TOPICS > Economy

Denim Blues

August 2, 2002 at 12:00 AM EST

TRANSCRIPT

SPENCER MICHELS: Trying to reverse years of declining sales, Levis spent big time on racy commercials to run during this year’s Super Bowl. In a changing market, the 149- year-old American company is struggling to regain its place as the world’s top and oldest jeans maker. Originally a denim work pant for gold miners, Levis were worn by generations of Americans on the job and at play. But today, jeans are more than work pants. They’re hot fashion items. And in that context, the word on the street has not been encouraging for Levis.

GIRL: I think of it more of as when I was a child… (laughs) …because that’s the kind of things I used to wear.

SPENCER MICHELS: In an effort to save labor costs, this summer Levis is closing almost all its American factories, including this 96-year-old plant in the city of the firm’s founding San Francisco. In Blue Ridge, Georgia, all 400 Levis workers were let go, aggravating economic woes caused by other textile plants closing over the last decade. CEO Phil Marino, a turnaround specialist hired away from Pepsi Cola two years ago, ordered the closings, as well as the 3,300 layoffs, a fifth of its worldwide employment. Most manufacturing now will take place offshore.

PHILIP MARINEAU, CEO, Levi Strauss: We’re virtually the last apparel manufacturer to do it, and we have to do it to be competitive, there’s absolutely no doubt about it, or we won’t be able to really meet the requirements of the consumer in terms of the price of the product that we’re offering.

SPENCER MICHELS: Levis claims that economic realities forced it to join other firms in manufacturing outside the U.S., despite its long-time commitment to the American worker. In 1872, Bavarian immigrant Levi Strauss, who had opened a small dry goods store in San Francisco during the gold rush, and a Nevada tailor named Jacob Davis got a patent for using rivets to strengthen men’s work pants, and they began making what they called waist overalls. The firm has been family owned and mostly privately held ever since. Levi Strauss prided itself not just for its jeans, but for its business ethics. With a history like that, fashion consultant Harry Bernard, of Colton Bernard, is saddened that hard times have forced the Levi Company to stray from its roots.

SPENCER MICHELS: Does it matter how Levis is doing?

HARRY BERNARD: Sure it matters. It’s an American institution, it’s an icon, it’s the quintessential American brand. Of course it’s important. And nobody wants to see a major business disappear.

SPENCER MICHELS: Levis has begun fighting for its life. In addition to saving labor costs by moving factories overseas, Levi Strauss, which owns the successful Dockers brand as well, is struggling to reclaim market share; challenging newer, trendier competitors. Over the last decade, upstart youth-oriented companies, like PMB Nation, and companies like Diesel, captured the attention of urban youth and would-be urban youth with edgy, tough looking hip-hop design, that baggy look that Levis was very slow to appreciate.

YOUNG MAN: You don’t see too many people wearing Levis and Wranglers and then, like, that jam where then, like, that Jam where Fubu, Plaid and Fubu, stuff like that; like, supporting an urban culture, like.

PHILIP MARINEAU: The retail environment had changed. And because we had been so successful for so long, we hadn’t changed rapidly enough and quickly enough to really meet the changes in the marketplace.

SPOKESPERSON: You have the icons of the rivets…

SPENCER MICHELS: Robert Hanson, Levis’ U.S. president, who, until recently, ran Levis’ successful European division, says the company’s success with its old standby basic jeans, like 501s, was part of the problem.

ROBERT HANSON: President, Levi’s U.S. They were unchallenged by any large denim jean competitor. And as we continue to grow, it’s easy to put your on blinders on and say, “we’ve got a way of satisfying consumer demand and, you know, doing well for our retailers and for the shareholders of the company.

SPENCER MICHELS: Harold consultant Bernard uses a different metaphor.

BERNARD: They’re so huge, it’s difficult to move a battleship very quickly in that kind of a situation. In this industry, you either quick or you’re dead.

