SAN FRANCISCO — Levi Strauss & Co. marks its 150th anniversary in business today, a moment in time marked not by precision but by persistency.
The choice of date for the anniversary celebration is an arbitrary one. The record of exactly when the company was founded was lost in a massive earthquake and fire that leveled much of this city in 1906, so Levi’s officials decided to hold their ceremony on May 1 because the date evokes the brand’s flagship style, 501 jeans.
But the year is right, and that’s a change. For decades, the tags on Levi’s jeans said the company had been founded in 1850, an error that was only corrected after Levi’s hired a historian in the Eighties. A staff of three researchers has painstakingly re-created much of the brand’s lost history, spending many hours and thousands of dollars buying back old jeans and other ephemera to create a massive archive that tells the story of how Levi’s, which essentially invented blue jeans, also rose to become one of the best-known brands in the world.
To market observers, the bigger question is whether Levi’s can have as much success claiming its future as it has in reclaiming its past.
The past six years have been troubled ones for the jeanswear giant. While the Levi’s brand continues to hold the leading position in market share for jeans in the U.S., the company’s overall revenues last year came in at $4.14 billion, well off the 1996 peak of $7.1 billion.
Levi’s has struggled to turn its slump around. The company reported rising sales in the third and fourth quarter of its last fiscal year ended Nov. 24, but saw revenue dip again in the first quarter of 2003 as a result of the slowing economy. Executives warned that the second quarter isn’t shaping up much better.
In the midst of Levi’s slide, chairman Robert Haas — the great-great-grandnephew of company founder Levi Strauss — in 1999 brought in an outsider to run the company. Phil Marineau, a former Pepsi executive, was neither a member of the family of Strauss descendants who own the company nor a veteran of the apparel industry, and Haas said he thought Marineau’s fresh perspective would make it easier for him to make the changes necessary to set Levi’s right.With Marineau as president and chief executive officer, Levi’s has made a number of major operational changes intended to improve its retail relationships and margins, updating inventory systems, closing most of its remaining domestic factories in favor of foreign contractors and shaking up its executive ranks.
The company’s efforts to reignite the interest of young consumers in the brand with fresher products have been mixed. Superlow jeans, an interpretation of the low-rise trend, have sold well, but the company’s Engineered Jeans, a 2000 attempt to redefine blue jeans, never quite caught on with U.S. shoppers. Earlier this year, Marineau admitted he wasn’t satisfied with the Super Bowl ads for Type One jeans, another key product launch.
Nonetheless, Haas said in a Tuesday afternoon interview at his office overlooking the San Francisco Bay that he is more than satisfied with Marineau’s work.
"Satisfied would be too mild a word," he said. "I am fully supportive of everything he’s done."
Haas said he believed Levi’s had slipped into its downturn because its success of the previous decade had made it complacent.
"We became inattentive to consumer needs, we rested on our laurels," he said. "We became a little bit rigid in our practices and failed to listen attentively to some of the warnings signs that we heard. Retailers were complaining about inflexible practices, insufficient margins, poor deliveries and high-handed treatment.
"It’s fair to say, that since Phil Marineau became our ceo, he’s forcefully addressed some of those former practices," Haas continued. "He has made a concerted effort to drive the product innovation, to improve the economics for retailers, to make our products more relevant to consumer needs."
Haas said he is confident that Levi’s long-awaited turnaround is happening.
"It will be a while before we can confidently say that this bad patch is behind us," he said. "But as the year unfolds…we’ll be seeing renewed growth and that will be the evidence that the turnaround has taken hold."
One of the reasons Levi’s officials are so confident that the company’s sales slump will end in 2003 is that this summer the company will begin shipping a new line, Levi Strauss Signature, to Wal-Mart Stores Inc.’s more than 2,800 U.S. locations.Observers expect the partnership of the company that invented jeans and the largest retailer in the world to be a powerful one.
"Clearly, that’s going to be a billion-dollar business very quickly," said Andrew Jassin, a partner in the New York-based Jassin-O’Rourke Group.
Levi’s officials have said they don’t plan to limit sales of Levi Strauss Signature to Wal-Mart, and last week the company said it would soon begin pitching the brand to discount retailers in Europe. But sources have speculated that the appearance of the Levi’s name in Wal-Mart could hurt the brand’s relationship with its core chain store and department store customers.
Levi’s officials know the move will require a delicate balance, which is why the Signature jeans bear a different rear patch than Levi’s core products and also do not feature the distinctive pocket arcuate stitching or Red Tab trademark.
Haas said the question of how opening a new channel of distribution will affect Levi’s customer relations is one he’s faced before.
"I was there...when we broke a longstanding policy in 1982 and rolled out Levi’s jeans to Sears and Penney’s," he said. "There was a sense that it would somehow or other degrade the cachet of the brand, that it would cannibalize existing sales...well-known retailers chose to abandon Levi’s for a period of time to show their displeasure and to send a message to other vendors."
