NEW YORK — Brands such as Lee, Levi’s and Wrangler have spent the past five years living in the shadow of the much smaller, but much flashier, premium denim segment.
For VF Corp., which owns Lee and Wrangler, and Levi Strauss & Co., those years out of the limelight were spent overhauling their denim offerings. Now, with the premium momentum waning, they’re looking to take back some of the market.
As they have for years, jeans priced under $40 make up the largest segment of the denim market. It’s in keeping with what most consumers indicate they’re willing to pay for jeans. According to Cotton Inc.’s Lifestyle Monitor for the first quarter, a survey of 1,000 people found that women would pay on average $37.20 for a pair of good-fitting jeans, up $1.73 from the $35.47 average price they said they were willing to pay during the first quarter of last year.
Still, mass brands have been under pressure over the past few years on several fronts. The biggest threat has been the rapid pace of retail consolidation, from the merger of Sears and Kmart to the joining of May Co. and Federated Department Stores.
Consolidation has kept VF’s sales in its jeanswear segment — the largest and oldest division of the $6.5 billion apparel giant — flat for three years. In 2005, the company reported jeanswear revenues of $2.7 billion, a decline of 0.3 percent from the $2.71 billion reported in 2004, and only a marginal gain from the $2.69 billion reported in 2003.
The consolidation took a particular toll on the Lee brand, which also suffered from a lack of support in terms of advertising.
“We’ve taken our eye off our women’s business,” said Eric Wiseman, president and chief operating officer, during a conference call in October.
Reenergizing not just Lee, but the company’s entire jeanswear division, has been a priority since.
“The good news is that most of the retail consolidation is behind us,” said Angelo LaGrega, president of the jeanswear coalition for the Americas. “We’ve weathered most of the major erosion and we can begin rebuilding.”
The Lee turnaround campaign began in earnest during the fourth quarter of last year, according to LaGrega. The brand’s advertising budget has doubled for 2006 to help go after male and female customers more aggressively than ever. Touting the brand’s fit to female customers has been a focus, and a new ad campaign is scheduled to appear in July.
On April 25, the company reported that jeanswear revenues fell 1.4 percent to $703.8 million during the first quarter of this year. Again, management cited declines in the Lee brand, but stressed that signs of a rebound that were not expected to appear until the second half of the year already had begun to show.
“We still have a long way to go to get Lee sales and profitability back to where they should be, but we are certainly encouraged by this progress,” said Mackey McDonald, chairman and chief executive of VF.
For LaGrega, retail consolidation has presented other opportunities that he believes will fuel sales heading into the second half of the year.
“The good news about consolidation is you really can focus your business on core consumers,” said LaGrega. “It becomes a competitive advantage.”
VF also is nearing the conclusion of a yearlong strategic review of its jeanswear division. Specifics of any new strategies will be shared later this year, but it’s clear that the company’s campaign to transform itself into an acquirer and developer of lifestyle brands such as The North Face and Vans has been embraced by the jeanswear segment.
“Within the current spaces we’re playing, we know our brands can extend into new segments,” said LaGrega. “We know consumers are really responding to our brands and will give us permission to expand the categories.”
Wrangler was one of the first to undergo the expansion with tops. LaGrega sees a similar expansion in store for Lee.
“Up until two years ago, we never understood the true power of the brands,” he said. “We treated them as category brands, but there’s no question that, if you understand the consumers’ lives well, they’ll let you play in multiple categories.”
Levi Strauss was able to break an eight-year streak of declining sales results in 2005, with sales rising 1.3 percent to $4.12 billion. Much of this growth can be attributed to the Levi Strauss Signature brand, which has enjoyed booming sales at Wal-Mart and Target since being introduced in June 2003. U.S. sales of the lower-priced line rose 7.4 percent last year to $361 million.
But Levi’s has been dragged down by a sluggish retail environment in Europe. During the first quarter of this year, European sales fell 19.1 percent to $240.9 million.
“Since mid-February, I’ve been overseeing the turnaround efforts in Europe and leading the search at the same time for a new president of the region,” said ceo Phil Marineau during a conference call last month. “There’s still a lot of work ahead through the balance of the year.”
The key is to turn around the core Levi’s brand segment, which he said represents 90 percent of the firm’s European business. Improvements are not expected until the second half, when new orders are placed and new stores are opened, Marineau said.
Signature showed its first signs of weakness, as well, thanks to a move by Wal-Mart to devote more floor space to its proprietary George and Metro 7 brands. As a result, Signature sales in the U.S. fell 20.2 percent to $70.2 million from $87.9 million.
“The Levi Strauss Signature brand hit some choppy waters, with Wal-Mart’s move to devote more fixtures to its private labels influencing our business,” Marineau said. “We are now working closely with Wal-Mart to ensure that we have a strong and balanced presence on the floor as their premium jeanswear brand.”
Patti Cazzato, senior vice president of women’s merchandising and sales at Levi’s, has been retooling the company’s approach to the women’s segment since joining the company in June.
“I think that Levi’s, a few years back, was a little bit one-size-fits-all,” said Cazzato. “It’s important to be specific about where women shop, and for Levi’s, they shop at all channels.” Cazzato felt Levi’s was missing some of these opportunities. “I think we were postured well in some places, and in some of the places she never shopped.”
Cazzato and her team have sought to make sure they have women’s products available in every channel and at every price point. This spring, the company launched Levi’s Capital E, a premium line for specialty stores such as Barneys New York and Neiman Marcus, with prices ranging between $100 and $200. In July, Levi’s will introduce Special Edition under the Red Tab label, which will sell for between $50 and $98. It’s not only a growth opportunity for Levi’s, but, according to Cazzato, it should satisfy requests from department stores for unique product.
Cazzato also is working on changing the packaging of the Levi’s women’s business, intending to give the products more of a feminine slant. “We all work from the same value proposition, but from there, you have to put a men’s value on it and a women’s value on it,” said Cazzato.
LaGrega expects to see a surge in sales for consumers in the 30- to 50-year-old age range looking to update their wardrobes. That age group in particular, said LaGrega, is beginning to seek midrise and boot-cut styles. He also has gained confidence from the fact that consumers are continuing to spend despite rising energy prices.
“We’re seeing steady business in both our core businesses and our seasonal fashion business,” said LaGrega. “It’s usually one or the other.”