Levi Strauss

Levi Strauss & Company—GWG Jeans On May 22, 2002, Levi Strauss & Co. (Canada) Inc. announced it would resume responsibility for the manufacture, marketing and sales of GWG brand jeans. For the past four years the brand has been manufactured and marketed under license by Jack Spratt Mfg. Inc. 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.

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

Americas Europe Asia

2001 2 859.5 1 111.8 372.7

2002 3 148.2 1 104.5 392.4

% Change 9.2 0.7 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. For a closer look at the company's financial situation refer to Figure 2.

Figure 2 Consolidated Income Statements—$ in Thousands

Net Sales Cost of Goods Sold Gross Profit Marketing, General & Admin, Expense Other Operating Income Excess Capacity/ Restructuring Charges Operating Income Interest Expense Other Income Expense Income Before Taxes Income Tax Expense Net Income EBITDA Margin

12 Months 2001 6 Months 2002 6 Months 2001 4 258 674 1 858 802 2 040 320 2 461 198 1 090 674 1 147 891 1 797 198 768 128 892 429 1 355 885 617 739 662 224 (33 420) (14 624) (14 539) (4 286) 141 078 --------479 297 23 935 244 744 230 772 90 533 123 103 8 836 8 104 5 767 239 689 (74 702) 115 874 88 685 (37 351) 42 874 151 004 (37 351) 73 000 13.1%

3.2%

14.1%

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. The men's segment accounts for 52 percent of sales ($500 million) and the women's segment accounts for 48 percent of sales ($475 million). Both Levi's and GWG brands have been affected by the popularity of designer label jeans, private label jeans, and new trendier brands such as Fubu and Paris Blues. Other popular brands among younger age groups that have come on the scene in the past ten years include The Gap, Calvin Klein, Tommy Hilfiger, Diesel, and Guess. These brands have been successful because of

the styles they offer and the images they portray in advertising. They are more in touch with the attitude, behaviour, and expectations of today's youth. Another successful brand, particularly with males over 35, is Denver Hayes. Denver Hayes is a private label brand marketed by Mark's Work Wearhouse. The line includes casual pants and blue jeans. According to Marks' Work Wearhouse, Denver Hayes is the second largest brand of casual pants and the third largest brand of jeans in Canada. Denver Hayes will be a direct competitor of GWG. For some insight into the current market share situation in Canada refer to Figure 3. Figure 3 Market Share—Jeans Market in Canada Brand VF (Lee and Wrangler) Private Labels Levi's Licensed/Designer Labels Gap (Gap, Banana Rep., Old Navy) GWG All Other

2000 25.3 20.2 17.0 7.0 4.9 2.0 23.6

1996 24.5 22.1 18.7 5.2 4.2 2.5 22.8

1991 17.9 3.2 31.0 3.7 2.7 4.5 37.0

In terms of direct competition, VF Corporation poses the biggest threat to Levi Strauss. VF manufactures and markets similar lines under the brand names Lee, Wrangler, and Britannia. While Levi's share of market has dropped, VF brands have risen. Through marketing research VF has identified an effective distribution strategy for each of its brands. For example, Lee brands are sold to consumers shopping in middle tier stores, while Wrangler, Rustler and Britannia jeans are sold in mass merchandise stores. In 2000, VF rounded out their portfolio by introducing two brands specifically targeted at women—Chic and Gitano. Wrangler is strong in Western Canada with all age groups, including younger ages. Lee is more popular in the East, and based on market share has not suffered as badly as Levi's over the years.

The Challenge As a first step in marketing GWG, Levi's has decided to do a “fit test” with consumers—the first for the brand since the mid-nineties—and adjust sizes and cuts for today's body shapes. Since GWG had a certain appeal with the Canadian baby boomer generation the plan is to target that market once again. The price range of $29.99 to $34.99 will be retained. The challenge, therefore, is to develop an introductory marketing communications strategy for GWG jeans. As a starting point, a positioning strategy statement must be developed for the product line. The unique selling proposition also has to be determined. How will GWG jeans be

