that’s likely to shake up the retail and jeans landscapes, Levi Strauss & Co. has decided to begin selling its denims to Wal-Mart stores. Levi’s officials said Wednesday the...

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NEW YORK — All it took was a signature.

This story first appeared in the October 31, 2002 issue of WWD.  Subscribe Today.

In a move that’s likely to shake up the retail and jeans landscapes, Levi Strauss & Co. has decided to begin selling its denims to Wal-Mart stores. Levi’s officials said Wednesday the company will begin rolling out a mass-market brand of jeans called Levi Strauss Signature for women, men and children at Wal-Mart’s more than 2,800 U.S. stores in July. The company is also in talks to sell other mass retailers.

The line is expected to retail for $23 to $26 for basic jeans, and will fill in the bottom rung of Levi’s price structure, which goes as high as $265. While the jeans do carry the Levi Strauss name, they do not bear the trademark red tabs, rear-pocket stitching and two-horse patch of the flagship Levi’s Red Tab brand. The patch on the rear bears a rendition of company founder Levi Strauss’s signature, copied from an old sales invoice.

“We think we’ve got a pretty clearly differentiated brand here,” Gregg Hammann, Levi’s chief customer officer, said in an interview at the company’s Manhattan showroom. “The brand has its own physical appearance and construction.”

The deal was in the works for about a year, executives noted. WWD first reported that Levi’s was in talks with Wal-Mart in December.

Levi’s executives described their entry into the mass market as a necessary step, given that channel’s strong dominance of the jeans market. Last year, 45.2 percent of all jeans sold in the U.S. were priced at under $25, according to NPD Fashionworld Consumer, while the average price paid for a pair of women’s jeans was $21.76.

By not selling to mass merchants, Levi’s officials reasoned, the company was cutting off a large chunk of American shoppers — people who buy their jeans at Wal-Mart, Target or Kmart.

“They are shopping in that channel, that is their channel and we don’t sell there,” said Robert Hanson, president of the Levi’s brand in the Americas. “There is a consumer segment in the mass channel that is not buying Levi’s.”

Levi’s officials expect to record their sixth year of sales declines this year and observers have said it’s clear the San Francisco-based company needs to do something dramatic to stop its sales decline — last year sales came in at $4.26 billion, well below the 1995 peak of $6.7 billion. Company officials said they see substantial potential for growth in the mass channel and noted that they’re in talks to sell the Levi Strauss Signature line at other mass retailers besides Wal-Mart.

“Across the mass channel, there is a business in the hundreds of millions of dollars,” said Phil Marineau, president and chief executive officer of Levi’s.

Observers said that estimate is likely downplaying the potential sales volume the Levi’s brand could generate at mass merchants. Wal-Mart is said to have sold about $3 billion worth of merchandise from its Faded Glory alone last year.

“You’re looking at a $1 billion wholesale business for them,” said Michael Press, president of sales and marketing at Hippie Jeans, a brand owned by Azteca Production International, and a longtime Levi’s watcher.

A spokeswoman for Bentonville, Ark.-based Wal-Mart said the Levi Strauss Signature brand “represents everything we look for in our apparel, which is fashion, quality and everyday low prices.”

“We constantly look to…apparel that provides overall comfort, value and style for our shoppers,” she said. “Our shoppers cover a wide cross-section of income levels and demographics and we always look for the opportunity to satisfy the needs of those customers. The Levi Strauss Signature line will complement our assortment.”

While the volume opportunity at Wal-Mart is clear, industry observers in recent months have noted that selling the Levi’s brand to Wal-Mart runs the risk of turning off the company’s other retail customers, which run the gamut from J.C. Penney Co. to Macy’s East to Barneys New York.

Noting that Levi’s research has found that only 10 percent of U.S. consumers buy apparel at both mass merchants and department stores, Marineau said he did not believe the Levi Strauss Signature line would reduce Levi’s sales of its core Red Tab jeans brand.

“This is an opportunity to increase the consumption of high-quality jeans in the U.S.,” he said.

