HOW DID LEVIS MANAGE ITS COMEBACK?

AN ANALYSIS OF HOW A STRUGGLING COMPANY REVIVED ITSELF

Prepared for Melanie Wise

Prepared by Anna Sandgren

July 29, 2010

CONTENTS

MEMORANDUM ............................................................................................................. 3 INTRODUCTION ............................................................................................................ 6 REASONS WHY LEVIS LOST MARKET SHARE................................................... 7
Failure to Meet Fashion and Consumer Trends ......................................................................................... 7 New Entrants into the Jeans Market............................................................................................................ 8

LEVIS COMEBACK .................................................................................................... 10

A Revamped Business Strategy .................................................................................................................. 10 Repositioning ................................................................................................................................................ 11

CONCLUSIONS AND RECOMMENDATIONS........................................................ 13 REFERENCES................................................................................................................ 15

Page 2 of 16

MEMORANDUM
TO: Melanie Wise FROM: Anna Sandgren DATE: July 29, 2010 SUBJECT: How Did Levis Manage Its Comeback? An Analysis of How a Struggling Company Revived Itself

Here is the report I wrote about how Levis was able to turn around its business after a little over a decade of losing market shares.

Levis is a well-known organization and they enjoyed great triumphs in the last century, especially from the 1960s to mid 1990s. Maybe the company was doing a little bit too well, and they took their success for granted. Levis lacked innovation and stuck to what they knew, which morphed into offering few product lines that also were out of style. By not being up-to-date, Levis lost sales when they missed and failed to forecast trends in the 1990s. Young people associated Levis as a baby boomer brand and turned their backs on the organization. By having a small range of product lines, Levis also failed to meet the needs of different market segments. As new rivals entered the market, consumers could choose from designer jeans to more affordable jeans at retail stores.

Page 3 of 16

In order to turn things around, Levis widened their product range and created more product lines. Different lines could be bought from different distributors; premium jeans at high-end specialty chains and a less expensive line at retails stores. By doing this, Levis expanded their availability and could reach more consumers and different market segments. To prevent from being looked upon as a brand for old people, Levis put increased effort into repositioning themselves in order to appeal to younger consumers. Part of the repositioning was to be seen as a trendy brand and follow what was in style, not only when it came to fashion, but also trends in society. To communicate with younger consumers, Levis now uses mobile shopping technology and social media outlets such as Facebook and Twitter.

Its amazing to look back at the history of Levis and see how they reinvented themselves. In order to not risk repeating the less successful times in the companys history, Levis needs to constantly come up with new ideas on how to deliver value to consumers, while remaining socially and fashionably relevant. I recommend the following: Strategic alliances and licensing. By collaborating with other companies in other industries, Levis could enter new product categories and expand beyong clothes. Fast Fashion. By speeding up design processes Levis could create the absolute latest in fashion trends, which translates into loyal and happier customers. Customization. Now that Levis is doing better, the Personal Pair program could be relaunched and would probably be very successful in an era where customers

Page 4 of 16

(especially Millenials) are looking for more individuality from their clothing purchases.

I am glad I had the opportunity to write this report. I have gained a lot of insight into not only an exciting company like Levis and their comeback, but also into the fascinating jeans industry as a whole.

Page 5 of 16

INTRODUCTION
The business world is littered with stories of successful companies losing their way and succumbing to failure. Every so often, among these stories of impending failure, there comes along a fascinating story about an organization that is able to turn itself around and not only succeed, but thrive. Levis, one of Americas oldest and most esteemed brands, is just this type of success story. According to the essay A Short History of Denim by Lynn Downey, entrepreneur Levi Strauss and tailor Jacob Davis started to make copper riveted waist overalls in 1873, which they sold to gold miners during the California Gold Rush (3). These waist overalls later became better known as jeans and by 1960 they were worn by most of Americas youth and the Levis 501 became an American classic (6). Levi Strauss & Co. achieved great success for more than a century, but the business took a different turn in the late 20th century. As stated by Vauda Aich in her case Levis Strauss in the US (Part B): The Great Turnaround Plan, Levis steadily [began] losing market share in the US [in] 1996. Levis would experience this negative trend for a little more than a decade, and it was not until April 2007 that the Los Angeles Times would report that [the companys] fiscal first-quarter profit rose 61%, providing the latest sign that the long-suffering jeans maker [was] finally on the mend.

