LEVI’S SCHEDULES TWO-YEAR PLAN TO REDUCE OPERATING EXPENSES
Byline: Miles Socha
NEW YORK — Citing challenging conditions in the U.S. jeanswear market, Levi Strauss & Co. said Thursday it plans to reduce global operating expenses by up to 20 percent. All departments will be affected, except those related to marketing.
The company began notifying its employees of the two-year plan this week, said Gavin Power, a Levi’s spokesman.
“We need to take additional measures to control operating expenses,” said Power, responding to market reports of another imminent downsizing. “For us to achieve the ideal ratio of overhead expenses to sales, it will require a reduction of about 20 percent.”
Power emphasized that “20 percent of operating expenses doesn’t mean a 20 percent reduction in head count,” but he acknowledged that staff reductions are planned and are likely to begin next year. In addition to salaries, operating expenses would include real estate, travel and equipment.
“Department heads are beginning to look where we can trim budgets,” he said. “It hasn’t begun yet, and it’ll probably stretch over the next couple of years.”
Levi’s employs about 30,000 worldwide.
Power said “marketing-related” areas of the company — including advertising, retail presentation and Levi’s Web site — would be spared, since “the focus of the company is on brand-building.”
This will be the third major cost-cutting campaign for the San Francisco jeanswear giant; sales declined 4 percent to $6.9 billion last year after a decade of record growth.
Last November, acknowledging it had excess domestic production capacity, Levi’s shed one-third of its manufacturing workforce in North America, which eliminated 38 percent of its production capacity here. About 6,400 workers were laid off and 11 plants were closed. Earlier in the year, the company eliminated about 1,000 salaried white-collar positions.
Asked the reasons behind the latest cost-cutting measures, Power said, “The denim market is not experiencing explosive growth. It’s a competitive market out there these days.”
In recent years, Levi’s has faltered as demand for basic jeans ebbed. The company faces keen competition from a burgeoning crop of designer brands, including Polo Jeans Co., DKNY Jeans and Tommy Jeans, which just arrived in stores for back-to-school.
Strong private brands like J.C. Penney’s Arizona Jeans, Sears’ Canyon River Blues and The Gap also have been gaining ground and chipping away market share, as have hot junior resources like Mudd, JNCO and Paris Blues.
In the first quarter of 1998, Levi’s share of the U.S. jeans market slipped to 14.3 percent from 15.8 percent, according to figures from the NPD Group.
As reported, Levi’s rejuvenation strategy involves building its junior Silver Tab label into a lifestyle brand, making a major push in the khakis business, seizing on current fashion trends and updating its brand image with a strong youth focus.
This year, Levi’s awarded its $100 million advertising budget to TBWA/Chiat Day. Its latest television and print campaign pitches dark, stiff jeans to young men with cheeky references to the toughness of its “hard jeans.”