Macy’s was one of the companies that dropped Levi’s at that time and it was about a decade before the chain took the brand back. Macy’s East today carries Levi’s men’s product, but has dropped the women’s line, according to a spokeswoman, who declined to elaborate.
Market sources said the move appeared to be related to sales performance of the Red Tab brand and not in response to the coming Wal-Mart launch.
Haas acknowledged there will likely be some rocky days when the Levi’s name hits Wal-Mart.
"There will be a period of adjustment as retailers watch these roll out and see what it does to their own sales. But I think the issue of whether or not being more broadly distributed affects consumer perceptions of our brand will sort itself out in time, as it did in the past," he said. "Frankly, it creates a challenge for the rest of our lines to be sufficiently differentiated and innovative."Levi’s jeans retail from around $30 to $300 in the top-end Levi’s Red and Levi’s Vintage Clothing lines. The Signature jeans will retail for around $23.
One advantage Levi’s will have in handling the Wal-Mart situation will be the iconic status of its brand.
"If you’re in the denim business, you must have Levi’s," said Diane Paccione, vice president and general merchandise manager of ready-to-wear at Hoffman Estates, Ill.-based Sears, Roebuck and Co. "Celebrating a 150th year in business is certainly a testimonial as to how important Levi’s is to the customer."
Nick Hahn, a Stamford, Conn.-based consultant, said, "Levi’s is to jeans what Kleenex is to facial tissue. It’s synonymous with the category and it’s been that way since 1850."
While Levi’s executives pride themselves on brand recognition, Haas also spoke of the importance of managing the company in a socially responsible way. Since its founding 50 years ago, the Levi Strauss Foundation has contributed $202 million to charity. The company also has taken a leading role in many social issues, from insisting that plants it opened in the Southeast in the Sixties be racially integrated at a time when local community leaders were resistant to that idea, to being one of the first apparel companies to adopt a code of conduct in 1991 governing how its outside contractors could treat their workers.
"They’ve been leaders in social issues and environmental issues," said George Henderson, chairman and ceo of Greensboro, N.C.-based Burlington Industries Inc. "That’s always been very much a part of their whole culture."
Levi’s was among the last U.S. apparel brands to keep a significant portion of its production in company-owned domestic factories. Last year, the company closed down most of its remaining U.S. plants, keeping only two small facilities in San Antonio.
Haas admitted that was a step he’d been reluctant to take.
"Any objective business person looking at our conduct would say we were way too sentimental and protective of our owned-and-operated factories well beyond the time when it was productive to maintain them," he said. "I take full responsibility for having resisted something that we probably should have done earlier. But we do feel a very strong obligation to our employees and we wanted to diminish this disruption as long as we possibly could."The general industry push to contract production has been driven by a desire to lower prices. Some observers fretted that consumers’ love of cheap goods has overridden their concerns about quality, which has long been a motivator in people buying Levi’s — the company’s archives are full of letters from people about jeans that were handed down through the generations or that survived years of grueling manual labor.
"It’s not just a challenge for Levi’s, it’s a challenge for everybody that’s in business," said John Bakane, president and ceo of Cone Mills Corp., also of Greensboro. "American consumers have gone to a disposable way of looking at things, from a quality and performance standpoint. I think they’ve lost some appreciation for all products and that typically happens in a disposable economy."
The jeans business has become more fragmented over the past decade, with dozens of new brands springing up targeting specific segments. This has led some sources to wonder if Levi’s would be better served by buying other jeans brands to drive its growth, particularly in the women’s area, where its sales have traditionally lagged its performance in men’s.
Haas said the first priority is to stabilize the core business, but after that he could consider acquisitions.
"It’s very clear that in our core brands, both here and in other parts of the world, we’re pretty well penetrated and growth will be hard to come by," he acknowledged. "But having gone the acquisition route in the past and having divested a lot of those businesses after a period of time, I think we’ll be very selective if we do any."
The list of brands Levi’s has bought and sold in the past includes Brittania jeans, Koret and Oxford suits.
"Businesses that are focused on their core competencies really go better," said Haas.
While Levi’s board — consisting of the descendants of Strauss who own the company today — may consider a number of options to expand sales and earnings, one thing they’re not looking to do is to cash out through an initial public offering or sale. The company was taken public in the Seventies and bought back by the family in the Eighties."Our shareholder base remains very committed to our remaining a private company," said Haas. "It’s hard for me to speculate on what might happen in the future or future generations, but as of now we’re looking to continue what has been a very successful situation."
He said one of the keys to keeping a family-owned company running smoothly is knowing when not to listen to the decision of a loved one. That lesson was underlined to him by a story his father, Walter, used to tell him about his mother, Evelyn.
When his parents were first dating in the Thirties, Walter Haas had to explain to his East Coast-born wife what Levi Strauss & Co. was, since it then was known only in the Western part of the country.
"She said, ‘You know Walter, I can understand why you must be so proud of this family company, but can I give you some advice?’" Haas recalled. "‘I think the name Levi’s just won’t catch on. You really ought to rename your product.’"
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