Levi Strauss & Co.'s long-running woes became painfully clear on Dec. 1, the day the legendary jeans maker called in the turnaround doctors and replaced its chief financial officer. CEO Philip A. Marineau is now counting on restructuring experts from Alvarez & Marsal Inc. to jumpstart cost-cutting and marketing efforts that so far have failed to stem Levi's depressing decline.
It'll take a lot to fix what ails Levi's. The story of Levi's slide is a classic case of a powerful brand that lost its way. Born in the California gold rush, this American icon helped baby boomers define themselves in the 1960s as hip and apart from Establishment culture. But now the Levi's name has grown into doddering old age in a brutally competitive apparel market. Sales have slid from a peak of $7.1 billion in 1996 to about $4 billion this fiscal year. The company's promises of growth have evaporated, and losses, including restructuring charges, hit $16 million in the first nine months of the year. Some hard lessons clearly await the new turnaround team:
THE MIDDLE IS A PAINFUL PLACE TO BE. For years, Levi's stuck to the middle even as the jeans business became increasingly polarized. Fearful of devaluing the brand, which it sold largely through such mid-market channels as J.C. Penney (JCP ) and Sears (S ), it avoided the discount fray even as its core customers turned to the likes of Wal-Mart (WMT ), Target (TGT ), and Kohl's (KSS ). At the same time, the company was slow to capitalize on the boom in high-fashion denim as new rivals such as Diesel and Lucky piled in. The result: both price- and fashion-conscious buyers abandoned Levi's.
Certainly, Marineau has tried to fix that since arriving from PepsiCo (PEP ) in 1999, with such lines as Levi Strauss Signature for Wal-Mart and other discounters and the more expensive Premium Red Tab for the likes of Nordstrom (JWN ) and Neiman Marcus. But by covering the retail landscape with a variety of poorly differentiated Levi's labels, he risks further diluting an already faded image. "The question is, is it too little, too late?" asks Philip H. Kowalczyk, managing director of retail consultancy Kurt Salmon Associates.
THESE ARE NOT YOUR FATHER'S LEVI'S. Sure, Levi's is one of the best-known names in the world. But the company's promotions of its "authentic" jeans don't resonate with younger shoppers. While some boomers still consider them hip, that's precisely why their kids don't. "My daughter doesn't think Levi's is a cool brand," says Steven D. Persky, CEO of hedge fund Dalton Investments LLC, which has traded in Levi's bonds. His 15-year-old "is interested in things like Juicy [Couture] and other hipper brands."
Lew Frankfort, CEO of Coach Inc. (COH ), who knows a thing or two about rebuilding a dying brand, says Levi's failed to create the "emotional associations" with consumers that build brand loyalty, as Ralph Lauren and others have. Levi's execs "saw themselves as a jeans company making great jeans as opposed to part of the American landscape," he adds.
UNFORTUNATELY, NICE GUYS OFTEN DO FINISH LAST. With a long history of taking care of its workers and an admirable commitment to American manufacturing, Levi's discovered that it simply couldn't compete with brands produced more cheaply overseas. So after years of plant shutdowns, Levi's announced in September that it would close its last two U.S. plants. Union leaders say Marineau and the controlling Haas family made the move reluctantly. For too long, Levi's history and culture has prevented it from becoming the lean marketing and design organization needed to compete.
While some retail experts credit Marineau with starting to move Levi's in the right direction, he and the board of the privately held company clearly didn't act with the urgency needed. And that brings us to the most important lesson of all: Properly nurtured, an iconic image and storied history can help a brand soar. But if taken for granted for too long, those attributes can quickly weigh down a brand.
By Wendy Zellner