He added that in the three years since he signed on as ceo of Levi’s, he has focused on improving the performance of the company’s core brands. He cited the firm’s recently reported third-quarter sales growth — a 3.5 percent increase that broke a 22-quarter streak of declines —?as evidence that the performance of those brands is improving.

“We did not want to do this until we were convinced that Levi’s Red Tab was back and Dockers was back,” he said.

Even without the mass line, Levi’s distribution covered a wide range of prices, from the company’s core Levi’s Red Tab line, which includes jeans retailing for $30 and up, to its superpremium Levi’s Vintage Clothing and Levi’s Red labels, in which jeans retail for prices beyond $200.

Hanson said the company has put in a lot of time and effort developing a “consumer-based, sophisticated segmentation model” that will allow the core brand to push a single fashion message across multiple price points and distribution channels. The company is currently giving the model its first real test, as the Type One style of dark-denim jeans with exaggerated details heads down through the distribution chain.

Levi’s began shipping a $150 version of the Type One jeans to Barneys New York and other top boutiques in April, and is now starting to ship a $95 version of the jeans to specialty stores. In December, a $65 version of the jeans is set to hit department stores, and in late January, chain stores are to begin receiving a $35 version.

The goal is for all those channels to be able to sell the Type One jeans simultaneously, though the jeans shipped to each class of retailer will have differences in fit and fabric intended to justify the wide range of price points. Hanson said the company plans to spend all of its U.S. budget for the Levi’s brand promoting the Type One idea.

“As we looked at the brand, we realized we needed to position it as one thing, rather than many things,” Hanson said. “It’s one thing to many people.”

What is that one thing? “The definitive jeans source,” he said.

The Levi Strauss Signature line is intended to be a different thing, targeting “trend followers” rather than leaders, according to Hammann. The company does not plan to advertise the brand, he said, adding, “It will be promoted at point of sale.”

The line includes jeans and nondenim bottoms, as well as tops and denim jackets. Styles include fabrics with simpler washes than in the main Levi’s line, with fits that are more conservative — meaning higher rises and baggier seats. The product will be produced in the Caribbean Basin, Mexico, South America and Asia. About 24 staffers have been charged with handling design, sales and production. Wholesale prices have not yet been set.

Levi’s customers at higher price points expressed little concern about the new line Wednesday, saying they would wait to see whether it hurt their existing business.

“It doesn’t bother me,” said Sharon Segal, who carries high-end Levi’s product at her Santa Monica, Calif., boutique Sharon Segal at Fred Segal.

Acknowledging that she’s been frustrated by Levi’s earlier steps to roll out high-end styles at lower prices — as the company did with the Levi’s Engineered Jeans concept in 2000 — she added, “I’m surprised to hear myself say that, but they’re trying to make some money and that’s great. I don’t think it’s going to discredit what they do in our store.”

Similarly, a spokeswoman for Barneys New York said, “What we sell is completely different from what they sell to J.C Penney or this new line.”

A spokesman for J.C. Penney Co., a closer competitor to the Wal-Mart in terms of price, product and customer, said the company had no comment on the launch.

However, Press of Hippie Jeans said he thought Levi’s mid-market offerings would be most likely hurt by the mass line.

“Going into Wal-Mart will affect their middle business,” he said. “There is a customer that looks at Levi’s still as incredibly great product and considers Levi’s their designer jeans. If there is an opportunity to buy a reasonable facsimile at half the price at Wal-Mart, it will affect their middle business.”

Marineau pointed out that, even in its mass-market offering, the line will be priced above the average ticket for jeans in that channel.

“Our overall strategy is to be the alternative to just dumbed-down price competition in the category,” he said. “We aim to provide our customers with the opportunity to drive people into the store with real product innovation.”

While the rough retail environment has Levi’s executives expecting to post flat fourth-quarter sales, Marineau said the Levi Strauss Signature line, coupled with the improved Red Tab and Dockers lines, should give the company a strong chance to end its streak of annual sales declines in 2003.

Asked if he expected revenues to grow next year, thanks in part to the deal, Marineau simply said, “Yes.”

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