This report will analyze how a company on the brink of failure was able to get back on its feet after years of struggling to once again become a fashionable and profitable brand. The report explains what led to Levis downfall and what they did to revamp themselves. Recommendations to maintain and grow a successful brand are also provided.

Page 6 of 16

In preparing this report, several articles and reports have been analyzed and evaluated. Information was gained from well-known sources such as Bloomberg Businessweek, Time, and Levis corporate website. The readings also include an analysis of the jeans industry, which is incorporated into the report.

REASONS WHY LEVIS LOST MARKET SHARE

After experiencing more than a century of positive sales trends and market growth, Levis began to lose market share in 1996.There were several reasons that set off the downward trend which lasted for more than a decade, including a lack of innovation, failure to anticipate consumer trends and an influx of fashion forward competitors willing to do what Levis either couldnt or wouldnt.

Failure to Meet Fashion and Consumer Trends

In his book Consumer Behavior, Michael Solomon states that in 1993 Levis was ranked the most stylish brand in the world (222) and ironically, just three years later, consumers started to abandon the company in droves. One of the main reasons for consumer abandonment seems to be that Levis began to be perceived as no longer being stylish and having lost touch with what consumers wanted. As mentioned in Stacy Permans Time magazine article, Levis Gets the Blues, Levis failed to respond to trends in the 90s such as the wide-leg pant. It seems that Levis thought they could ride the wave of
Page 7 of 16

their success from earlier decades, instead of focusing on innovational strength in order to keep consumers loyal to their brand. In her Bloomberg Businessweek article, Why Levis Still Looks Faded, Louise Lee writes that many women turned their back on Levis because they felt the company did not have any jeans models that quite fit womens curves, because Levis created womens jeans from mens patterns. This is clear evidence that another area that became a detriment to Levis was their lack of cutting edge designers. Interestingly, it could be that Levis longevity as a brand actually contributed to some of its problems. It seems that the fact that Levis was such a thriving brand from the 1950s until the mid 1990s, caused teens and young adults in the late 1990s and 2000s to associate the brand with their parents, which translated into a reason for them to not buy their jeans. Ellen Neuborne reports for Bloomberg BusinessWeek that Generation Y did not see Levis as a very hip brand, and recognized it as a brand that their parents, the baby boomers, would buy. It is clear that Levis took their earlier success for granted and lost touch with the needs of their consumers and market trends. When they did not have what consumers asked for they lost their loyalty and in turn market share.

New Entrants into the Jeans Market

In the 1990s the jeans market changed dramatically and Levis faced stronger competition than it had in the past. The new entrants into the market were two types: high-end designer jeans manufacturers and retail chains (Perman). The designer jeans
Page 8 of 16

came from fashion houses such as Donna Karan, Tommy Hilfiger, Ralph Lauren and Versace and other edgy upstarts. These style-conscious rivals stole sales from Levis and had stylish jeans models that followedand sometimes even setfashion trends; something that Levis jeans and models did not. Many consumers were willing to pay a premium price to obtain a pair of these much hipper jeans. Around the same time period, retail stores like Gap Inc., J.C. Penney and Sears started offering affordable jeans, cheaper than Levis, which attracted the younger population and chipped away at even more of Levis share of the jeans market. Levis was confronted by competition from two different directions and they were stuck in the middle between their new rivalsrivals who went after niche customer segments and were able to earn profits from them. As a result, both fashion and price conscious consumers abandoned the Levis brand.

