Competition in denim market makes Levi's a fashion victim

LEVI STRAUSS, the iconic US jeans maker once known for its shrink-to-fit jeans, is now better known for its shrinking sales. In July the firm, which was founded in 1853 by Bavarian immigrant Levi Strauss, saw its second quarter profits plummet by 98 per cent to just $1 million, as its sales contracted amidst worsening global economic conditions. The results mark the latest step in what has been a long and slow decline for the brand, which once dominated global fashion.

Throughout the 1980s and early 1990s, iconic advertisements caught the mood of a generation, and firmly placed the brand in the "must have" category. In the early 1990s, in a scene reminiscent of the famous Levi's ad in which Nick Kamen stripped down to his boxers, a launderette was robbed in Phibsboro, Dublin - but the only items stolen were Levi's jeans.

"Twenty years ago Levi's was the biggest brand. It was the achievement brand and everyone wanted to have it. If I walked into a classroom 20 years ago and asked what jeans students were wearing, everyone would say Levi's," says Damien McLoughlin, professor of marketing at UCD.

By 1996, sales of Levi's topped $7.1 billion, but the firm soon began to suffer from focusing so much on its 501 jean - which at one stage represented 50 per cent of sales - and on advertising innovation rather than product innovation.

After peaking in 1996, Levi's sales went into freefall, plummeting by 40 per cent over the next eight years. In 2005, the firm finally managed a marginal turnaround, when its sales increased by 1 per cent. Sales declined again in 2006 before growing by 4 per cent to $4.36 billion in 2007 - still almost $3 billion off its mid-1990s high.

While Levi's remains the number one jeans brand globally, selling its products in more than 110 countries, in the second quarter of 2008 it was once more hit by falling sales. Globally, sales fell by 8 per cent while in the US, sales dropped by 20 per cent. The firm has blamed difficult economic conditions, particularly in the US, a difficult retail environment that is being pressured by weak consumer spending and technology-related issues for its latest poor showing, but there are deeper problems for the brand.

Up until the mid-1990s, Levi's jeans were seen as an essential fashion item. But then the industry underwent a seismic shift, as denim came to be seen as a luxury item, with brands such as 7 for All Mankind and True Religion selling their jeans for up to six times what a pair of Levi's cost and distributing them through luxury boutiques and department stores.

Instead of jumping on the bandwagon, Levi's failed to respond to changing consumer tastes and suffered. It clung firmly to its position as a mid-priced manufacturer, despite the fact that the denim business was becoming polarised between the luxury and the discount end. In fact, Levi's did not introduce its own premium denim line, Capital E, until 2006, long after the luxury trend had first emerged.

"In the 1980s Levi's defined the jeans market, but if you look at two of the leading exponents of 1980s music - Madonna and U2 - you see examples of probably the greatest respondents to culture," says McLoughlin. "The nature of fashion and consumer tastes changed and people wanted to become more individual. Now, no one brand is dominant, but people look to brands such as Abercrombie and Fitch as a badge of their individuality," he says.

Levi's itself admits it was "slow to react" and cites a host of changes as impacting negatively on the brand including the removal of barriers to entry to the apparel industry which led to the emergence of thousands of denim brands; the growth in exclusive brands; the proliferation of jeans designed specifically for women; and the arrival of vertically integrated speciality stores such as Zara and Gap.

In Ireland, the brand has diminished to such a level that today it is near impossible to envision a launderette being robbed just for its Levi's jeans.

Brendan McElroy, strategic planning director with Owens DBB, says that many factors have gone against the business in Ireland. "On a very practical level, the visibility of the brand has gone down - you don't physically see it any more," he says, adding that the brand has become "out-moded".

"In a way Levi's has become a fashion victim. There is now so much competition in the jeans market, and brands such as Miss Sixty and Diesel have been much quicker to respond to changes in fashion, marginalising Levi's as a result," he says.

McLoughlin adds that jeans manufacturers are at a disadvantage compared with other fashion brands.

"Brands are successful because of the strength of their brand equity and their ability to get momentum behind them. However, when consumer culture changes, brand equity also has to change. Fashion brands such as Calvin Klein and Prada have the advantage of changing brand equity twice a year with fashion shows, but it is very difficult to do this with jeans brands," he says.

Now Levi's is going back to its roots and is hoping that a "one size fits all" approach will boost sales. Up until now, Levi's signature button-fly 501 jeans had a different fit in each of the 110 countries in which it is sold. From now on all jeans sold will have the same fit, following the company's launch of its "Live unbuttoned" campaign.

This latest marketing campaign is the brand's first integrated global campaign and the biggest marketing programme it has ever undertaken.

The Levi's brand remains a powerful tool, and in the BrandZ Top 100 Most Powerful Brands survey for 2008, Levi's was ranked 10th in the apparel section with an estimated brand value of $1.4 billion.

The risk for the brand, however, is that by focusing once more on its 501 brand, the firm may negate the progress it has made over the past number of years. Moreover, the Levi's brand means different things in different parts of the world: in the US, for example, Levi's jeans are considered as more of a staple and are sold in discount stores such as Wal-Mart, while in Europe, Levi's are seen as more of a premium product.

Levi's says that the new campaign will give them the "opportunity to let a new generation of jeans consumers around the world know that the 501 jean is contemporary and relevant".

But McElroy isn't convinced. "It's not going to work, it is high-risk and unsophisticated and I don't think it will have any impact at all. You need something much more specialised for a brand which has drifted so far off the consumer radar," he says.

McLoughlin is also wary of a global campaign. "Levi's shouldn't rely on a single type of garment such as its 501s. The market for fashion is highly fragmented and there is simply too much competition out there," he says.

To turn it around, McElroy says that the brand needs to take a number of steps. "Levi's must first get its product into more shops, get jeans onto people who Irish people relate to, and show that they have got the range to suit Irish women. Levi's is still a premium brand - but its desirability has weakened," he says.

"Levi's still has multiple strengths, such as its ability to charge higher prices, but it needs to line up its brands with consumer trends as they emerge," says McLoughlin.