Levi’s in Walmart Essay Example

They have a global presence and own 12 proprietary specialty stores. They also have longstanding relationships with many retailers, allowing them to work across multiple channels of distribution.

The Dockers brand has demonstrated continued success while maintaining a commitment to ethical conduct and social responsibility. Levi's has a reputation as the brand that started the blue jean revolution. However, Levi's faces weaknesses such as having a presence across several retail channels with a number of products aimed at different segments with price points ranging from “$250 level to $25 level,” which can dilute the brand. Additionally, being used as a loss leader in several chain and department stores is devaluing the brand. The average price paid for Levi's at retail is dropping, and their 1994 Canadian dispute with Wal-Mart may be a barrier to rekindling a relationship with the mass retailer.

Recent product releases have not performed well in the United States. The company has experienced deficits from major stockholders and ineffective marketing efforts, as 30% of sales are spent on marketing but sales continue to decline. Despite this, there are opportunities in the growing jeans market, where teens remain the biggest buyers and the mass merchant channel is the largest and fastest-growing retail channel for jeans and apparel. However, there are also threats from competitors across all levels of the spectrum, including high-end retailers, vertically integrated retailers in the middle segment, and private-label brands that offer comparable designs at reduced prices. Additionally, apparel sales have been decreasing since 2001, and the average price of jeans has dropped due to off-pricing and private-label brands, with 40% of jeans now being sold below $20. The organization

is facing issues as the jeans market has become polarized towards the low and high ends, leaving the Levi's brand caught in the middle. With jean prices between $30 and $50 per pair, they do not offer the same image or design as high-end brands or the complete wardrobe selection of vertically integrated retailers.

Additionally, private labels offer less expensive choices that are exclusive, and solely relying on brand awareness may not be adequate to differentiate a business in the competitive denim industry. Levi's has encountered a decrease in revenue over the past five years and needs to undergo reorganization to stay afloat. Consequently, multiple alternatives can be assessed upon examining the company's circumstances.

When confronted with a 5-year decrease in sales, there are two choices to contemplate. The initial option of "doing nothing" and depending on selling more is not feasible. Nevertheless, it's conceivable that current endeavors like presenting new products and utilizing specialty retail channels might require additional time to become successful. Alternatively, the second option is to explore an unfamiliar market with a new product.

Selling a Levi's value brand to mass retailers like Wal-Mart, which accounts for 31% of all jean sales, has a high potential for short-term sales growth. However, there is a risk that entering the discount market with even a differentiated Levi's value brand will devalue and dilute the brand, making it unattractive to current retailers. If Levi's is dropped from chain stores, department stores, and independents due to the loss of relevance to its customers, the potential loss could outweigh any gain. Additionally, once the brand loses its appeal through discounting and devaluation, Wal-Mart loses the benefits of carrying a

national brand. In the long run, Levi's may only be sold in discount stores with a tarnished brand image and even used as a loss-leader for the store's private labels.

There is an alternative option that is similar, which entails producing and promoting a range of jeans for Wal-Mart that are not sold under the Levi's brand. This could potentially generate new prospects for Levi's while maintaining the worth of their primary brand. Nevertheless, this suggestion may not be as appealing to Wal-Mart since they would probably prefer to leverage the highly recognized Levi's brand to augment their own reputation.

Levi's is not interested in the potential acquisition of their generic brand by Wal-Mart. If this were to happen, it would likely result in the Levi's brand falling under "good" or "better" categories instead of "best," with prices either too low or too high for profitable sales. To prevent further dilution of the brand, a solution is to update its personality and marketing mix, making it fresh and relatable to trendsetting youth while highlighting its competitive advantages such as ethical conduct, social responsibility, product innovation, quality and value. This approach is better than simply trying a new channel for a distressed brand.

