New 'Signature' Line Set Off Price War; Memo Details Problem

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SAN FRANCISCO (AdAge.com) -- Levi Strauss & Co. has scored with sales of teen-targeted and children's clothing at Wal-Mart under its new discount Levi Strauss Signature label, but men's apparel sales are sluggish,
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according to a memo CEO Phil Marineau sent to his staff.

"Now that we have a few months' experience with the brand under our belts, we are finding that sales of our trend core and kids' products are exceeding our expectations, but the men's business is lagging," Mr. Marineau told Levi Strauss employees in a Nov. 13 memo obtained by AdAge.com and confirmed by the company.

Mr. Marineau said Levi Strauss is "pursuing opportunities to build awareness and sales for the men's business."

New marketing plans
Jeff Beckman, a Levi Strauss spokesman, said the company was in the process of developing new marketing plans for the Signature brand to "dial up awareness" as it expands to other discount stores, but specifics were not yet determined. Mr. Marineau's memo did not detail Levi Strauss Signature sales or the actions Levi Strauss may be taking to boost men's jeans and apparel.

Levi Strauss introduced the Levi Strauss Signature line this summer at Wal-Mart with muted fanfare, relying on point of sale and ads broadcast only on Wal-Mart's in-store TV network operated by Premier Retail Networks. The ads were created by ad agency Interpublic Group of Cos.' Foote Cone & Belding, San Francisco.

Last week, the company began a review for a design shop to handle point-of-sale and in-store displays. FCB remains agency for strategy and media. FCB also handles Levi Strauss' Dockers line. Bartle Bogle Hegarty, 49%-owned by Publicis Groupe, is the agency for the Levi's jeans brand sold at department stores.

Yearly sales declines
Levi Strauss' move into the discount channels may have stimulated even more difficulties for the jeansmaker, which announced on the day of Mr. Marineau's memo that sales will decline for the seventh straight year from its 1996 high of $7.1 billion to an expected $4 billion come January.

Burt Flickinger, managing director of Strategic Resources Group/Flickinger Consulting, New York, said the arrival of Levi Strauss Signature stimulated something of a denim price war in the giant discounter's apparel department.

"The competing denim manufacturers are getting very aggressive in promoting against Levi Strauss Signature," he said.

Rivals battle back
VF Corp.'s Wrangler jeans, now on strong financial footing and no longer a marketing novice, have battled back at Wal-Mart. Department-store brands such as J.C. Penney's Arizona private label line and even premium-priced jeans such as Ralph Lauren's Polo line have been promoting heavily, he said.

Levi Strauss Signature spokesman Aaron Carpenter said the brand is considering a new "mix of marketing" as it rolls out into its next discount channel in the U.S. "We're evaluating a whole list of tactics," he said.

Already this fall, Levi Strauss has tried one of its biggest promotions, a $10 million "Motherlode" sweepstakes for the first time involving both the Dockers and Levi's jeans brand. Consumers buying the two brands with a private-label credit card at retailers such as Kohl's, J.C. Penney, May Co., Sears, Goody's and Mervyn's will be entered into the sweepstakes.

Potential to weaken brand?
Levi Strauss Signature jeans have begun to roll out in discount stores in non-U.S. markets, such as Canada and Europe. Levi Strauss spokesman Mr. Beckman said it has not yet been announced which discount stores would be the next Signature outlet, although analysts believe Target stores are likely. That, Mr. Flickinger said, has the potential to "weaken Levi Strauss even more" by too closely associating the brand with discount prices.

Sales of men's apparel are sluggish and prices for jeans are falling. Average jeans prices have dropped from $20.10 for the 12 months ended October 2001 to $19.01 for that same time period in 2003, according to NPD Fashionworld.

Mr. Marineau's memo noted that "the intense price deflation worldwide is compounding the downward pressure on our performance," with the average out-the-door sales price for jeans continuing to decline. In response, Levi Strauss has not only taken wholesale price decreases in the U.S. but its retail customers required additional "margin support," he said.

Lifeline from Wal-Mart
Still, Wal-Mart is providing Levi Strauss with a lifeline, said Kurt Barnard, president of Barnard's Retail Trend Report. "Without Wal-Mart sales, Levi Strauss would be far worse off than they already are," Mr. Barnard said.

In his memo, Mr. Marineau tried to rally the troops by evoking the power of the Levi Strauss brands. "These are strong brands that can weather the storm. We must stand firm in the face of this difficulty and stay focused," he wrote.

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