Rev. Oct. 12, 2010
LEVI’S AT WAL-MART?
Introduction In early 2002, Phil Marineau, CEO of Levi Strauss & Co., was thinking about whether he should direct his company to sell its product in the world’s largest retail store, Wal-Mart. Levi Strauss had posted a decrease in sales for the past five years, and Marineau was eager to stem the decline. Since joining the company in 1999, Marineau had embarked on an aggressive plan to turn the company around by implementing new business strategies that included shuttering 16 North American manufacturing plants and moving the production to cheaper offshore sources. In the marketing area, Marineau had worked to revive the brand image by launching a series of new advertisements and product placements to broaden the appeal beyond the 15-to-19-year-old segment. Marineau and his management team sensed that the Levi’s brand was being challenged at all points along the spectrum. The high-end segment was dominated by trendy brands such as Tommy Hilfiger, Calvin Klein, Ralph Lauren Polo, and Diesel. In the middle segment, Levi Strauss competed with vertically integrated retailers such as the Gap, American Eagle Outfitters, and Abercrombie & Fitch. Meanwhile, retailers such as Wal-Mart, Target, JCPenney, and Sears had built their own private-label brands, offering comparable designs at significantly reduced prices. With Levi’s selling in several chain and department stores, the company often found itself being used as a loss leader , with Levi’s heavily discounted to the end consumer. Now Marineau and his management team had to decide whether to sell Levi’s in Wal-Mart and, if so, what approach to use. The company had maintained a 10-year relationship with Wal-Mart during the 1980s and 1990s by selling them a value brand called Britannia. Wal-Mart stopped dealing with Levi Strauss in 1994, however, after a dispute in Canada, when Levi Strauss executives refused to maintain a supply of Levi’s Orange Tab jeans in Wal-Mart’s newly purchased Canadian stores (previously Woolco stores).1 With sales of Britannia dropping drastically thereafter, Levi Strauss sold the Britannia brand to a competitor, VF Corporation, in the mid-1990s. 1
Louis Trager, “Wal-Mart, Levi’s in Battle Over Jeans,” Los Angeles Daily News, September 9, 1994, B2.
This case was prepared by Jordan Mitchell under the supervision of Paul W. Farris, Landmark Communications Professor of Business Administration, and Ervin Shames, Instructor. It was written as a basis for class discussion rather than to illustrate effective or ineffective handling of an administrative situation. Copyright 2005 by the University of Virginia Darden School Foundation, Charlottesville, VA. All rights reserved. To order copies, send an e-mail to firstname.lastname@example.org. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means—electronic, mechanical, photocopying, recording, or otherwise—without the permission of the Darden School Foundation.
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As of early 2002, Levi Strauss was considering rekindling the Wal-Mart relationship by offering it a new value brand. Marineau and his management team had one central question: How should the brand be developed to preserve sales with existing customers in other channels? “There are 50 million pairs of jeans sold in discount stores,” Marineau said, “and we are in the business of making pants. We would be crazy not to be looking at other Levi’s brands that could be sold in those channels.”2
Apparel and Jeans Market in the United States Approximately 569 million pairs of all types of jeans were sold in the United States in 2001, throughout all consumer segments, which represented an increase of 2.7% over 2000.3 Total...