distinguished from competitor lines? All marketing communications strategies must be directly linked to the positioning strategy. The company has its own sales force to call on department stores and specialty clothing stores. It is anticipated that the GWG line will be available in discount department stores such as WalMart and Zellers, along with a host of smaller, regional chains stores and independent retailers. Sales promotion incentives will be needed to secure distribution. GWG will also need some form of marketing communications support to reacquaint and reconnect baby boomers with the brand. What message strategy will GWG use to attract the attention of baby boomers? What media will be recommended to reach baby boomers? What promotion incentives will they offer the trade and consumers to give the relaunch of GWG jeans a kick-start? Starting from a base market share of 2 percent, a sales revenue and a market share objective must be established for the introductory year. Once the sales revenue is calculated a budget for the campaign can be devised using the percentage of sales method for budgeting. Adapted from John Heinzl, Aero takes aim at bubble lovers, and GWG looks for a comeback,” The Globe and Mail, May 24, 2002, p. B10, Levi Strauss & Co. (Canada) to Resume Responsibility for GWG Brand Apparel, press release, May 22, 2002, Marina Strauss, “Levi's gives stores a facelift to add sparkle to a faded banner,” The Globe and Mail, March 22, 2002, p. B9, www.levistrauss.com, www.marks.com. Flag Ship Levis® Square,No.210, Cititalk Plaza Levis® Square Brigade Road Bangalore (91) 9900261036 Flag Ship No.777 G,100Ft Road,Hal 2Nd Stage, Opposite New Horizon School Matrix Indira Nagar Bangalore (91) 9945785030 OLS Levis® Store,Shop No.12 And 12A,Forum Mall No.21 Prakruthi Apparels Hosur Road Bangalore (91) 9845958824 OLS No.205,2Nd Floor Garuda Mall Levis® Store Magrath Road Bangalore

(91) 9980139905 OLS No.176/3 Commercial Street Levis® Store Next To Woodys Restaurantodys Restaurant Bangalore (91) 9341975847 OLS Levis® Store ,Shop 001A Care Off Sigma Mall,15,16,17 RSH Distribution India Pvt Ltd Cunningham Road Bangalore (91) 9880886946 OLS No. 67,6Th B Main Road,15Nth Cross Levis® Store Jp Nagar, 3Rd Phase Bangalore (91) 9243457980 OLS No.16 Ground Floor,Jaladarshini Layout Levis® Store Bel Road Bangalore (91) 9740151132 OLS Levis® Store, No.744 Sss Complex,80Ft Road,4Th Block Primus Retail pvt ltd Koramangala Bangalore (91) 9731009198 OLS No.318 Sterling Centre Levis® Store K Kamraj Road Bangalore (91) 9972529782 OLS Primus Retail Pvt Ltd,146/2 Margosa Road,3Rd Main Between 7Th And 8Th Cross Primus Retail pvt ltd Malleshwaram Bangalore (91) 9880661212

OLS Primus Retail Pvt Ltd,No.892 8Th Main,New Kantharaj Urs Road,Opposite Banthama Temple Primus Retail pvt ltd Saraswati Puram Mysore (91) 9844470009 OLS Levis® Store Venkatraman Apparels Building No.129 B, Devaraj Urs Road Mysore (91) 9845518810

Levi’s India changes marketing and pricing strategies By denimiscool

Levi’s India is changing the marketing strategies for its Denims and Non-Denim brands. On the one hand it is seeking to expand its presence in the Premium and Super-Premium segment by launching more products in this segment. On the other hand, it is seeking to strengthen its Value Brand - Signature. Launched last year and priced between Rs 599Rs999(USD 15- USD 25) in small towns and upto Rs 1399(USD 35) in larger towns,Signature seeks to capture a large share of the Value segment of Branded Jeans - which is currently estimated at about 10 million units - by having more than 5000 sale points for the same throughout India (as against 1000 currently). In the Premium segment the prices are in the range of Rs 2000-4000(USD 50-USD75), Super premium has price range of Rs 4000-6000(USD 75-100) and Connosieur segment is Rs 600012000(USD 150-300). Levi’s wants to increase its presence in these segments. It however does not want to be present in the Mid Price Segment ie Rs 1000-2000(USD 25-50) .Thus Levi’s India is following the International trends where Value and Premium segments are expected to do better than the mid priced segments. The Value offering of Signature is Levis’ take on the local Indian brands who are selling decent jeans in the range of Rs 600-Rs1200/ - but who do not have the brand value of Levi’s. The estimates for the market of Premium and Super Premium denim in India are about 7 million and 3 million (though I need to verify the same) and offer substantial possibilities for growth for brands like Levi’s.However, the going will not be as smooth since Levi’s will not be able to offer great washes in its Signature line - and washes are one of the biggest factor for purchase of Jeans by the young.