JEANS Levi's is hit by the blues

Struggling Levi's closes U.S. plants, auctions Dockers and adds a cheaper line.
KNIGHT RIDDER NEWSPAPERS
SAN JOSE, Calif. -- For generations, Levi's made America's fashion statement to the world.
Today, the company founded in San Francisco 151 years ago is struggling to survive, remaking its slumping business in ways once deemed unthinkable.
The decline of Levi Strauss is a timely parable of how a well-loved American icon lost its way and now must scramble to catch up, a study of the pitfalls and opportunities of fast-paced international competition.
Although Levi's remains the world's best-selling brand of jeans, the company lost its fashion step and then fumbled attempts to revive itself. It fidgeted as customers fled to Wal-Mart and as rivals, such as the Gap, moved manufacturing to chase cheap foreign labor.
"Levi's was the jean of the rock 'n' roll generation. We certainly haven't been the jean of the hip-hop generation," Philip Marineau, chief executive, said in a recent interview.
Missed out
The company missed the urban jean revolution of the 1990s that favored the baggy look over Levi's more slim-tailored fits. Its response last year, the launch of "Type 1" jeans with big stitching and a bolder look, fizzled.
Facing what are among the most severe financial woes in its history, Levi's is now retailoring its clothing lines, trying to stem a 40 percent slide in sales since 1996. For fiscal 2003, the company posted a $349 million loss, offsetting the combined profit of four previous years.
The company is auctioning off its Dockers unit, which launched the khaki craze that dressed a dot-com generation. After years of coasting on its iconic image, Levi's is now pushing cut-rate jeans at discount retailers, for as low as $19. And in the latest symbolic blow, Levi's closed its last U.S. factory seven months ago.
Foreign made
In 1990, Levi's made 90 percent of its merchandise in the United States. The company now contracts out more than 90 percent of its production work to foreign garment workers, essentially becoming a marketer and distributor of jeans, but no longer a maker.
The Haas family for years had resisted such moves before finally going ahead with mass closures beginning in the late 1990s. Sales began dropping after the family completed a 1996 leveraged buyout to bring the company private, leaving Levi's with more than $2 billion in debt.
Since then, the company has shut 43 factories in North America and Europe, paring its work force by about 25,000 jobs.
But the moves came years after many competitors, including rival Gap, transferred most of its manufacturing overseas, as did the North Carolina-based maker of Wrangler and Lee jeans, its biggest competitor.
Levi's contractors today are spread around the globe. A pair of jeans can be made overseas for less than half the cost in the United States.
Other problems
Slicing production costs did not stem Levi's other problems, however. An explosion of jeans makers means consumers have more choice, and often at much lower prices, which has driven Levi's to cut prices on it classic brands to below $30. The 30 percent profit margin Levi's once enjoyed on a pair of jeans has now been chopped by as much as two-thirds on its lower-priced lines, according to analysts.
And the company has been slow to catch on to the changing habits of shoppers, who are shunning department stores in favor of discount retailers. A year ago, Levi's began selling a low-priced jean under its Signature brand at Wal-Mart and, more recently, at Target. The brand uses cheaper denim and leaves off Levi's trademark red tab.
Signature sales already account for nearly 10 percent of the company's worldwide sales.
The Signature sales allowed Levi's to report in July its first quarterly profit since last summer. While price-conscious retailers such as Wal-Mart demand their suppliers make do with slimmer profit margins, Levi's hopes volume sales of Signature jeans will help its bottom line.
"Levi's is surviving because of Wal-Mart," said Los Angeles-based retail consultant Ira Kalish.
But Wal-Mart alone can't "return Levi to its glory," said San Francisco retail consultant Harry Bernard.