Why Levi’s Dominates Denim

Why Levi’s Dominates Denim


What was the most lucrative
product to come out of the California Gold Rush?
Not gold. At least, not for the vast majority
of miners, for whom the Gold Rush was basically
a bust. But the merchants who served those miners?
Well, they had a golden opportunity indeed. All
those new miners needed products, housing, food,
and clothing. Lots and lots of clothing.
Enter Levi Strauss. Sound familiar? Yeah, he should.
But hold on a second. Strauss was a German
immigrant who arrived in San Francisco in 1853 to open
Levi Strauss & Co., a wholesale dry goods
business to cater to California’s exploding
population. That went okay. But it took
another 20 years for Strauss’s real breakthrough: blue
jeans. That’s why you know his name. One
of Strauss’s customers, a tailor from Latvia named Jacob Davis, bought denim
fabric from Strauss to sew various products
for his customers: tents, wagon covers, and now,
pants. Davis wrote to Strauss for help to
patent and market his invention: denim pants
strengthen with copper rivets. They received a
patent for the pants in 1873. But while jeans
are still a worldwide sensation 150 years
later, Levi’s itself hasn’t always struck gold. The company
rose to fame as a hearty,
all-American brand. Everybody has a Levi’s
story. First date, first kiss, going to college.
Everybody has a Levi’s story, and we’ve capitalized
on that. But it has struggled to maintain
the public’s loyalty. Now, after a rocky
recovery, it’s poised to go public again in 2019.
The big question now? Will this be a boom or
bust for the company that invented jeans? For its first 70 years,
Levi’s were the pant of America’s working
class: miners, ranchers, factory workers and
more. Levi’s dominated the jean market until 1913,
when rival brand Lee rolled out its Union
Alls. A few decades later, Wrangler introduced its
jeans fashioned with felt seams and deeper watch
pockets for the modern day cowboy. So competition was heating
up. But the denim market was about to
experience a major boost. How? World War II
and the baby boomers. Jeans made their worldwide debut
during World War II as American soldiers wore
the casual pants around Europe when off-duty. That kind of got consumers
to just see something a little bit different
because everybody was so much more formal. Men
were wearing hats and suits, ladies wore suits
and coats and, you know, fur scarves. I mean it
was a very formal culture, globally. And I think
that was really, like, the start of this
global trend within denim. When soldiers returned, jeans
stuck around. But it took a boost from
the silver screen to transform jeans from strictly
functional to fashion statement. John Wayne first popularized
denim with his rugged cowboy characters in
popular Western movies during the 1930s and
40s. But denim’s real breakthrough came from
1950s Hollywood movies and the teenagers who watch
them. When James Dean donned jeans and a
leather jacket in Rebel Without A Cause, he
kicked off a fashion sensation. Jeans, leather
jackets, those hats, I mean it was very,
very rebellious. It was very different from what the
culture was used to. Though Dean wore jeans from
Levi’s rival company, Lee, Levi’s themselves graced the
legs of famous stars in other popular movies. These films introduced jeans
as a symbol of sexy rebellion to America’s
teenagers. Some school districts even banned
students from wearing them. This growing popularity
helped Levi’s expand nationwide. Young Baby
Boomers across the country wore their Levi’s to the
sock hops of the 50s, the music festivals of
the 60s, and the protests of the 70s. What makes the Levi
brand so successful is their ability to keep
re-engineering and introducing themselves to the next
generation. They are one of the few denim
brands that continually maintain their customer base and find
ways to get the new and upcoming youth market
to think about denim and Levi’s together. Capitalizing on this
success, Levi’s went public for the first time in
1971, and its sales grew at an annual clip of 37
percent during the late 70s. The denim market as
a whole was booming, peaking in 1981 with nearly
590 million jeans sold. Levi’s and its top
two competitors, Lee and Wrangler, represented over
40 percent of the denim market. But this
denim rush slowed in the early 1980s. Levi’s, though
firmly cemented as an iconic American brand,
began to struggle. First the company fell behind
fashion trends. Amid the slumping jeans market of
the 80s, designer jeans from Calvin Klein and
Jordache came into vogue. They gave the pants
the sex appeal that Levi’s classic 501s lacked,
and consumers bought them for nearly double the cost
of Levi’s. At the same time, the major
clothing retailer VF Corporation merged with Wrangler’s
parent company Blue Bell. Now, two of Levi’s
top competitors for the classic American jean
market, Wrangler and Lee, were both under VF
Corp. Levi’s revenue plunged 78 percent in the first
half of 1984, a worrying stumble for a
publicly-traded company. Levi Strauss’s descendants decided
to take on 1.6 billion dollars in debt
to buy back the majority of the company, taking
it private and freeing it from the pressures of
Wall Street. It was the biggest deal of its
kind in the apparel industry at the time. Once it went private,
Levi’s acted fast to compete in a tough denim
market. It closed eleven plants and laid off 3,600
employees. It invested in marketing and technology
and introduced its business casual brand
Dockers in 1986. Dockers focused on trendier,
non-denim trousers, which cut into VF Corp’s
jean sales. Denim boomed again in the 1990s. Levi’s sales
peaked in 1996 at $7.1 billion dollars. The company
was paying its debt years ahead of
schedule, so Strauss’s descendants borrowed another 3.3 billion
dollars to buy back the rest of the
company. But Levi’s still struggled to stay relevant.
It missed the baggy jeans trend of the
90s and the hip-hugging style of the early 2000s.