Page 9 of 16

LEVIS COMEBACK
Levis failed to meet consumers demands in the 1990s and the business overhaul to make up for this lack of customer focus took them a decade to accomplish. They chose certain ways to get back on track again, which included introducing additional product lines to reach more market segments and making their products more available by improving their distribution channels. Levis also repositioned their brand so that consumers would see them as trendy and up-to-date, something that had been sorely missing for decades.

A Revamped Business Strategy

As Levis faced increasing competition from designer brands and retail stores they finally decided to counter their rivals by providing Levis products at select discounters and specialty chains (Lee). Levis approach to turn the tide of lost market share and consumer loyalty was to develop new product lines to be distributed in different types of stores. In 2003, the company launched their new Signature line, which Levis website describes as a brand that offers high-quality, fashionable jeans at affordable prices to value-conscious consumers at [discount] stores like Walmart, Target and Kmart. According to Jenny Strasburgs article in The San Francisco Chronicle, titled Levi's treats itself to an image makeover / Once-workaday jeans to challenge designer lines, Levis also made their way into high-end specialty chains such as Saks Fifth Avenue, Neiman Marcus, Bloomingdale's and Nordstrom with their premium product lines.

Page 10 of 16

More than offering their jeans at discount and specialty stores, Levis also tried to make themselves more attractive to younger consumers by making their jeans available at Pacific Sunwear of California Inc. and other stores frequented by younger shoppers (Lee). An important, and risky, move in Levis reinvention was to become more obtainable and offer something to different market segments. Rather than worry about the risk of thinning out the brand by spreading themselves too thin, Levis saw the benefit of diversifying their products to engage with customers who had varying needs and expectations. Creating a line for selected retail stores was a bold move because Levis could have tarnished their brand in the minds of consumers and degraded their legacy of good quality. The same could have happened with regard to more upscale stores had patrons of those establishments perceived Levis jeans as lacking sophistication. Yet Levis understood that if executed well, they could expand their range of product lines, increase their availability, and by doing so be seen as consumer focused and as a result become profitable once again.

Repositioning

After seeing sales decrease in the 1990s and 2000s due to their failure to respond to market trends, Levis also chose to reposition themselves. They began to be seen as being out of style and out of touch with current trends. In order to prevent further loss of market share and counter these perceptions, Levis took the innovative step of ship[ing] in staffers from its more fashion-oriented European division and [holding] brainstorming sessions to suss out what [consumers wanted] in their clothes (Lee). As a result, the new
Page 11 of 16

product lines were in vogue and Levis enjoyed a triumph with new, trendier products such as their low-rise jeans. The company became better at responding to trends and once again gained popularity among younger consumers. Levis also became better at teasing out trends, not just in the apparel industry, but in society. As pointed out in the online article Dressed to impress? at CMDGlobal.com, Levis created the Eco jean, made with organically farmed cotton that responded well to the environmental movement taking place in our society in the last decade. Levis also uses technology to connect and communicate with younger consumers. Products have been designed to meet their needs, e.g. some models have pockets for iPods, and Levis also interacts with their younger customers through the web (CMDGlobal.com). As stated in Sara Ins Calderns article Levis Uses New Facebook Plugins to Reach Potential Jeans Purchasers in Inside Network, Levis [] was one of the first web sites to debut Facebooks new social plugins [in April of 2010]. When asked why Levis was one of the first companies asked by Facebook to integrate with the new plugins, Megan OConnor, Levis director of digital and social marketing, explained that Facebook [] approached us because they knew we had a reputation as being a pioneer not just in the social space, but also with technology. Levis managed to lure consumers back by positioning themselves as a brand that is up to date; not only when it comes to their products, but also when it came to grasping trends in society such as social and environmental movements and technology.

