In the wake of a recession that caused consumers to question the value of $198 jeans, Levi Strauss & Co. is reintroducing consumers to its $198 jeans.
The 157-year-old company is trying to reinvent itself as not just a purveyor of basics but as an edgier brand suitable for the fashion cognoscenti. By opening lavish boutiques, like one in London, renaming its high-end labels, and hiring executives from competing designer brands like Ralph Lauren and 7 for All Mankind, the company is seeking to improve its fashion street cred, a move that it hopes will reignite sales, which have stabilized at around $4 billion annually after peaking at $7.1 billion 1996.
The company doesn't disclose dollar sales of its expensive jeans, which are a small part of its business. They are important, however, because they cast a halo over the brand name.
The latest results look positive: On Tuesday, Levi's reported that it earned $56 million in its first fiscal quarter ended Feb. 28, up 17% from a year earlier. Revenue rose 9% to $1.04 billion, on growth of the brand's world-wide footprint and favorable exchange rates. On a constant-currency basis, the company said net revenue rose 4% in the quarter. Levi's is closely held but it reports results because of its publicly traded debt.
Levi missed out on the premium denim craze that began several years ago as it focused on more pressing issues— namely a crushing debt load, the result of a buyout that consolidated ownership in the hands of a few descendants of the founder.
Levi brought in turnaround experts Alvarez & Marsal in late 2003 and the resulting retrenchment was fortuitous. Because Levi had restructured its operations prior to the onset of the recession, it was better positioned than competitors to survive, says Jeff Feinberg, managing director at Alvarez & Marsal. "The people who were running the company were prepared for it—they had been through the wringer already," he says.
Now, as competitors have slowed retail expansion or closed stores, Levi's is using its strong cash position to burnish its image and grab market share. It opened 154 stores last year, including the acquisition of 73 Levi's and Dockers outlets, compared with 60 the prior year.
"It was our intent going into the recession that we would be able to attack coming out of the recession," says Robert Hanson, president of Levi's Americas division, which saw sales rise 7% in the quarter to $545 million on a constant-currency basis.
"We are going to continue doubling down on our efforts to build the brand," says chief financial officer Blake Jorgensen. As evidence: The company spent $426 million in its most recent quarter on selling, general and administrative expenses, up 26% from $339 million a year earlier.
The high-fashion overhaul comes a year after Levi created a "super-premium" division based in Amsterdam called "Levi's XX." The company has since consolidated several Levi's premium sub-brands under just two names: Made & Crafted, a premium denim line featuring better fabrics and fit, and Levi's Vintage Clothing, offering reproductions of items from the brand's historical archives. The Levi's Premium and Capital E lines as well as several other high-end names were discontinued.
Levi also started distributing to unconventional retailers, like New York's Opening Ceremony boutique, where it unveiled $148 corduroys, and J. Crew, where $200-plus dark wash men's jeans are paired with classic Red Wing work boots. All the while, Levi's focused on improving its bigger, more affordable lines, adding trendier styles.
Levi's finds its brand particularly challenged in Europe, where it generates about a quarter of its global sales. Operating profit in Europe fell 40% last year as retail clients slashed orders. But in the first quarter of 2010, European sales rose 6% on a constant-currency basis to $306 million. The company attributed the gains to the 2009 acquisition of the footwear and accessory license in the region, which gave it better control of design and quality, and the expansion of the company's retail network.
Last year, to bolster its image internationally, Levi's standardized the fit of its classic 501 jeans, rather than have the fit vary from country to country, and launched its first global ad campaign.
Earlier this month, Levi Strauss overhauled its biggest store in Europe, a 8,500-square-foot boutique on London's Regent Street, home to high-end retailers such as Burberry. Modern shelving mixes with history: Downstairs, a 1920s pair of Levi's jeans unearthed in the Mojave Desert sits in a display case.
At the same time, the Made & Crafted premium denim line began arriving at luxury retailers such as Saks Fifth Avenue and Barneys New York.
Levi's says it is has no intention to stray too far from its salt-of-the-earth roots as the uniform of choice for 19th century laborers. "Luxury is the antithesis of Levi's," says Armin Broger, president of Levi's Europe, Middle East and Africa division.
Another reason why Levi's may be polishing its global image: to prepare for an IPO. Analysts have speculated that family-owned Levi was preparing to go public ever since it brought in Mr. Jorgensen as CFO from Yahoo Inc. last May. More recently, the sale of the Tommy Hilfiger brand to Phillips Van Heusen Corp. for $3 billion, led to predictions that Levi may be trying to set itself up for a sale.
"I can say nothing about [a sale or an IPO] other than we're focused on operating the business as we have for 150 years, and if the opportunity comes along to change the capital structure, we will consider that, but we have nothing planned right now," said Mr. Jorgensen.
COMMENTARY: The premium-priced jeans market, or jeans over $100 a pair, was hit very hard, as was the overall retail sector, by the recession as consumers chided away from luxury items.
Premium-priced jeans were hot prior to 2007, but once the recession picked up steam, you saw sales take a nose dive. The problem: just too damn many premium-priced jeans, intense competition and shrinking demand. The results were predicable as makers of premium-priced jeans began discounting.
Although I applaud Levi's early results at selling premium-priced jeans, consumers are only now beginning to buy again, slowly, but gradually. The way they rapidly increased their selling, general and administrative expenses by 26% in the past year is a bit risky as is their strategy of "attacking" coming out of the recession.
Levi's has always been perceived as the maker of comfortable, durable and low-priced jeans catering to a more mature market, so the strategy of entering the premium-priced jeans market is quite risky. However, I do agree that it was necessary to establish new brand names for their higher-priced jeans
Courtesy of an article dated April 14, 2010 appearing in The Wall Street Journal
It is really hard for me to feel much sympathy for this. What an extravagant and wasteful culture we have! Thanks for the interesting post, though.
Posted by: DoctorD42 | 04/24/2010 at 11:29 PM