Cheaper private label brands sold at J.C. Penney and
Gap ate into Levi’s sales in the 1990s, followed
by new upscale competitors like 7 For All
Mankind, Diesel, and True Religion in the
early 2000s. Battered by competition, Levi’s sales
fell every year from 1997 to 2002. Still
saddled with debt, the company recruited the
first non-family member to serve as
CEO: Phil Marineau. Marineau and his
successor, John Anderson, cast around for solutions.
They considered selling the Dockers brand and
teased going public again. Levi’s sales recovered somewhat
by 2007 but fell again when the
financial crash devastated the garment industry. Some
analysts argue that Levi’s reputation as a classic
American brand has seen the company through
fickle fashion trends and economic woes. They can ride out
the storm. They’re not worried about being the
first and the trendsetter, they’re worried about
maintaining their volume and their core
customer business and achieving growth within the new
customers. But even that all-American reputation
has faded. The 80s and 90s
saw the rapid outsourcing of garment production from the
US to countries with cheaper labor. This
allowed Levi’s competitors to slash prices, luring
customers away from the Levi’s brand. This flew
in the face of both Levi’s all-American
reputation and its longstanding relationship
with its employees. When the great San
Francisco fire burned down the Levi’s factory in
1906, Levi’s kept paying workers. And when sales
fell during the Great Depression, Levi’s paid its
employees to put in new factory floors rather
than laying them off. So Levi’s resisted
outsourcing. It closed some plants in the 80s and
90s, but held onto others until finally closing its
last U.S. plant in 2004. When announcing the
final plant closures, a Levi Strauss Company spokesman
told NBC News: “We tried to do our
best to maintain manufacturing in the United States, but
we have to be competitive to survive as a
company.” Now, the vast majority of Levi’s all-American
jeans come from China, Vietnam, Mexico,
and elsewhere. So by the mid
2000s, Levi’s faced massive debt, sluggish sales, and a
waning reputation as an all-American icon. They’ve got their base.
What they’ve got to appeal to is sort of break
the mold of Levi’s as Levi’s classic, to increase
their fashion-ability and that so of speak. But
they can’t go too far. Enter Chip Bergh.
Bergh, another Levi’s outsider, took over as CEO in 2011. The brand lost its way
back in the late 90s and early 2000s. We lost a
lot of consumers. We lost our mojo. I saw this
as kind of an enormous opportunity and
an enormous challenge. He encouraged the company
to focus on what worked, like the core
men’s bottoms business, and strengthen weaker areas.
He revamped stores and its e-commerce site, but
found the most success with women’s jeans.
Using its new Eureka Innovation Lab, an
in-house research and design initiative, sales increased
from under 800 million dollars to over
one billion dollars in under three years.
Additionally, fashion trends are finally back on
Levi’s’ side. Nostalgia for the 1980s and 1990s
has brought back light wash, distressed, and mom jeans,
and a taste for Levi’s 501s. Kanye West wears
a Levi’s vintage trucker jacket, while his famous
family sports Levi’s on Instagram and in
their 2017 Christmas card. Levi’s even got a taste
of the hysteria of a high-profile sneaker drop
when they remade the Air Jordan IV sneakers in
denim in June of 2018. Finally, Levi’s placed
itself prominently in the public eye. First, in
2013, it signed a 20-year 220 million dollar deal
for the naming rights to the San Francisco 49ers
stadium. The stadium and its employees, including
the cheerleaders, are now plastered with
Levi’s advertising. “The people who attend concerts
and NFL games are our core customers,” Bergh
wrote for The Harvard Business Review. “So this
would put our brand back at the center
of the cultural conversation.” Second, Levi’s joined
other retailers and taking a public stand against
gun violence in 2018. Bergh, a former Army
officer, wrote an op-ed for Fortune promising 1
million dollars in donations to anti-gun violence activists
and five hours of paid volunteer time
each month for Levi’s employees. He had
previously asked customers not to bring firearms into
Levi stores in 2016. Burke stated that he
received threats against Levi’s Stores and even himself
after posting the op-ed, but he responded that
they “pale in comparison to threats against other
activists and the daily threats of gun violence
faced by many across the country.” This brand is at its
best when we’re at the center of culture. We were
there when the Berlin Wall fell down. We were there
through the riots in the 60s and 70s. So we
put the brand back at the center of culture. So with innovation, trends,
and bold public moves, Levi seems to be
recapturing some its iconic essence. They consistently
captured around 11 percent of the U.S.
total denim market from 2012 to 2015, and their
annual sales slowly crawled back up to 4.9 billion
dollars in 2017. It was their highest sales numbers
since 1999, and it happened as the rest
of the U.S. jeans market took a beating. But this is still a
far cry from its 1996 sales. Staying private helped the
company make long term investments in its business,
but it still has more than a billion
dollars in total debt. So today, with the denim
industry set to grow, Levi’s is once again
considering going public in 2019. Sources tell CNBC
that Levi’s is aiming to raise as much as
800 million dollars, which would value the company at
five billion dollars. That kind of cash could help
it finally pay off its remaining debt and focus
on growth. CNBC reached out to Levi’s for
an interview, but they declined. This potential IPO
comes as the parent company of Lee and
Wrangler is splitting its denim division into its
own public company. VF Corp. announced a decision
in August 2018, saying it wanted to focus
on its activewear brands like The North Face and
Timberland. It’s a move some say indicates its denim
brands were weighing on overall profits. But
most analysts maintain that Levi’s still stands to
gain quite a lot from going public. It could
be a golden opportunity to reclaim its place
as an American icon.