Page 12 of 16

CONCLUSIONS AND RECOMMENDATIONS

After a little more than a decade of losing consumers, Levis was eventually able to get back on their feet and in early 2007 the company could announce that profits were finally increasing again. After being successful most of the 20th century Levis had some dark years at the end of the century and what led them there was their inability to anticipate or even meet fashion trends as well as the entrance of rivals into the jeans market. Levis could not offer stylish jeans models and the consumers abandoned them for their competitors. By making some bold moves and utilizing smart business strategies Levis was able to turn itself around and is today no longer thought of as a baby boomer brand and has gained popularity among younger consumers. Levis effectively developed more product lines and increased their availability to meet the needs of more market segments. In order to interact with and maintain an ongoing relationship with their young buyers, the organization makes huge efforts to remain technologically up-to-date and responsive to societal trends. Levis has hopefully learned their lesson to not take success for granted. Upholding a relationship with consumers and keeping them loyal to their brand is a continuous task and Levis needs to be innovative and create new ways to maintain these relationships. Different ways to do so could be: 1. Strategic alliances and licensing. Levis has often teamed up with different organizations to give back to society, e.g. the White Knot and Goodwill, but could take it further and join forces with other parties to create more Levis products than just clothes. Levis logo could be seen on products such as

Page 13 of 16

furniture and home accessories such as sheets, blankets etc. Since Levis sponsors music festivals, camping gear could also be part of their product range. 2. Fast Fashion. Levis could meet trends faster and enjoy higher consumer satisfaction by speeding up the process of spotting trends, manufacturing and distribution. Similar to Zara, Levis could engage in Fast Fashion and would develop products quicker and have them in stores more rapidly. 3. Customization. Levis offered the Personal Pair program to consumers from 1994 to 2003. People got measured at Original Levis stores and could a few weeks later enjoy their own customized jeans. Levis decided to discontinue the program to put efforts into restrengthening the brand. Now that Levis has improved their brand, the program could be relaunched.

Page 14 of 16

REFERENCES
Aich, Vauda. Levis Strauss in the US (Part B): The Great Turnaround Plan. IBS Case Development Centre 2006. http://www.ibscdc.org/Case_Studies/Strategy/Restructuring%20Turnaround%20S trategies/RTS0112B.htm>. Caldern, Sara I. Levis Uses New Facebook Plugins to Reach Potential Jeans Purchasers, Inside Network 27 Apr, 2010. 23 Jul, 2010. <http://www.insidefacebook.com/2010/04/27/levi%E2%80%99s-uses-newfacebook-plugins-to-reach-potential-jeans-purchasers/>. Downey, Lynn. A Short History of Denim. Levi Strauss & Co 2007. <http://www.levistrauss.com/sites/default/files/librarydocument/2010/4/HistoryDenim.pdf>. Dressed to impress? CMDGlobal.com 20 October, 2007. <http://www.cmdglobal.com/analysis/brand_experts/levis>. Lee, Louise. Why Levis Still Looks Faded, Bloomberg Businessweek 22 Jul, 2002. 23 Jul, 2010. http://www.businessweek.com/magazine/content/02_29/b3792068.htm>. Levi Strauss earnings rise 61% in 1st quarter Los Angeles Times 11 April, 2007. <http://articles.latimes.com/2007/apr/11/business/fi-levi11>. Neuborne, Ellen. Generation Y, Bloomberg Businessweek 15 Feb, 1999. 23 Jul, 2010. <http://www.businessweek.com/1999/99_07/b3616001.htm>. Perman, Stacy. Levis Gets the Blues, Time 17 Nov, 1997. 23 Jul, 2010.

Page 15 of 16

<http://www.time.com/time/magazine/article/0,9171,987368-1,00.html>. Signature. Levi Strauss & Co. <http://www.levistrauss.com/brands/signature-by-levistrauss>. Solomon, Michael. R. Consumer Behavior. Upper Saddle River: Pearson, 2009. 222. Strasburg, Jenny. Levi's treats itself to an image makeover / Once-workaday jeans to challenge designer lines, The Chronicle 15 Aug, 2002. 23 Jul, 2010. <http://articles.sfgate.com/2002-08-15/business/17556016_1_levi-straussneiman-marcus-saks>.

Page 16 of 16