LEVI STRAUSS WINS FTC’S OK TO PROCEED WITH RETAILING PLANS
Byline: Joanna Ramey With contributions from Janet Ozzard, New York
WASHINGTON — Levi Strauss & Co. got a green light from the Federal Trade Commission Wednesday to move into retailing. A Levi’s executive contacted after the decision said the company plans to waste no time and will start opening its own stores in the new year.
In a clarification of an order dating back to 1978, the FTC said that ruling did not prevent the jeans maker from entering into joint ventures to run stores or from operating its own wholly owned
stores. As reported, Levi’s asked the FTC last summer to reaffirm that the 1978 consent order against the company didn’t prevent it from entering into such deals.
In addition to its deal with Designs Inc. to jointly operate 50 Original Levi’s Stores and outlets in Northeastern states, the company disclosed in October that its board had approved a program to open 190 stores on its own in the next five years. The stores to be opened under this new program include regular-price and outlet units for Levi’s and Dockers products.
Edward Murphy, president of Levi’s Only Stores, the division of Levi Strauss that oversees the manufacturer’s retail moves, said, “We are very excited about the decision. It allows us to begin the joint venture with Designs that we announced over a year ago and to proceed with our own plans for stores.”
In a telephone interview from his offices in Columbus, Ohio, Murphy said the company hopes to open five each of the Levi’s and Dockers stores in 1995, as well as five Levi’s and Dockers outlets. Murphy said the company is “pursuing” locations for all the stores, but he declined to specify where.
There are currently 10 Original Levi’s and two Dockers stores operating under the agreement with Designs. These stores were set up as tests, pending FTC approval, Murphy said. Only Original Levi’s stores will be opened under the Designs deal in the future, he said. All future Dockers stores will be owned and operated by Levi Strauss.
He said Levi’s plans to increase its use of the computer-aided fitting program called “Personal Pair” from its current four stores to all the Levi’s stores this February.
The 1978 order addressed price-fixing allegations against the company and prevented it from suggesting retail prices.
In its latest ruling, the FTC said Levi’s has shown that prohibiting the apparel maker from operating retail stores would put Levi’s at a competitive disadvantage.
The FTC said that since the Seventies, Levi’s competitors have opened stores to showcase their apparel, and with the apparel maker that to ban Levi’s from doing the same would be anticompetitive.
“In view of these changed conditions, the order exerts an unintended chilling effect on LS&CO’s ability to participate in retailing in response to this development,” the commission noted in its decision.
Further discussing this ruling for Levi Strauss, whose worldwide sales in 1993 came to $5.89 billion, the FTC said, in a specific reference to the Designs deal, “The record evidence suggests that LS&CO lacks market power [in the antitrust sense] in the manufacturing of jeans and other casual wear and that the proposed joint venture will not have market power in apparel retail.”
This new decision, said the FTC, “would permit LS&CO flexibility to adopt new marketing strategies that may increase competition and benefit consumers.”
The FTC makes it clear that it views competition in denim apparel to be ample.
“Currently, LS&CO is the second largest producer of denim jeans in the United States, but faces competition from numerous other branded jeans manufacturers, many of which have vertically integrated into retailing through company-owned stores,” the FTC noted. “In addition, competition also is provided by a proliferation in private label jeans manufactured for and marketed by large retailers.”
The FTC does not specify who is the largest jeans manufacturer for the U.S. market, but it is apparently placing Levi’s below VF Corp., whose jeans brands include Lee, Wrangler and Girbaud.
“When the order was issued, LS&CO, like its competitors, had no meaningful retail presence,” the FTC said. “Since the order was entered, however, many of LS&CO’s competitors have integrated into retailing, in order to showcase their products, market their complete lines and demonstrate to their own retailer-customers the benefits of promoting the manufacturer’s products.”
The FTC further noted that Levi Strauss hopes its own stores “will position the Levi’s brand in an environment that emphasizes LS&CO’s image, values and reputation and provides consumers with the opportunity, in one store, to see a broad assortment of Levi’s products. LS&CO also believes that once the [stores] demonstrate the viability of dedicating retail space and substantial product assortments to LS&CO products, retailers may be persuaded to dedicate space to ‘focus areas’ and in-store shops developed for the Levi’s brands they carry.”
Such stores aren’t likely to affect competition among apparel retailers, the agency said, noting that U.S. apparel sales are “highly fragmented” among 250,000 stores carrying apparel, of which 200,000 carry only apparel and accessories.
“Even the largest retailers account for only a small percentage of apparel and jeans sales,” the FTC noted of the market. “Based on this data, LS&CO’s [Only Levi’s Stores] will account for a small fraction of the overall jeans volume and even less of overall casual apparel sales.”