Levi’s Works to Remake Its Image
It wouldn’t be totally unfair to compare Levi Strauss’ business in recent
years to some of its more worn and weathered jeans. Now, the company is trying
to go upscale (again) and banking that it will achieve success that has eluded
it in the past with items such as $198 jeans.
As a Wall Street Journal article points out, Levi’s has taken a number
of steps to make its brands more attractive to the beautiful people including
the opening of "lavish boutiques," renaming high-end labels, and
hiring executives from designers including Ralph Lauren and 7 for All Mankind.
While its more expensive denim items are a small part of the business, the
company believes that establishing credibility at the high-end will have a
positive effect on the rest.
So far, results seem to indicate the company is on to something, with earnings
for the most recent quarter up 17 percent from the same period the year before.
It has also posted positive numbers because of its response to past problems
earlier in the decade. The company hired Alvarez & Marsal in 2003 to help
get itself turned around. With much of its work done prior to the Great Recession,
the company was in much better shape than many others when consumer spending
tanked.
Jeff Feinberg, managing director at Alvarez & Marsal, told the Journal, "The
people who were running the company were prepared for it — they had been
through the wringer already."
Going into the downturn, Levi’s began spending money and expanding while others
were cutting back. The company opened 154 stores last year on top of 60 in
2008.
"It was our intent going into the recession that we would be able to
attack coming out of the recession," said Robert Hanson, president of
Levi’s Americas division.
Discussion Questions: Is Levi Strauss on the path
to greater success? Where do you see the greatest opportunities and challenges
for the company and its brands now and in the near future? Is its store and
e-commerce strategy on the mark?
Fashion is a tricky business and trying to move up the line can be difficult for an established firm.
There’s a big difference between Ralph Lauren offering a range of goods from Polo to Purple and trying to establish a higher tier brand if you’ve been known for a century as the denim du jour of miners and Dead Heads.
Authenticity trumps pretense. What’s the point of investing heavily against a small market segment versus investing heavily against the brand’s core?
The argument could be made that if the beautiful people wrap themselves in Levis, the masses will want to emulate them . But if that happens, the elite will drop the brand like last year’s hair style.
Does anyone remember Gitano?
Levi’s may have finally gotten its good, better, best, bestest strategy down which will be important if it is to poise for acquisition (which is where I think all of this may be going).
Levi’s made a mistake a few years ago when it put too many eggs in the down market Signature brand. How they thought they would beat retailers at their own brands (Faded Glory, Cherokee et al) is beyond me. Gap’s successful 1969 premium-at-a-price denim range is raising (quality, fit) and lowering (price) the bar at the same time and I wouldn’t be surprised if Gap spins it off into a stand-alone concept.
Levi’s will face plenty of competition in all tiers going forward so I would hope that they will ramp up their owned retail presence and continue to expand non-denim offerings. Did I mention acquisition? There are some acquisitive deep pockets out there!
In the words of Ronald Reagan, “Well, there you go again.”
At an estimated $4B annual volume, Levis is already one of the largest apparel manufacturers in the world, although it is far off of its 1990s peak of $6+B. Driving significant growth on a base this large is, at best, challenging, particularly in this economy.
Will $194 dollar jeans do it? I think not. Of course, I’m an old geezer that thinks that paying $200+ for an item with a landed base cost of around $20 is an IQ test failed. I also think that premium priced denim is the next bubble preparing to burst, but that’s just me.
As someone has already said, you achieve solid growth by building on your core strengths and making your core customers happy. Premium jeans are just the sprinkles on a sundae this large.
Levis has successfully become the “it” brand with the “urban/ethnic” customer. I think taking an aim at the premium market would only help the Levi name.
It’s difficult to judge the strategy effort without understanding more of the tactics supporting it. However, it seems to me that if Levi’s is serious about making the transition, they’ll have to ensure that they observe the holy trinity of “new luxury”; that being:
1. They need to create a product that is technically different from other lines, especially its own lines.
2. These technical differences need to yield a distinct performance or in this case, fashion difference for the wearer.
3. They need to emotionally charge the brand to create a strong gravitational pull.
It goes without saying that number 3 is the tricky one. Especially if the brand has some baggage.
I wish them luck–I still own a favorite pair of Levi’s!