By targeting a specific audience instead of trying to appeal to everyone, marketing resources can be maximized. By focusing on young consumers who have the most purchasing power when it comes to jeans, growth opportunities abound. Emphasizing the Levi's experience rather than the product or retail locations may lead to organic brand extensions and expansion. However, there is a risk of neglect and dilution leading to a perception as uncool and outdated. In such cases, mass

distribution may be the only option to revitalize a dying brand.

Recommendations: Comparing the projected results of introducing a value brand into Wal-Mart with re-positioning the brand to resonate with the 20% of consumers who have the potential to bring in 80% of revenue, as detailed in the financial analysis (appendix A), it is clear that taking the Wal-Mart route may provide short-term gain but will sacrifice long-term revenue growth. This is because associating with a discount mass retailer may devalue the brand and cause department stores and chains to drop it, ultimately leading to extinction. In contrast, while re-positioning may not result in immediate sales growth, it is expected to translate into steady long-term growth after the first year through increased price points and distribution, especially in specialty outlets. Within three years, taking the Wal-Mart route is predicted to cost Levi's 660 million dollars, making it a risky path towards brand extinction.

So, the best option for reviving sales and maintaining brand integrity is to use a market penetration strategy by targeting existing customers with focused promotions while also developing products that appeal to the target demographic. To start, Levi's must concentrate on targeting to fight against brand dilution and identify the marketing segment most critical to their growth. They need to understand this segment's characteristics, needs, and motives to develop and maintain a specialized marketing mix. By targeting Generation Y (Net Generation or Millenials) as the main group for brand revitalization, Levi's can take advantage of several attributes of this demographic.

The US has a demographic of approximately 76 million people who are in the "young single" stage of life. As a result, they possess limited

financial obligations and greater disposable income. Furthermore, these individuals serve as a fashionable aspirational group for others. The adoption of the brand by young and trendy trend-setters will greatly enhance the brand's image.

Levi's has acknowledged the importance of catering to fashion-forward young adults between the ages of 15 and 24 by introducing high-end brands. However, these brands have failed to resonate with this influential group, resulting in a lack of intended impact on the rest of the jeans line. To successfully target this demographic, Levi's must overturn negative perceptions about product attributes and transform from being perceived as "your parents' jeans" to a brand that holds relevance in the lives of young people. Personalization and customization are also highly valued by Gen Y, who are willing to pay a premium for a brand that aligns with their expectations.

In order to appeal to the tween and teen demographic, marketing experts suggest building a relationship with the brand by making it lifestyle relevant, giving it badge value, generating buzz, and making it authentic. Additionally, the focus should be on keeping it fresh in the long term and allowing them to feel ownership over it. This age segment places a greater emphasis on social and environmental consciousness than previous generations. By re-positioning the Levi's brand as stylish and environmentally responsible, it can become highly relevant to this demographic. This aligns with Levi's current competitive advantages, such as ethical conduct and social responsibility, as well as product innovation and quality. To achieve this re-positioning, higher-end products that appeal to Generation Y and environmentally friendly fabrics should be incorporated into the marketing plan.

In order to maintain a sustainable brand, it

is important to follow certain practices such as using organic and environmentally friendly materials like hemp. Also, manufacturers should be selected based on their fair employment practices and eco-friendly production methods. Merchandise bags should be of high quality and made from recycled paper to encourage consumers to reuse them. Lastly, flagship stores can offer customized tags that detail the percentage of proceeds going to a charity.

The goal is for Original Levi's One stores to be at the forefront of the brand's re-positioning efforts, achieved by expanding with specialty stores in urban areas and targeting department and high-end chain stores. Independent jeaneries are also important. A unique promotional strategy involves associating colored tags with key charities to allow customers to express their social values. To effectively market to Gen Y, traditional media buys like television and print should be supplemented with non-traditional advertising methods.

Strategies for promoting Levi's brand include leveraging consumer-generated content, providing online tools for creating ads featuring Levi's styles, and establishing an international online community. Guerilla marketing tactics, sponsoring mobile phone services, and incorporating music into the shopping experience are also recommended. To attract young customers, high-end styles should be priced slightly lower than other designer jeans while the brand is being rebuilt.

