NEW YORK — The tumultuous Phil Marineau era at Levi Strauss & Co. will come to a conclusion at the end of the year.
The San Francisco-based denim giant said on Thursday that Marineau will retire as president and chief executive officer of the 153-year-old company at the end of 2006, after a seven-year struggle to return Levi’s to the growth track. Coupled with the announcement of Marineau’s retirement was the promotion of John Anderson to chief operating officer, giving him immediate control over the company’s day-to-day operations and positioning him as the leading candidate to replace Marineau.
In an interview with WWD, Marineau said he felt the timing was right for his exit.
“When I came to Levi’s, I told the board that I thought the appropriate tenure for an executive was seven to eight years,” said Marineau. “If you did the job right, you would have accomplished what you set out to do. I think that’s where we’re at. I think the turnaround has been accomplished.”
While Marineau does not have a steady string of earnings and sales increases to point to as evidence, last year did mark a milestone for Levi’s: The company broke eight years of declining sales results.
When Marineau walked into Levi’s in 1999, he inherited a company that was hemorrhaging from multiple places. The successes he points to include top-line stability over the past three years, improved operational efficiencies, steady cash flow and shedding the entirety of the company’s manufacturing operations in favor of focusing on product development. His tenure also saw the launch of the lower-priced Signature brand, a gamble to spur sales growth by taking Levi’s into the discount channel.
These things were achieved even as Levi’s faced increased competition from a plethora of premium denim brands and retail consolidation among its core department store customers. “There’s no price barrier to entry anymore,” Anderson said. “Go back 10 or 15 years and you had to have your own manufacturing capabilities.”
Marineau indicated that his retirement from Levi’s does not mean he will be embracing a life of leisure, however. “I don’t know what retirement means,” said Marineau. “I’ve got to learn some things I don’t know how to do and take a break…and then see what else there is to do in life.”
Anderson joined Levi’s in 1978 and has been serving as the company’s president of the Asia-Pacific division since 1998. He has been the man responsible for overhauling the company’s global supply chain organization since 2004, and was interim president of Levi Strauss Europe from September 2003 to February 2004. Most recently, he has been helping Marineau find a new head for the European business.
His appointment by Marineau is a sign that he believes Anderson is the best candidate to usher Levi’s into a new phase of growth. Marineau said the company’s board will meet in the coming weeks to discuss ceo succession plans and that he could not get into specifics. “Obviously, John is a candidate for that job.”
There has not been a chief operating officer up until now during Marineau’s tenure.
Anderson said his task is somewhat easier than what Marineau faced when he took over. “We’re talking about an evolution,” said Anderson. “We’re going to build on the good work that has taken place. We’ve got three brands and all of those have growth opportunities around the world.”
And growth has been a quality that has eluded Levi’s for nearly a decade. For Marineau, the focus has been on getting the company on track to chip away at its debts of more than $2 billion and improve operations. “Our focus continues to be to generate free cash flow reliably to pay down debt,” said Marineau. “Growth has not been the number-one objective. Restoring the financial strength of the company has been…that’s still our number-one objective this year.”
Anderson’s experience in developing markets is clearly the future and what Marineau believes will be the catalyst to achieve growth. “He’s had four years of double-digit growth in the Asia-Pacific business,” said Marineau. “He has intimate knowledge of these growth areas for the company.”
Anderson said he is looking to China, India and South Africa as the “emerging powerhouse markets” for Levi’s and Dockers. “Consumers will demand the same type of innovation in markets around the world,” said Anderson. “I think that’s an opportunity for us.”
While Marineau is confident the company is poised to begin achieving sales growth, he acknowledged that the task of turning around the firm was bigger than anticipated.
“Frankly, I didn’t have a sense of the challenge I was going to have when I walked into the company,” said Marineau, reciting a laundry list of issues he initially faced, including product lines that weren’t competitive, poor relationships with retailers and falling market share.
Marineau, 59 at the time of the company’s most recent annual filing with the Securities and Exchange Commission, was not the obvious choice to helm an iconic apparel brand. His entire career up until Levi’s had been spent in the food industry. He began his career at Quaker Oats in 1972 in sales, rising to president and ceo in 1993 and playing an instrumental role in the success of Gatorade. After a short stint as president and chief operating officer at Dean Foods Co., he moved to Pepsi-Cola North America in 1997, where he spent two years as president and ceo of the company’s then-$11 billion North American business. He was tapped by Levi’s in 1999.
Marineau’s appointment at the denim giant came following an eight-month search that began after Peter Jacobi stepped down as president and chief operating officer following 28 years with the company. Apparel industry sources at the time said a who’s who list of industry executives had been considered for the job. Names circulating at that time included Paul Charron of Liz Claiborne, Mackey MacDonald of VF Corp. and Roger Farah, now with Polo Ralph Lauren. Robert Haas, a direct descendant of Levi Strauss, even ceded his position as ceo to attract the type of executive talent the company needed.
“There just are not very many companies in our industry that are of the size, scope, the international dimension or deal with as many market-leading brands as we have,” Haas said in an interview with WWD at the time of Marineau’s appointment. “The degree of complexity here is closer to the experience of people who have led complex international companies.”
Levi’s was clearly in need of drastic measures. Sales had steadily declined since reaching a 1996 peak of $7.1 billion. More than 13,000 employees in North America and Europe were laid off between 1997 and 1998 and some 26 factories were closed. Sources indicated that sales of Levi’s jeans had declined up to 50 percent between 1996 and 1999. These trends would continue well into Marineau’s reign.
When Marineau, five months into the job, announced the company’s third consecutive year of sales declines during a conference call in February 2000, he warned that he did not expect a reversal until 2001. Marineau cited years of change at Levi’s as contributing factors. The company had gone from doing 80 percent of its own manufacturing in company-owned facilities to outsourcing 80 percent of production. It had also cut payroll from 35,000 to 20,000, shifting employees’ attention to the company’s cost-cutting effort from operations. “We sort of took our eye off the ball, so we’ve had problems fulfilling orders,” said Marineau at the time.
Speculation over the company and Marineau’s future at its head was rampant in December 2003 when Levi’s hired turnaround specialists Alvarez & Marsal to help it find ways to reduce debt and cut costs. The company shot down suggestions that it would file for bankruptcy or put itself up for sale. Then, in 2004, Levi’s put its Dockers brand on the auction block, ultimately failing to attract bids it deemed high enough. It subsequently decided to retain Dockers.
In 2002, Levi’s looked to tap into the lucrative Wal-Mart customer base by introducing a new line, Levi Strauss Signature, which sold for between $23 and $30 a pair compared with the $40 to $50 of regular Levi’s. It was a move that many felt might tarnish the image of the core Levi’s brand and ultimately cannibalize sales. Soon after, Signature was expanded into Target stores and sales of the brand exploded, buoying the company’s overall results. Signature sales reached $361 million last year. However, the line may have reached its first stumbling block this year. For the first quarter of 2006, Signature sales plunged more than 20 percent as Wal-Mart opted to devote more of its floor space to proprietary brands such as George and Metro 7.