SPENCER MICHELS: As sales decline, three years ago Levi’s opened a jazzy store in downtown San Francisco that attracted attention, but not revenue.

COMMERCIAL SPOKESMAN: If you feel like I feel, baby…

SPENCER MICHELS: The company’s ad agency prepared sexy, provocative commercials to prove how hip and urban the firm could be, but the public wasn’t buying it. So when Marineau came in, he set his designers to work, trying to capture the lucrative but ever changing young women’s market, which Levis had ignored for years.

PHILIP MARINEAU: The girls’ business changes almost every month. There’s a new release every month because those girls are in the store shopping continuously, and they’re looking for what’s new. And I describe them as magnet shoppers. Men are mission shoppers: We go in; we want a pair of these; I’m on a mission to get them; you walk out you; you got them. A girl, what is going to magnetize her, and it’s going to be product news, something that she hasn’t seen before. So really being quick enough and fast enough to always give her something new to see becomes one of the keys to success.

SPENCER MICHELS: A new ad agency, a new commercial played up Levis’ super low’s– hip hugging jeans for women who didn’t mind flaunting it.

COMMERCIAL: I’m coming out I want the world to know got to let it show.

SPENCER MICHELS: Marineau was pleased.

PHILIP MARINEAU: You know, I had an old mentor of mine call me up and say, “I’ve heard about these belly button ads that you have on television. Are you trying to sell jeans through gratuitous sex?” And I said, “absolutely not. Let me send you the commercial.” I’ve never seen an ad work as well. We put that ad on Saturday, and on Sunday we had people walking in the stores asking for the Levis belly button jeans. It’s charming, and it is in no way overtly sexy.

SPOKESMAN: Kate can give us a really good example of this new emerging waist.

SPENCER MICHELS: At this summer’s market week in New York, Levis’ Pertham Thomas tried to impress Lam Winn, a buyer for Barneys, with a new low-rise jean called “Red.”

PERTHAM THOMAS: In this particular pair, yes, there’s a little rise, but it is what we call “low slung waist.” So, you can see some of the low- rise trends that are going on today. It’s starting to get ridiculous. We’re starting to expose ourselves too much. I don’t want my sister wearing some of the low rise jeans today. So what we’ve done here is changed the new emerging waists to actually cover the back, it’s not across the front, but still gives you a very sexy look in the front, and this would hold true for men’s as well.

SPENCER MICHELS: Reporter: Levis also introduced a slew of other new jeans, some handmade items priced as high as $200 a pair; some mass produced to sell in the $30 range. Wrinkles and dirt stains are crafted into some models; frayed pant legs as well– risky fashion statements for trend- conscience conscious buyers. But at the same time, Marineau streamlined the product line, cutting the number of items produced from 65,000 to 20,000. Levi now claims to be making 7 percent to 8 percent profit. Nevertheless, sales still continue to decline, down 40 percent in the last six years, and down 12 percent in the last quarter– hardly due to the slowdown following September 11. Consultant Bernard says the firm needs to focus its products on a particular customer, and not try to satisfy everyone.

HARRY BERNARD: What we’ve seen of the product is good to extraordinary. What the problem seems to us is that they haven’t really defined who is this customer.

SPENCER MICHELS: Marineau says Levis can appeal to everybody.

PHILIP MARINEAU: It can be a brand that a 55-year-old baby boomer would say, “I’d love to wear a pair of Levis,” and the 15-year-old says, “Boy, you’ve made the hottest jean in America, and I’m going to wear that, too.” And just because my dad or mom is wearing it, doesn’t mean that I’m not willing to wear it. And all the research confirms this, and all the evidence that we see in the marketplace.

SPENCER MICHELS: According to Marineau, the $4.2 billion firm will grow next year. He is at the halfway mark in his five-year plan to turn around Levi Strauss, hoping that even though Levis no longer will be manufactured in the U.S.A., they can remain an American icon.