Levis at Walmart??

In 2002, CEO of Levi Strauss, Phil Marineau was faced with a tough decision: whether he should sell product at Wal-Mart. In the last five years, Levi-Strauss had lost sales and had to close US plants to move production to cheaper offshore areas. Levi's really needed to revive the brand image to gain back some lost sales and was using marketing to create new advertisements and product placement to broaden their target market. Levi's had tough competition on every level of the price-point spectrum, whether it be high end retailers like Diesel or Calvin Klein, middle vertically integrated retailers like Gap or American Eagles, and on the bottom, private-label brands like Wal-Mart and Target.

Levi's had sold to Wal-Mart through a value brand called Brittania in the 80's and the 90s, but that came to an end in 1994 over a dispute in Canada about Levi's Orange Tab jeans. After that, sales dwindled for Brittania, and Levi's sold Brittania to VF Corp. In 2002, however, Levi's was thinking about offering a new value brand for Wal-Mart. It was not that easy of a decision though. They had to think of a way to keep the existing customers in the other channels and not lessen the brand's perceived quality overall.

Overall, the apparel market had been growing steadily since 1998 until 2001, when it dropped 5.7% in dollars from the year before. The total jeans sales accounted for approximately 7% of the total $166 billion made in 2001 with 569 million pairs sold. Experts in the apparel industry forecasted an interesting year for sales in 2002, stating that most categories of apparel were going to level out or even decrease.

Jeans were just one of the different categories of pants along with casual pants and dress pants, and jeans had dominated the category until the 1990's when sales had tapered off when consumers migrated over to khakis, cargo pants, and other types of pants. However, when new innovations in fabrics and style in the jeans category came to the forefront in 2001, people's tastes began to switch back over to jeans. In 2002, jeans sales were predicted to grow by 2-3%.

Another large constricting development in the jeans market was that the average price had dropped over the last decade due mainly to off-pricing and private-labels brands that were so popular in mega-stores such as Wal-Mart. The average price of jeans had dropped to approximately $20, and 40% had even been price-cut to levels below $20. Over half of the nineteen largest jeans brands in both men's and women's had lost their premium mostly attributed to discounting and trying to market on too many different channels. However, the fastest-growing retail channel was the mass merchants. So we can see why this was very conflicting for Levi's.

One thing that was consistent over the last decade was the fact that jeans were versatile and truly egalitarian. They were high-fashion, and they were perfect for manual labor. "Jeans have the ability to conceal class distinction," and academic wrote.

Levi Strauss & Co. had a strong competitive position early on being the original, the first, the best. Starting with their overalls in 1872 and their work pants in 1873, Levi Strauss and Jacob Davis began the blueprints for their "lot number 501s" which soon would become their trademark jean. By avoiding layoffs during the Great Depression, advertising in different languages, and promoting integrated factories, Levis soon became a fan favorite. With the help of product placement, Levi's remained popular throughout the years with the help of John Wayne, Marlon Brando, Marilyn Monroe, Woodstock, and Bruce Springsteen, and was known as the "cool" brand. They expanded to different lines and eventually had many diverse interests.

They did not stop there. Levi's even developed the Dockers brand to reach a new segment of the pants market, which was a huge success. They kept expanding to include Silvertab as well. By 1996, Levi's was more successful than ever. They were at the top of the jeans segment and had formed a strong global brand that every household knew and recognized.

1997 marked a different time for Levi's though. From the record year of 1996, net income and sales slipped drastically the following years, and their 2002 market share had fallen to a meager 20% compared to their 48% in 1990. This was attributed to the increasing competition in the high-end and low-end segments of the jeans market. People wanted designer jeans on the high-end, the fashion-forwardness of small premium brands, or the low price of the private label jeans at mass merchants.

The vertically integrated retailers, like the Gap and J.Crew, had mastered all aspects of the jeans market from product design to store operation to in-house advertising. They had one consistent image and were placing their products directly into their own stores instead of distributing through independent owned retailers.

Levi's was falling into the nameless in-between section. They were not high-end, did not provide a whole wardrobe selection, and were not offered at the lower price points. That is when Levi's began diversifying their product lines and price points with lines such as Levi's Red, Levi's Engineered, Silvertab, and even less expensive products. They were challenged to be innovative and high-image, while also inexpensive and desirable to all. Their new product releases came back with very mixed opinions. Some were successful in Europe, but not successful in the US. Followers of Levi's innovations like the Engineered jeans, such as G-Star and Diesel, were proving to be more successful, and Levi's innovations were not being adopted on a large scale.

There were many pros and cons of Levi Strauss selling a brand of jeans through Wal-Mart. I'll start with the pros first. There was a lot of opportunity to sell large volumes of jeans. There were over 50 million pairs of jeans sold at discount stores. There was a huge opportunity for Levi's to gain a part of that huge amount. Also, many people were looking for the best pair of jeans at the best deal. With the popularity of mass merchants these days, that segment was becoming the largest and fastest-growing retail channel. It was speculated that the mass channel sold almost 31% of