Faced with 5 years of declining sales, should Levi’s sell a brand to mass discount retailer, Wal-Mart?
Quick! Name the first company that comes to mind for the following products: facial tissue, photocopiers, and jeans. Did you answer Kleenex, Xerox, and Levi’s? I bet you did. The #1 apparel brand for brand awareness and recognition, “Levi’s” is virtually synonymous with “jeans.” In the past several years however this strong brand recognition has failed to translate into sales growth and in fact the company has seen a progressive decline over the last 5 years.
Faced with the declining sales, Levi Strauss & Co.’s CEO, Phil Marineau, has been considering selling a Levi’s brand to mass discount retailer, Wal-Mart. Bad idea. Clearly this would be brand suicide or, brandicide if you will, sacrificing long-term survival for short-term growth. Levi’s should instead put an end to its brand’s dilution and concentrate its target on trend-setting members of Generation Y by positioning itself as an ultra cool brand with a social conscience. In addition to working closely with its current retail outlets to re-invigorate the brand image, Levi’s should work on growing the number of Original Levi’s Stores worldwide in order to retain as much control as possible over the positioning of the brand.
The forecasted financial results show that choosing to revitalize and refocus the brand rather than diluting and devaluing it further by selling a value brand to Wal-Mart will cost the company 50 million dollars in the first year. However, within 3 years the efforts are expected to payoff with a 330 million dollar revenue increase over 2002 vs. a 270 million dollar projected revenue loss for the Wal-Mart choice. Plus, Levi’s will be able to hit the triple bottom line by remaining socially and environmentally responsible while increasing shareholder earnings.
•Worldwide recognition of its brand name - #1 for apparel brand for brand recognition and brand awareness. •Global presence
•Owns 12 proprietary specialty stores.
•Long-standing relationships with many retailers, enabling it to work across several channels of distribution. •Continued success of Dockers.
•Commitment to ethical conduct and social responsibility. •Reputation as the brand that started the blue jean revolution Weaknesses
•Presence across several retail channels with a number of products aimed at different segments with price points “from the $250 level to the $25 level” diluting the brand. •Being used as a loss leader in several chain and department stores is devaluing the brand. •The average price paid for Levi’s at retail dropping. •History of Levi’s 1994 Canadian dispute with Wal-Mart may be a barrier to rekindling a relationship with the mass retailer. •Recent product releases have met with poor results, particularly in the US. •Major stockholder’s deficit
•Ineffective marketing efforts (30% of sales spent on marketing, yet sales continue to drop) Opportunities
•The jeans market is growing
•Teens continue to be biggest jeans buyers
•Mass merchant channel largest and fastest-growing retail channel for jeans and apparel Threats
•Competitors at all levels of spectrum including high-end segment, vertically integrated retailers in middle segment, and private-label brands offering comparable designs at reduced prices. •Apparel sales down in 2001
•Average price of jeans has dropped over the past 10 years due to the proliferation of off-pricing and private-label brands - 40% of jeans sold below $20. Issues facing the organization
As the jeans market has polarized towards the low and high ends, the Levi’s brand has found itself caught in the middle. Priced between $30 and $50 a pair, the jeans do not offer the same image or design as the high-end brands, or the complete wardrobe selection of the vertically integrated retailers. Also, they do not offer the inexpensive...