By  on May 11, 1994

NEW YORK -- Robert D. Haas, chairman and chief executive officer of Levi Strauss & Co., says he can't watch the commercials for his own Dockers brand. They make him cry."The one with the father and daughter dancing is the one that kills me. I guess because I relate," said the lanky chief executive officer during a recent interview here. Haas has a teenage daughter.But while he might become emotional over a TV commercial, he's got a cool head about the San Francisco-based family business that was founded by his great-great-grand uncle Levi Strauss almost 140 years ago -- especially the $6 billion company's soft spots.Those weaknesses are prompting what Haas called "a massive reengineering," where customer service and strategic partnerships with retailers are the priority.Among other things, the reengineering has cut production time from five days to one, changed work patterns in Levi's factories to smaller, more flexible teams and reduced the number of denim suppliers from about a dozen to four or five.What prompted the giant's internal examination?"We want to be a corporation for the 21st century," said Haas during a wide-ranging interview at WWD's offices. "I think what happened was that although we had a vision for the future, we were trying to keep up with the explosive growth of our international business and the explosion of our Dockers business in the U.S. It took our eye off the ball. Some of our competitors realized that service might be a point of vulnerability. People like Haggar, who have been very active in EDI from the beginning -- and, more recently, VF -- have really made that a focal point of a lot of their efforts."Now, Haas said "the real issue is customer service.""In the old Levi, it was sort of 'my way or the highway.' That's not the world we're living in, and it's not even good business practice. It's very shortsighted, and you can't be successful by alienating your business partners," he said.The company asked its retailers what they thought customer service should be."It was more than on-time and complete deliveries," he said. "It had to do with things like floor-ready merchandise, in-store shops and their replenishment, merchandise tailored to their tier of distribution or their marketing strategies."Technology is a part of it," he said.Levi's -- which pioneered a version of electronic data interchange called Levi Link in the early Eighties -- is now investing several million dollars to build on the existing systems and link its inventory, planning, forecasting, production and order fulfillment processes. Or, as Haas said, "It goes way beyond systems.""We are investing about $300 million to completely revamp three of our four distribution centers and to incorporate the technology into the fourth in order to provide what we believe will be industry standard levels of order fulfillment. That's another massive investment, not only in technology, but also in physical infrastructure."But new technology does not a new attitude create, said Haas, and that as much as anything was needed for Levi's to move forward."We are completely redesigning our internal work processes from a traditional functional orientation -- merchandising, sales, accounting, advertising, personnel and product -- to a process-oriented organization," said Haas."Part of what we've done has been to totally reorient our sewing plants, from the traditional assembly line to team-based manufacturers. We've reduced our work-in-process time from five days to one day. We've broken up these monolithic plants that had maybe several hundred workers in total into more intimate work groups of 35 to 50 people."These smaller groups, he pointed out, have greater flexibility."There's a great deal of self-management and much broader skills than in the traditional, highly specialized workplace where you wait to do what your supervisor tells you," said Haas. "What our plants are able to do now was unimaginable five years ago in terms of flexibility. "And if there is an advantage to having on-shore production -- and we believe there is -- it's because it is located close to the consumer. "We've invested years and years developing a quality base and an understanding of our production process, and we believe it's going to be a real competitive asset in this vision of the future."Behind all of this new outlook is a new emphasis on speedy delivery."Time is the key," Haas emphasized. "When I was back at Harvard Business School in the late Sixties, I had a marketing professor who talked about the organization of the future. He said that in addition to the traditional departments of marketing, sales and finance, there would be a department of time. Now, obviously you don't want to segment the responsibility for responding to something in a Quick Response manner to one column of the organization -- it has to be woven into the fabric of the organization -- but time is key."It's becoming more important, Haas said, because as retail consolidates, inventory and retail space are at a premium, and the competition for attention is becoming ever fiercer."Until fairly recently, retailers were educated to expect the worst, and to balloon inventories in the expectation that we couldn't deliver on time," Haas said. "In addition, they were under the gun to place orders unimaginably far into the future because we couldn't deliver anything without four months' or six months' notice. Well, who the heck knows what the consumer was going to want that far in advance?"Now, Haas believes, "If you have an internal focus, all of your procedures and work processes are designed around how to make your life easier. But the responsibility for inventory should be pushed back to the vendor. The retailer should be concentrating on the selling experience and building unique, distinctive relationships with their customers, while the vendor manages the flow of goods in a way that maximizes turn and profitability."Interestingly, the segment of retailing that's probably done the best job with this has been the more discount-oriented operations. Some of the mass merchandisers that we service via the Britannia brand not only require that goods be shipped complete on a specific date but actually arrive at a loading dock at a designated hour. If the designated hour is 10 o'clock, and your truck pulls up at 11, the order goes back."Now, in all fairness, why shouldn't that be an expectation? And not only that, it should arrive in a form that will make it easy for them to get it on the floor so their associates are not going to be spending time in the back room reticketing, hanging, sequencing the goods and displaying them."Better customer service, Haas said, will cement Levi's as a cornerstone brand of any retailer's casual sportswear area.Over the last few years, he said, "The major national or regional retailers are saying they are focusing down on a few key vendors, that those are going to be the anchors of our business," with smaller companies providing additional fashion interest.Levi's also wants to be the main account with its denim suppliers, Haas