Can Levi's Be Cool Again?

It's trying to woo kids--without turning off grown-ups

Marissa Emmer certainly recognizes that Levi Strauss is an all-American brand. But the 15-year-old high school sophomore from Setauket, N.Y., and her friends won't wear anything from Levi's. "It doesn't make styles we want," says Emmer, who prefers baggy pants from JNCO and Kikwear. "Levi's styles are too tight and for the older generation, like middle-aged people."

Ouch. This is what Philip A. Marineau, Levi Strauss & Co.'s new chief executive, is up against as he struggles to make the San Francisco apparel giant cool again. In the top job since September, the marketing veteran from PepsiCo Inc. is taking on a company whose fortunes in recent years have faded faster than a new pair of jeans. Marineau vows to get the venerable, family-owned company growing again. After three years of tumbling sales, layoffs, plant closings, and a failed effort to woo kids online, Levi's is gearing up for several product launches. "Levi's is a mythical brand, but our performance has been poor," says Marineau, 53. "We need to turn our attention back to customers and have more relevant products and marketing."

MANUFACTURING KINKS. Marineau is no stranger to makeovers. As head of Pepsi's North American unit, he directed the splashy 1998 rollout of low-cal Pepsi One and other products. He's already attacking Levi's biggest problem: its failure to respond quickly to fashion trends. In coming months, Levi's will unveil a slew of youth-oriented fashions, ranging from oddly cut jeans to nylon pants that unzip into shorts. But Marineau is not giving up on the geezers. He wants to broaden Levi's appeal to grown-ups by extending the Dockers and Slates casual-pants brands. Marineau also needs to smooth out kinks in manufacturing and shipping that prevent Levi's from rushing new products into stores.

Even Marineau acknowledges that a turnaround won't happen overnight. For that reason, it's probably a good thing that Levi's is privately held, owned by descendants of founder Levi Strauss. Marineau succeeded Robert D. Haas, the founder's great-great- grandnephew, who remains chairman of the board. The company has already seen sales drop steadily since 1996, when they peaked at $7.1 billion. For the year ended Nov. 30, sales slid to $5.1 billion, a 14% decline from the year before. Since the mid-'90s, the overall jeans market expanded about 4% a year. Analysts estimate that the share held by Levi's has fallen to about 17% from 31% over the past decade, snatched away by labels ranging from Gap and Old Navy to Tommy Hilfiger and Diesel.

Most of the pain from that retrenchment has already rippled through the 147-year-old company. Before Marineau arrived, Levi's closed 30 of its 51 factories and laid off about 15,000 people, or 40% of its workers. That cut annual costs by about $500 million. But Levi's was forced to rack up $1.3 billion in charges and boost its debt. Marineau says it barely broke even last year.

Some of Levi's problems can be blamed on the sliding fortunes of some of its biggest retailers, most notably J.C. Penney Co. But more damaging was the company's own inability to connect with young customers. Since the mid-1990s, Levi's mainstay five-pocket jeans have steadily lost ground to big-pocketed denim cargo and carpenter pants, says John Schamberger, head of the jeans unit at competitor VF Corp., which makes the Lee and Wrangler brands. In VF's boys' jeans business, for instance, traditional styles today make up only 20% of sales, down from more than 50% four years ago. But while VF and others jumped on this trend, Levi's largely stood still. "When fashion shifted, Levi's never caught on to what youth wanted," says Leonard Rothschilds, owner of Lark Clothing Stores Inc., a Chicago-based chain that quit selling Levi's four years ago.

Marineau acknowledges that Levi's missed trends ranging from flared jeans legs to stretchy fabrics. "We've always been a season behind," he says. To catch up, Levi's is unveiling a line called Engineered Jeans. Billed as a "reinvention" of the five-pocket style, the new pants feature side seams that follow the line of the leg and a bottom hem that's slightly shorter in back to keep it from dragging on the ground. The jeans also have a larger watch pocket to hold items like a pager. Under its youth-oriented Silver Tab brand, Levi's is introducing the Mobile Zip-Off Pant, with legs that unzip to create shorts, and the loose Ripcord Pant, which rolls up.

The new styles are designed to appeal to the sort of niche stores that kids flock to these days. But it is not clear yet whether those specialty retailers are ready for a radical shift such as Engineered Jeans from the plain-vanilla jeans supplier, which is still best known for its classic Red Tab denim cuts. "It's certainly different for Levi's because it's a fashion jean," says Norm Adams, a denim buyer at American Rag, a Los Angeles specialty jeans store that sells expensive reproductions of vintage Levi's. Some buyers say the Engineered Jeans will be a tough sell because of the unusual cut and features. "It'll be a product where sales staff will really have to explain it," says Scott Dromms, a buyer for regional specialty chain U.S. Male in Memphis, which is testing Engineered Jeans in stores.

In the meantime, Levi's can't afford to alienate its core baby-boomer customers. "It's a mistake to target only the under-25 market, because it's the most fickle," says Harry Bernard, a San Francisco marketing consultant. Marineau plans to expand the men's Slates brand into a line of skirts and trousers for women. He's also extending Dockers khakis to a business-casual line called Dockers Recode, using stretch fabrics.

But the heart of Levi's remains the flagship brand, and Marineau needs to make it just as attractive to a new generation of kids as it is to their boomer parents. How do you sell the idea that you're hip while not turning off the oldsters? New ads will showcase the products themselves rather than relentlessly trying to convey "attitude." An upcoming television campaign for frayed cutoff shorts shows a young woman throwing her jeans in front of an oncoming train, which slices them into cutoffs. Contrast that with last year's magazine ad for the Silver Tab line that showed navel-baring teens slouching nonchalantly. "Levi's is too huge a brand to be focused on such a narrow segment of the audience," says Marineau.

WARY OUTSIDERS. Some of Marineau's other challenges are less sexy but just as critical. He has to smooth out glitches in Levi's production and logistics system, which got tangled as Levi's shifted manufacturing from company-owned plants to contractors. Stores frequently received the wrong merchandise or got it late. One major project that's under way: building a computerized "automatic replenishment" system to keep retailers' shelves full of core products. But don't look for a big e-commerce push. In January, Levi's pulled the plug on a struggling effort to sell jeans online. Sales volume was too small to justify the high costs. Also, Levi's angered retailers by blocking their efforts to sell its jeans online. Now if you try to buy jeans from, it directs you to Macy's and Penney's Web sites.

Marineau projects another sales decline "in the high single digits" for this year but thinks growth will return in 2001. "There's no reason why Levi's won't recover," he says.

But outsiders are wary. Since December, Moody's Investors Service, Standard & Poor's, and Fitch IBCA have downgraded Levi's $800 million in senior unsecured debt, citing eroding sales. The company recently renegotiated its bank loans and secured them with assets that included the brand name and trademark. Until Marineau successfully woos a new generation of consumers, Levi's will be singing the blues.

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