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Levi Strauss Chief Executive Philip Marineau, who arrived in 1999 from PepsiCo, has been struggling to revive the jeans maker, whose sales have fallen some 40% in the past five years. The privately held company reported net income of $151 million for the fiscal year ended Nov. 25, down 32% from the prior year. Sales fell 8.3%, to $4.3 billion. Since 1997, Levi has closed 29 domestic factories, and it's shuttering 6 more this year.
Marineau is working to fix problems in virtually every part of the business. He's overhauling the product line, which had become stale and overly dependent on tired styles dating back to the '80s. He has improved Levi's supply chain and increased on-time deliveries to major customers such as J.C. Penney, Sears Roebuck, Kohl's, and Federated Department Stores. Those moves are helping to improve Levi's once-frayed relations with retailers.
While working through its own turnaround, Levi Strauss also is keeping an eye on J.C. Penney. The department-store chain is the largest retail distributor of Levi's clothing, and the future of the jeans company depends in part on Penney's ability to buff up its stores, operations, and marketing (see BW, 4/29/02 "A Speedy Makeover at Penney's"). Since Allen Questrom became Penney's CEO in 2000, Levi Strauss likes what it sees.
BusinessWeek Correspondent Louise Lee recently spoke with Gregg Hammann, Levi Strauss's chief customer officer, to discuss the ways Penney is improving its performance and how that helps Levi. Edited excerpts from their conversation follow:
Q: What's your overall assessment of Penney's turnaround?
A: The turnaround strategy is making tremendous progress. Penney went to centralized merchandising 12 months ago, which has helped it from an efficiency standpoint. It has more fashionable merchandise. Marketing and promotions are more targeted and more compelling to the target: families.
Q: What's particularly appealing about the current advertising?
A: You see all the elements of a family -- [kids,] teens, adults. It shows there's a place for everyone at Penney. It has done a great job of creating ads that fit well with what's in the store.
Q: How does the new centralized buying system help Penney and Levi?
A: Centralized buying lets Penney react quickly to the marketplace and get product out there in all stores. Before that was put in, it could take four to six months for a product to get to all stores. A few stores here and there would buy a product, and stores in some markets would want it at different times.
Last year, Penney decided that it wanted the Superlow jeans [for teen girls] in all stores, and it put in orders in a matter of weeks. Because of centralized buying, it could react quickly as a chain. So all stores had Superlow at the same time. Centralized buying lets Penney have consistent store presentation and a consistent look.
Q: How has Penney improved the presentation of Levi's products?
A: It used to be that jeans would be folded up and stacked along a wall. Now, stores are putting Levi's new young men's Flyweight jeans, made of a light, flexible fabric, on hangers by the aisle. And it's using new mannequins: They almost look like they're alive. The mannequin wears the Flyweight jeans and is in an action pose as though he's riding a skateboard. Plus, there's a sign saying, "Can you do this in your jeans?" People stop and look.
Q: What have such improvements done for Levi sales at Penney?
A: Penney's sales of Levi product have turned around. Sales had fallen every year by about 3% to 5% for the past four years. But in 2001, sales rose in the high single digits for both Levi and Docker products [also made by Levi Strauss].
Q: How else has the relationship between Penney and Levi changed?
A: It used to be a transactional, "Here's the jeans, here's the price." And the jeans just got folded up and put against the wall. Now, a focus for both of us is to be collaborative. We're both companies in turnaround. We've met three times with Penney's key executives, and we've got another meeting in May. Questrom himself attends some of these meetings.
Recently, the marketing vice-presidents for both Penney and Levi got together and walked through five stores in different markets to discuss how they could improve presentation. That kind of meeting just wouldn't have happened two years ago.
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Copyright 2002 , by The McGraw-Hill Companies Inc. All rights reserved.
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