said."In the old days, we used to purchase heavyweight denim from 10 or 12 suppliers, operating under the theory that they would bid against each other and we would get lower prices," he said. "Well, we may have gotten lower prices, but we also got lower quality and worse service because we weren't as important to any single vendor. Now we've compressed that to four or five major vendors, and believe me, that gets everyone's attention."In jeans, he said, women's has been "our most explosive product in recent years, and we've become the category leader in junior jeans." Special size jeans, particularly petites, are also a growth area.In other categories, there's more work to be done, Haas said. While the company's line of Dockers for men has been a success story, the women's side of that line has not fared as well. Haas declined to cite any figures, but the company disclosed recently that the seven-year-old brand -- still primarily men's, but including women's and children's styles -- has reached nearly $1 billion in annual wholesale volume.Haas admitted that the women's Dockers line never really found its footing."We tried to cover too many bases, styling-wise, and the women's line started to diverge from the taste level and standards of the men's Dockers line," he said. "Ultimately, it caught up with us. Consumers saw the line as sort of cheap and cheerful and not very attractive."It's going to be a much more focused line," he said. "The essence of the brand is a bottoms-based strategy, which we will surround with attractive tops. Our goal is not to explode women's Dockers, but to reestablish credibility with that core women's Dockers customer and build a foundation that retailers can have confidence in."Again, given the strong interdependencies that we have with our retail partners, and the massive amount of advertising and marketing support that we're putting behind brands, it's really important that retailers see us as an anchor for different product categories over the longer haul."Product categories now include the wrinkle-free fabrics that Haas admits Levi's was late getting into. Once the company got behind it, he said, "we got a team together that got a product on the shelves in 90 days."While he noted that the women's market hasn't displayed as much interest in wrinkle-free garments as the men's, he said Levi's will be rolling out "seven million to eight million units this year -- men's, women's and kids' combined, but mostly men's."Corporate-wide, Haas pointed out that Levi's reengineering efforts aren't just domestic. There's still plenty of international growth to be cultivated."We define ourselves as a global company. Other parts of the world are a generation or more behind some of the trends here in jeanswear and casual wear. But with the CNN-ing and MTV-ing of the world, and the impact of Hollywood's programming on popular taste, there's becoming more and more of a homogenization. For example, we launched Dockers last year on a test basis in Sweden and that test was enormously popular. We're now going to be rolling Dockers out to Europe."Haas said Levi's established affiliates in Poland in 1992; in the Czech Republic, Turkey, Korea and Taiwan last year, and will start in India this year. Levi's turned its back on a potentially huge market when it pulled out of China in April 1993 to protest human rights abuses."In the area of retail, we've made our bed. We've said that the Levi's brand is not going into mass markets. That's the Britannia brand. We are putting all of this money into reengineering because we believe there are tremendous further opportunities in working with our existing retail partners."Retailing for Levi's is also as much about image as it is about selling, particularly in the case of the freestanding Original Levi's stores. Haas said he plans this year to roll the idea out to more U.S. cities, adding that there are already "about 650-plus Original Levi's stores outside the U.S." The foreign stores -- mostly in Western Europe and Asia -- are all franchised.There are eight Original Levi's stores in the U.S., with another scheduled to open this month in Peabody, Mass., outside Boston. The stores are a joint venture, with Levi's Original Stores subsidiary owning 30 percent and a retail partner -- in this case, Designs Inc. -- owning 70 percent.Levi's has also acquired a property on East 57th Street near Fifth Avenue, next to the Warner Bros. store, where it will open a shop in June 1995. Plans are being developed that would designate Designs Inc., based in Chestnut Hill, Mass., as Levi's retail partner for this program in the Northeast.Haas contended that the stores -- foreign and domestic -- are "not about volume.""It is about image," he said. "We believe the Levi's store are a natural supplement to some of the image enhancement activities that we're doing with conventional media such as TV and other marketing. The image that is presented in those stores helps existing stores service their customer better and demonstrates that a wider range of products and a better range of products yields better sales and higher profitability."Occasionally, its potent image sometimes works against the company. It's in an ongoing struggle against counterfeiters here and abroad."Our trademark attorneys, and our corporate securities staff would be horrified to hear me saying this, but it's always a flattering problem to have," said Haas, quickly adding, "It is a very serious ongoing problem."It doesn't take much to produce something that looks like our product, and the unwary consumer or customer who can't afford our price points may be attracted to something they honestly think is Levi's," he said. "A few years ago, in the Philippines, you could go into a street market and find vendors there who sell little plastic Baggies that have rivets and buttons and Levi's tabs and thread. Then you go to the fabric vendor and buy some denim, and then you go to the local dressmaker and she'll sew up 'Levi's'?"It undercuts the brand image. We police that vigorously and we spend millions of dollars a year trying to interdict counterfeiters and punish them if it's possible. In a lot of cultures people don't understand why we would be so upset, because after all, imitation is the highest form of flattery."But with jeans becoming a price-driven market, and some basic five-pocket jeans selling for as little as $9.99, how will Levi's convince consumers that it is worth the price?Haas responds with these strategies: a consumer hotline for answering questions; product innovation, and investment in the brand image through advertising and merchandising."All of that," he said, "helps to differentiate the brand from products piled up on a table or shoved into a cubicle in an undifferentiated way."But ultimately the key is, is it cool? That comes from word-of-mouth, from intangibles that feed off the advertising, people's experience, innovation. People are looking to see what everyone else is wearing. Hopefully, they are still wearing our jeans."

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