The recommended target price range for Levi's is between $50 and $80, but should lean towards the $50 price point on average in the first year to regain its "cool factor." While Phil Marineau may have considered putting Levi's into discount retailers due to declining sales over 5 years, this move carries considerable marketing risks for a brand that prides itself on staying current. Even if Levi's were to create

a separate brand for Walmart, using the Levi's name on the clothing tag would diminish its relevance to fashion-conscious shoppers and ultimately lead to the company's downfall. Instead, Levi's should leverage its product innovation, promotion innovation, and social responsibility to attract Generation Y–the segment that spends the most money on fashion-forward clothing.

To fulfill its promise of triple bottom line, Levi’s should undertake several steps during the first year of repositioning. Firstly, it needs to audit current manufacturers to assess their adherence to social and environmental best practices. If necessary, it should develop plans to improve production processes. Secondly, the company must establish relationships with key charities interested in partnering with Levi’s on the charitable coloured tab idea. Next, flagship stores need to be redesigned to match youth lifestyle and collaborate with leading retailers to rejuvenate department stores and align them with fresh branding. Finally, Levi’s must introduce a new self-expressive and altruistic jean tag which can be customized. It should also launch it with a global online community to give young consumers the chance to express themselves and make the brand their own.

Appendix A: The focus of this case is on sales, with the assumption that expenses related to repositioning the brand (such as altering manufacturing processes, changing suppliers and opening new stores) will be equal to costs required to enter the mass market. Product development and promotional expenses will remain consistent with previous years but aimed at a new target audience. Changes in distribution systems, specifically reconfiguration of supply chain system for compatibility with Wal-Mart may be costly. Levi's introduction of its value brand at Wal-Mart generates a projected profit of

$20 per unit of jean, based on Dickies' highest price ($26) minus retailer cost ($6). Discounters sell 10% (50 million pairs) out of all 569 million pairs sold annually in the US. Assuming half are sold by Wal-Mart, Levi's value brand could take up 20% (10 million units). Our projection includes 10 million units sold in year one, followed by a 10% decrease after the first year due to devaluation from withdrawal from other retailers (9 million units in second and third years). Levi's top ten customers currently represent approximately 60% of its total sales.

Levi's brand holds approximately 2 billion in sales, translating to around 2.5 billion dollars. Out of this amount, Levi's jeans make up 1 billion in sales, while each of the top 10 clients contribute about 1/10th of the total value. Losing a single customer would result in a loss of 150 million from jeans sales alone. This assumption is conservative given that once a brand attains mass distribution, it becomes challenging to stay profitable. Industry experts agree that in such cases, the brand exits the market.

Although Levi's sales are expected to remain stagnant in the first year after repositioning its brand to target Gen Y, there is a conservative estimate of a 10% growth in sales from current retail channels in the second year. This would result in an increase of 10% from estimated jeans sales of $1 billion and could be due to more units being sold at higher price points. The third year is projected to see another 20% growth due to expanded sales at Levi's Original Stores, which have higher margins, and continued growth in traditional Levi's retail

outlets.

Levi's Wal-Mart value brand is expected to generate $200 million revenue in the first year and $180 million revenue during years two and three; however, removing other retail outlets may cause a decline in revenue - an anticipated reduction of $150 million during year one followed by declines of $300 million and $450 million respectively over years two and three. Overall though, entering Wal-Mart is predicted to raise revenue by $50 million during the first year but then lead to drops of $120 million and $270 million over years two and three.

The repositioning efforts are forecasted to result in significant revenue gains: no gains during the first year but increases of $150 million for year two and $330 million for year three.

Although moving a value brand to Wal-Mart rather than selling it will cause revenue to decrease by around $50,000,000 in the initial year, estimated increases of $270,000,000 and $600,000,000 are predicted for the second and third years respectively which will result in positive outcomes.