LEE DIVIDES TO CONQUER WITH 3 NEW BRANDS AND A FOCUS ON YOUTH
Byline: Miles Socha
MERRIAM, Kan. — Proving that a heritage brand can reinvent itself for new generations of consumers, Lee Co. is reaping the benefits of its segmentation strategy.
In the first quarter of 1998, Lee’s total market share in units jumped 13 percent to 7.6 percent from 6.7 percent, according to data from the NPD Group. That exceeds the 6.2 percent total growth for the denim bottoms market.
The growth came at the expense of some powerful competitors, including Levi’s, whose share in the same period slipped to 14.3 percent from 15.8 percent, and J.C. Penney’s private brand Arizona, which eased to 4.4 percent from 5.2 percent.
According to a recent report from Morgan Stanley Dean Witter based on a June 3 presentation by Lee management, sales of Lee at its top 20 accounts were up more than 20 percent in the January through April period. Looking ahead, bookings for May through August are up 21 percent, exceeding an internal plan of 14 percent.
“The brand really has momentum in the marketplace today,” said Lee president Terry Lay in an interview at the jeanswear giant’s headquarters here. “We’re targeting double-digit growth for it this year.”
Not bad for a brand that had stalled in the early Nineties. And not bad considering the fate of another perennial, Levi’s, which saw its sales decline by 4 percent in 1997. Levi’s recently acknowledged it may need to create or acquire more brands to reach more consumer segments.
Lay attributes Lee’s turnaround to the firm’s decision to segment its 109-year-old brand and target different groups, focusing on youth.
Two years ago, the company had only one jeanswear brand: Lee, known mainly as a misses’ brand. Today there are three more, each designed to satisfy a discrete set of consumer needs: Lee Pipes for 10-to-14-year-olds into extreme fashion with an attitude; Lee Riveted for contemporary, fashion-conscious women ages 25 to 29, and the newest one, Lee Dungarees, a classic, workwear-themed collection aimed at 17-to-22-year-olds who value durability.
“It’s a way of personalizing the brand,” Lay said. “It allows us to target a consumer more effectively and deliver them a product with an identity. What father and son and mother and daughter are wearing today is not the same product.”
The strategy reflects VF Corp.’s commitment to consumer research. The process involves identifying a specific consumer group, evaluating its lifestyle needs and then interpreting them into product “concepts.”
“To just chase items and looks and fashions of the day makes no sense for us,” Lay said. “We’re looking for trends that have multiple seasons.”
Behind the current khakis explosion, for example, lies a lifestyle trend Lee identifies as “new conservative.” These consumers value preppy looks and straight-edged styles like khakis, twills and straight silhouettes, said Gordon Harton, vice president and general manager of the Lee brand.
The Lee Dungarees sub brand, which is bowing in stores this month, was based in part on a consumer trend Lee calls “nostalgia as life.” That translates into such ideas as selvage jeans, rinse denim and five-pocket basics with a heritage slant. Consumer research focused on the target age group of 17 to 22 revealed that “authenticity” and “durability” were important to that group.
“By going through this process you actually come up with products that fit into that person’s lifestyle,” Harton said.
According to Morgan Stanley, VF plans to do about $50 million to $70 million with Lee Dungarees this year. Meanwhile, unit sales at the Pipes division were up 58 percent in the first quarter, which should propel the sub brand to $100 million in revenue this year.
Using Pipes as another example, Lay said the product may look strange to people from outside the target age group: The line is based on super-wide jeans with lots of pockets in odd places and with unconventional dimensions.
But “it isn’t just fashion for the sake of fashion,” he said. From its consumer research, Lee learned that its target customers value function and want pockets to carry cellular phones, pagers and pictures of their friends.
Lee does not take its “consumer learning” lightly. Lay said the company has increased its spending on research more than fivefold in the last two years and fully integrated the findings into all its product development and marketing functions.
Lay and Harton stressed that jeanswear firms, many of which were caught off guard when basics slumped three years ago, can no longer wait around for a major fashion trend to move the market like wide-leg fits or acid washes did. They have to probe deeper in today’s fragmented and competitive environment.
“We really think the winning strategy is to be more targeted and more focused,” Lay said. “We brought the consumer into the equation and invested more in learning about the consumer.”
In the first quarter, VF Corp. logged an 8 percent sales uptick in domestic jeans and reported improved sales and margins. Earnings moved ahead 11.3 percent to $78.1 million, or 63 cents a share, from $70.2 million, or 54 cents, a year ago.
Lay said consumers in all segments want brands that are customized for them with a distinct point of view. Woe to “vanilla” brands that try to appeal to everyone.
Asked what impact the growth of status jeans brands has had on Lee, Lay said, “The reality is we’re competing with everybody.” That includes specialty retailers like Old Navy, the Gap and Abercrombie & Fitch.
But Harton said the key to success means no longer thinking about who you compete with and instead focusing on your target customers and how to meet their needs best.
Traditionally, Lee’s strength has been with women over age 25. But at present the three fastest-growing categories for the brand are juniors, boys and young men’s, Harton said. Figuring in the launch of Lee Dungarees, Lee plans to increase its floor space by up to 30 percent at department stores this year.
Although most of Lee’s energy has been channeled to new sub brands like Lee Dungarees, which will receive 70 percent of its advertising budget this fall, the company asserted that its marketing and product efforts have boosted the “mother brand” and made it more appealing to the core 25-plus customer.
“It just helps to energize and lift the perception of the brand,” Lay said. “For example, we’ve been able to maintain the momentum of five-pocket jeans.”
Looking ahead, Lay said Lee will likely create additional sub brands or redefine existing ones as the company reacts to consumer and lifestyle trends.
“We really see our brand architecture as a living thing,” Lay said. “We don’t know where the consumer’s going to take us ultimately. But we think we’re prepared to go wherever that is.”