SOURCES: LEVI’S CONSIDERS SELLING TO WAL-MART
Byline: Scott Malone
NEW YORK — Could Levi’s be ready to sell to Wal-Mart?
While no firm decisions are believed to have been made, sources said the San Francisco-based jeanswear giant is giving serious thought to pairing up with the Bentonville, Ark., behemoth.
There is one clear motive for such a deal: Levi Strauss & Co.’s sales have steadily declined from $7.1 billion in 1997 to $4.65 billion in fiscal 2000. They’re on track to be down again this year, which would make a fifth straight year of revenue declines. Wal-Mart Stores Inc., on the other hand, pulled in $212.1 billion in sales in 2000 and saw its volume rise another 14 percent through the first nine months of this year.
Wal-Mart relaunched the Faded Glory brand as an exclusive jeans line in 1995 and now sells as much as $3 billion worth of that product a year.
Observers suggested that by opening that one massive account, Levi’s could within a year make up all the sales it had lost over the past half-decade.
The problem is that doing so could severely damage Levi’s relations with its existing department-store and specialty-store customer base.
So it’s a big decision for the Levi’s brass.
“I know it’s been in their thinking for some time. They’ve started selling Costco. It would not be surprising, based on the way they’ve been strategizing,” said one mill executive. “If Levi’s executes well, it would be a good thing for them. But they have to go up against the VFs of the world that do this very well, as far as replenishment and quality, and the comparable experience has to be a good one … The risk is if the department stores and specialty stores feel the brand is going to be lessened, then they might not take as large a position with Levi’s.”
A Levi Strauss spokesman this week declined to confirm or deny speculation that the brand might start doing business with the largest retailer that has ever existed.
“We are always evaluating our product mix as well as our distribution channels,” he said. “If we expand our distribution in the mass channel in any significant way, we will announce it.”
A spokeswoman at Wal-Mart denied that the chain, which has more than 2,600 stores flying its banner, is interested in carrying Levi’s merchandise.
“There is absolutely nothing that would even look like that,” she said. “It’s strictly a rumor.”
Levi’s president and chief executive officer Phil Marineau, who took the reins in 1999 with a mandate to turn the company around, has said one of his main priorities is making it easier for consumers to buy the brand — i.e., making the label available in more places.
“Lost sales from customers not finding the product they want is our number one opportunity,” Marineau said at this year’s Fairchild CEO Summit. He added that his aim is to make Levi’s product “easy to find, easy to buy and very hard to resist.”
In recent years, most of Levi’s expanded distribution has come at high-end retailers, as a result of the company’s introduction of new collections like Levi’s Vintage Clothing and its Engineered Jeans line. The goal has been to develop more of a buzz around the brand, in hopes of catching the eyes of fashion leaders.
“Over the last year, we’ve added some pretty significant retailers, more in the upscale and specialty retail end of the spectrum,” said the Levi’s spokesman. “That’s one of the things we’re very proud of, that as we revitalize the brands, some pretty key specialty retailers have recognized the improvements in our products and brought the products in.”
Specialty retailers, including Barneys New York and Sharon Segal at Fred Segal, have added Levi’s to their assortments over the past few years.
In Europe, Levi’s has fought hard to keep its brand out of the hands of discount retailers. Last month, the European Court of Justice ruled that Levi’s could stop U.K. supermarket chain Tesco from selling its product. That brought a three-year legal battle to an end.
Levi’s had not opened wholesale relations with that discounter, which instead had started importing goods from nations outside the European Union. Tesco had been selling Levi’s product for a little more than half the suggested retail price.
Still, the spokesman said the company isn’t ruling out any U.S. distribution channels.
“We’re looking at the entire spectrum of retail,” he said. “What we’re looking at is where do our consumers want to find our products, and [we’re] making sure that we’re providing access to our products. We’re making sure they are distributed in a way that is easy to find and easy to buy.”
Observers said the company would have to move very carefully if it wanted to do business with Wal-Mart and not jeopardize the rest of its retail distribution.
“My initial instinct would be that selling the Levi brand [at Wal-Mart] as it is would prevent Levi’s from being marketed to any other retailer in a traditional way. It would give Wal-Mart an unfettered control of the brand,” said consultant Andrew Jassin of Jassin-O’Rourke Group, located here.
That’s because Wal-Mart is so huge and so aggressive on pricing that most retailers are reluctant to go head-to-head with it.
Levi’s has felt the pain that come from startling its customers before. In 1982, Macy’s and other department stores dropped the brand after it started selling to Sears and J.C. Penney Co. It was 11 years before Macy’s started buying Levi’s merchandise again.
That leads most observers to speculate that the most likely arrangement would be for Levi’s to develop a sub-brand of some kind that it would sell exclusively to Wal-Mart.
“They’ll probably put a ‘Something by Levi’s’ line in there,” said Dick Gilbert, president of New York-based moderate jeans line Mudd Inc. “Otherwise, they’d pick up $3 billion in Wal-Mart business and lose the rest.”
Last year, total wholesale volume of the Levi’s line — not including Dockers and Slates — came to $3.6 billion.
The sub-brand approach wouldn’t be a new one for Levi’s. In the mid-Nineties, Kmart decided to focus its jeans assortment on three brands — the private label Route 66, Chic and Brittania, which was then owned by Levi’s. The company added the line “by the makers of Levi Strauss” to its Brittania hangtags around that time.
That strategy was later adopted by jeanswear powerhouse VF Corp., which it continues to use in its “Riders by the makers of Lee” line. (Today, VF owns both the Chic and Brittania names.)
Such a move would be a tricky balancing act, though. The sub-brand would have to have enough of a Levi’s identity to appeal to Wal-Mart, yet not so much as to alienate specialty and department store buyers.
“They run some risks, but they’re running the same risk now, because their business has been down,” said Jassin.
“It would strike me as unlikely that they would sell the same exact brand of Levi’s without having some label change or DNA change. But it wouldn’t surprise me that a division of Levi’s would sell [Wal-Mart] or that a special product line would be created for them by Levi’s. One certainly knows the size of that retailer. It’s bigger than the GNP of most countries,” he said. “Clearly, there are billions of dollars of business that could be done at Wal-Mart.”