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Levi's had sold to Wal-Mart through a value brand called Brittania in the 80's and the 90s, but that came to an end in 1994 over a dispute in Canada about Levi's Orange Tab jeans. After that, sales dwindled for Brittania, and Levi's sold Brittania to VF Corp. In 2002, however, Levi's was thinking about offering a new value brand for Wal-Mart. It was not that easy of a decision though. They had to think of a way to keep the existing customers in the other channels and not lessen the brand's perceived quality overall.
Overall, the apparel market had been growing steadily since 1998 until 2001, when it dropped 5.7% in dollars from the year before. The total jeans sales accounted for approximately 7% of the total $166 billion made in 2001 with 569 million pairs sold. Experts in the apparel industry forecasted an interesting year for sales in 2002, stating that most categories of apparel were going to level out or even decrease.
Jeans were just one of the different categories of pants along with casual pants and dress pants, and jeans had dominated the category until the 1990's when sales had tapered off when consumers migrated over to khakis, cargo pants, and other types of pants. However, when new innovations in fabrics and style in the jeans category came to the forefront in 2001, people's tastes began to switch back over to jeans. In 2002, jeans sales were predicted to grow by 2-3%.
Another large constricting development in the jeans market was that the average price had dropped over the last decade due mainly to off-pricing and private-labels brands that were so popular in mega-stores such as Wal-Mart.
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One thing that was consistent over the last decade was the fact that jeans were versatile and truly egalitarian. They were high-fashion, and they were perfect for manual labor. "Jeans have the ability to conceal class distinction," and academic wrote.
Levi Strauss & Co. had a strong competitive position early on being the original, the first, the best. Starting with their overalls in 1872 and their work pants in 1873, Levi Strauss and Jacob Davis began the blueprints for their "lot number 501s" which soon would become their trademark jean. By avoiding layoffs during the Great Depression, advertising in different languages, and promoting integrated factories, Levis soon became a fan favorite. With the help of product placement, Levi's remained popular throughout the years with the help of John Wayne, Marlon Brando, Marilyn Monroe, Woodstock, and Bruce Springsteen, and was known as the "cool" brand. They expanded to different lines and eventually had many diverse interests.
They did not stop there. Levi's even developed the Dockers brand to reach a new segment of the pants market, which was a huge success. They kept expanding to include Silvertab as well. By 1996, Levi's was more successful than ever. They were at the top of the jeans segment and had formed a strong global brand that every household knew and recognized.
1997 marked a different time for Levi's though. From the record year of 1996, net income and sales slipped drastically the following years, and their 2002 market share had fallen to a meager 20% compared to their 48% in 1990. This was attributed to the increasing competition in the high-end and low-end segments of the jeans market. People wanted designer jeans on the high-end, the fashion-forwardness of small premium brands, or the low price of the private label jeans at mass merchants.
The vertically integrated retailers, like the Gap and J.Crew, had mastered all aspects of the jeans market from product design to store operation to in-house advertising. They had one consistent image and were placing their products directly into their own stores instead of distributing through independent owned retailers.
Levi's was falling into the nameless in-between section. They were not high-end, did not provide a whole wardrobe selection, and were not offered at the lower price points. That is when Levi's began diversifying their product lines and price points with lines such as Levi's Red, Levi's Engineered, Silvertab, and even less expensive products. They were challenged to be innovative and high-image, while also inexpensive and desirable to all. Their new product releases came back with very mixed opinions. Some were successful in Europe, but not successful in the US. Followers of Levi's innovations like the Engineered jeans, such as G-Star and Diesel, were proving to be more successful, and Levi's innovations were not being adopted on a large scale.
There were many pros and cons of Levi Strauss selling a brand of jeans through Wal-Mart. I'll start with the pros first. There was a lot of opportunity to sell large volumes of jeans. There were over 50 million pairs of jeans sold at discount stores. There was a huge opportunity for Levi's to gain a part of that huge amount. Also, many people were looking for the best pair of jeans at the best deal. With the popularity of mass merchants these days, that segment was becoming the largest and fastest-growing retail channel. It was speculated that the mass channel sold almost 31% of all jeans in the US. JC Penney already accounted for over 10% of Levi's for the company's sales. There was growth, and that always allowed for plenty of opportunity, especially when so many consumers are seeking the value experience at the lower price. More and more men and women over 35 were wearing and buying jeans, but they would buy them for half of what the 15 to 19 year olds spend on their jeans. This large market segment of "over-35s" preferred inexpensive brands with the availability of larger sizes. The under-$20-jean- segment was dominated by major retailers, like Wal-Mart and JCPenney, and had huge market-share gains. Levi's also already had great brand-awareness and brand retention to work with, and that serves as a plus on the scale. Almost 20% of Wal-Mart's sales was comprised of private label sales alone, and considering how much Wal-Mart sells, that is a huge amount. Softgoods and domestics sold about $23 billion alone. The average Wal-Mart consumer was looking for basics at everyday low prices, which Levi's could clearly provide. Not to mention, Wal-Mart's pricing was stable and comfortable without dramatic markdowns, and the private labels were beginning to gain recognition in comfort.
Although there were many pros to selling at Wal-Mart, there was also a fair share of cons. Diluting Levi's premium by discounting or expanding to different channels could have caused the positive brand image to be compromised. Levi's management believed that their competitive edge was based on the global brand recognition, their commitment to ethical treatment and social responsibility, and their continuous focus on quality, innovation, and value. This was both a pro and a con. It could make the transition to Wal-Mart easier, but they did not want to compromise that brand image whatsoever. If there is no differentiation among the brand, the products would have been competing purely on price, and it was the non-price attributes that could enhance a brand's image. When a brand was melded throughout too many channels, the specialty stores would have had to work even harder to make themselves stand out. In order to offer lower price points, Levi's was going to have to get rid of the expensive overhead of its North American production sources. Although mass channel retailers offered new opportunities, there was still plenty of competition within that segment from companies such as the VF Corporation. Also, from previous experience, Levi's had upset current customers by selling to specific customers in the past. In 1982, they had decided to sell to JC Penney and Sears, which caused many department stores to withdraw their orders. Eventually those department stores like Macy's, after eleven years, began buying from Levi's again. Even though there was an eventual comeback, Levi's did not want to face that loss again.
If I were to make a recommendation to Phil Marineau regarding this very important decision for Levi Strauss & Co., I would suggest creating a new private label brand through Levi's but with a different name to be sold in Wal-Mart. I think a new private label would allow for enough of an association with Levi's and their strong brand image to sell even more, while creating enough distance without the Levi's name all over the new line to not lose their quality image at different price points. Levi's had enough long-standing relationships with retailers to work across all segments of the market. In the new private label, Levi's would still have to create innovation in fabrics and finishes and all other product features to create a competitive advantage among the mass market labels, as well as maintaining the innovation and high standards in the higher priced products to push the consumers to continue to purchase those. There would still have to be strong advertising and marketing for both Levi's and the new private label and plenty of differentiation. With a new name for the mass markets, Levi's can provide quality at a lower price and become part of the ongoing growth in such retailers. Meanwhile, with their high standards and already-set innovative quality, Levi's can remain a leader in mid-price and higher-priced segments, as well.