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Levi Strauss & Company--GWG Jeans

In 2002, Levi's Strauss announces that they would take back responsibility of the manufacture, marketing and sales of the GWG brand. For the past four years the brand has been manufactured and marketed under license by Jack Spratt of Montreal.

The brand was originally licensed to Spratt so that Levi Strauss could spend more time on its two largest brands: Levi's and Dockers. Given the financial situation facing the company in recent years, strategic direction has changed. The company now wants to round out its brand and pricing portfolio by taking back the GWG line.

Summary:

-Company history

-Financial position

-Company brand

-The market and competition

-Challenges

Company History

Levi Strauss & Co. is one of the world's leading branded apparel companies with sales in more than 100 countries worldwide. The primary lines are Levi's jeans and Docker's casual pants.

In 1873, Levis Strauss and Nevada tailor Jacob Davis patented the process of putting rivets in pants for strength, and the world's first jeans--Levi's jeans--were born. Today, the Levi's trademark is one of the most recognized in the world. The company now generates sales revenue of $4.3 billion worldwide.

The company is privately held by descendents of the family of Levi Strauss. It employs 15,200 people worldwide (1,200 in Canada) and is organized and managed in three geographic regions: the Americas; Europe, Middle East and Africa; and Asia Pacific.

The Americas region markets products under the Levi's and Dockers brands. Levi Strauss Canada reports to the Americas division. The Americas division is based in San Francisco and accounts for $2.9 billion (67 percent) of the company's $4.3 billion total sales (2001). Net Sales by region are included in Figure 1.

Figure 1

Net Sales by Region

2001 2002 % Change

Americas 2 859.5 3 148.2 9.2

Europe 1 111.8 1 104.5 -0.7

Asia 372.7 392.4 5.0

Total Company 4 344.0 4 645.1 6.5

Financial Position

Levi Strauss has encountered serious declines in sales over the past five years. From a high of $7.1 billion in 1996, sales have skidded to $4.3 billion in 2001. Market share for Levi's jeans have declined steadily. As a result of the drastic drop in sales, Levi Strauss closed six manufacturing plants in the United States and two plants in Scotland in 2002. The company is presently carrying a debt of $1.9 billion.

Sales continue the trend downward in 2002. Six months into the year, sales were $1.86 billion, or about 91 percent of sales at the same time in 2001. Restructuring charges of $144 million that were associated with the plant closings had a dramatic impact on the company's profitability in the first half of 2002.

Company Brands

With the reacquisition of GWG, the company will be focusing on three separate lines, each offering different varieties, styles, and price ranges.

Levis' are the original, authentic jean. They were a hit with baby boomers decades ago when they were in their teenager years. The association with boomers has literally and figuratively nurtured the company through its strongest phase of growth and decline in sales and profit. Unfortunately, Levi's jeans have fallen out of favour with today's youth. Levi's jeans are perceived to be their "parent's jeans." For that reason they will wear anything else but a pair of Levi's. This perception is an ongoing marketing problem and the company is struggling to find a way to reverse the brand's fortunes.

A pair of Levi's Red Tabs retails for around $49.99 to $54.99. They are sold in a cross-section of retailers, including department stores, mass merchandisers, and specialty clothing shops across Canada. Levi Strauss also operates 45 Levi's stores across Canada. Levi's is in the process of renovating its stores. The new-look stores feature an in-vogue, minimalist layout. Gone is the traditional wall of cubicles filled with piles of folded jeans. Levis' has also decided to place greater emphasis on females by introducing some trendy, low-rise styles, and a rack of premium 'vintage" jeans at $150 a pop.

Docker's were launched in 1986. This brand and style of pant played a key role in the creation of khaki pants and the shift to casual clothing in the workplace. The brand offers a variety of products including tops, jackets and accessories for a wide range of consumers. In the casual clothing segment of the market, Docker's is a leader.

GWG has always been an integral part of the Canadian heritage. The Great Western Garment Company opened in 1911, becoming the first jeanswear company in Canada. The brand was built on quality--they were durable jeans reasonably priced. GWG was the first brand to use pumice to stonewash jeans.

Historically, GWG was a strong brand. In 1972 GWG was a leading brand in Canada, controlling 30 percent of the market. Granted, at that time, there were a lot fewer brands on the market and there was no such thing as designer labels and private label brands.

The image of GWG is more positive and "workman-like" than Levi's. GWG jeans are now worn mainly by men in construction, trucking, farming and similar occupations. The brand appeals to the comfort and durability needs of its customers, who are generally over the age of 35. GWG has never been positioned as a brand for females.

GWG jeans are marketed at a lower price point than are Levi's. A pair of GWG's at retail are priced anywhere from $29.99 to $34.99.

The Market and Competition

The jeans market in Canada is extremely competitive. Since the early 1990s, Levi's has fallen out of favour with younger target markets, and as a result, market share has dropped considerably. For all intents and purposes, GWG is barely even on the radar screen. Retail sales of jeans in Canada in 2001 amounted to $975 million.