Can Levi's Be Cool Again - Case Study Example

?Running head: Consumer Behavior Case study - Levi Strauss & Co Insert Insert Grade Insert 24 May Executive Summary This report is a case study of Levi Strauss & Co., an American brand clothing line that has been in the market for 147 years but has recently been facing a number of hurdles in sustaining the momentum for good business performance in the textile industry. The company has experienced reduced sale volumes as a result of closure or its failure to respond to different needs of different customer classes in its market. Specifically, the company has failed to quickly respond to fashion trends for its youthful market in the textile industry; thus losing a significant market share to competitors. A number of factories have been closed and retail network for distribution of its products reduced. The company just hired a highly competent CEO1 who has experience in business make ups and creating and sustaining brands, image and customer loyalty. A SWOT2 analysis of the company indicates that it stands to enjoy a number of business opportunities if certain things are achieved. The firm has several strengths that would increase its competitive advantage. The company, however, faces challenges in terms of potential threats from the market as well as internal weaknesses, which may be minimized. Several strategies and action points are suggested as measures to restore the company’s glory and regain its market share to improve business performance. Among them is the implementation of an elaborate marketing and promotion campaign, putting in place a comprehensive customer relations program, re-establishment of retail distribution networks, expansion to new markets and diversification of existing product range. Introduction Levi Strauss & Co is an all-time American brand clothing store that has been in the San Francisco apparel market for many decades. It faces a number of hurdles in sustaining business growth momentum. The company has been in existences for 147 years with 51 factories and workforce of about 37,500. Of these, 30 factories have been closed, leaving 15,000 employees jobless. Young people in New York, for example, believe that clothes from Levi Strauss are mainly targeted for the middle aged people because the company does not seem to take into account the fashion needs and trends for the different age groups in the textile industry. The company has for the last three years faced a rough business terrain with plummeting sales, layoffs, occasional plant closings, and a failure to woo certain market segments to take up its products. The company just appointed Mr. Philip Marineau, a vigilant and veteran marketing executive from PepsiCo Inc., as CEO to turnaround its fortunes and rejuvenate its presence in the market for growth. Philip’s mission is to bring back the company to its earlier business glory and more by re-establishing effective customer relations, launch more relevant products and improve existing ones guided by the needs of customers and undertake effective promotions, advertising and marketing for the products. This paper will provide an analysis of Levi Strauss by addressing the problem, conducting a situation analysis, assessing alternative options and making firm and implementable decisions to help the chief executive achieve his desired objectives (Case Study notes). Problem Statement The main problem of Levi Strauss as explained in the foregoing background is the failure to respond to different needs of different customer classes in its market. Specifically, the company has failed to quickly respond to fashion trends for its youthful market in the textile industry thus losing a significant market share to competitors such as JNCO and Kikwear among others. The fall of a majority of the company’s retail distribution networks has also been a big problem in terms of maintaining sustained or even stronger presence in the market. The company has continuously failed to embrace dynamic market needs and is stuck on traditional styles that currently only account for 20% of market demand, unlike its competitors. A case in point is the loss of business in its core brand, the ‘five pocket jeans’ whose popularity has gone down the drain with companies manufacturing big pocketed brands. Levi’s has been left behind in VF’s boys’ jeans business too. Indeed, market share has reduced from 31% to 17 % according to analysts. This has resulted in significant decline in sales since 1996, with a record slide from USD 7.1 billion to USD 5.1 billion in a single year (Case Study notes). Situation Analysis Strengths Levis has been in the market for a long time and has the advantage of established goodwill from already existing clientele, understands the textile market better compared to a new entrant and has a range of clothing line brands known to consumers. The other strength relating to products already in the market is that the company will only need to improve the same to meet the style and fashion needs of its customers. It will also have an easier time launching new products such as youth-oriented fashions like oddly cut jeans and nylon pants that unzip into shorts, because it has experience in term of sourcing for raw materials, manufacturing, distribution and even marketing. Newly hired CEO, who is a renowned marketing expert having worked at one of the world’s beverage giants Pepsi Inc, will be extremely resourceful to the firm. The CEO has experience in making changeovers and makeovers like the one at hand for Levi Strauss. When the company gets the computerized ‘automatic replenishment’ system project finished and done with, there will be trickling benefits in terms of keeping retailer shelves packed with company products. This will improve distribution of the products and meet customer needs easily and conveniently to enhance business performance. This development will also support the company to re-try online jean sale business, which it had earlier tried in vain because of the high cost involved compared to low sales. The successful restructuring of the company’s debt portfolio through collateralization will improve its financial position, reduce distress and provide room for business improvement. Weaknesses Among the weaknesses identified in the case study include evidence of production and logistical hurdles in terms of the unsmoothed kinks in manufacturing and shipping that has two-fold implications, either preventing Levi's from rushing new products into stores and/or resulting in wrong merchandise taken to the stores late. This has been the case because of Levi's shifting manufacturing from company-owned plants to contractors. Another weakness associates with the fact that Levi’s being a mythical brand in the market has not managed to keep the image strong in the eyes of its customers, thus, recording poor performance over time. The shortcomings that come with the inability to breakeven among other challenges, may pose as a great weakness for management. Opportunities The company has a number of available opportunities even though in its current business situation. First, it has open chances to open up to new markets through its envisaged strategy to increase the products range and engage an aggressive marketing and promotion campaign for its products. Different cloth lines, fashions and styles will suit different age groups, classes of people, preferences, social-economic and cultural affiliations that imply expanded market niche for the company. It has also the advantage of reaching out to larger markets online after the success of the computerized automatic replenishment system, which will support efficient distribution of its products. With successful implementation of the proposed growth strategies, the current ownership set up of the firm may provide an opportunity for future expansion through capital injection from public offerings. This will leverage the company’s fortunes by raising its profile around the world through trading of its shares. Threats Competition from other industry players who are more flexible and adaptive to fashion dynamics than Levis is. The company’s long history is a candidate for make or break in the current hype for reform and rejuvenation. The fact that its image out there is not as appealing as it used to be due to the massive laying off of the workforce, declining financial performance and closure of many factory outlets, may in itself be a threat for the management’s mission in terms of restoring or making better the company’s business positioning. The loss of business from closed and existing retail outlets may also pose a threat like is the case with Lark Clothing Stores Inc., a Chicago-based chain that quit selling Levi’s four years ago. Radical fashion change from the classic Red Tab denim cuts to the engineered jeans, from a plain-vanilla jeans supplier, may not receive immediate positive uptake by retail stores as they adopt a ‘wait and see’ attitude to observe the market reaction. This may hamper the speed at which the management of Levi’s plans to bring a revolution. Retailers have also complained of Levi’s blocking their efforts to sell the company’s products online, something that may affect its business when it sets to venture into the online business and involve the agents. On conducting a small market survey from customers who had seen initial samples of the engineered jeans brand, it emerged that there might be some resistance from buyers if the product is introduced immediately. Sampled customers cited different reasons for this perceived outcome, including the product’s unusual features and cuts. The projected sales decline in the coming year will further impact on the firm’s financial achievement and may lead to reduced confidence from existing and potential customers in the firm’s products. The other threat that might hurt the company’s reputation and the image is the recent downgrading by some of the world’s credit rating companies, on grounds that the company’s financial position has been worrying. The management will have to work harder to paint a better image of the firm as they seek to turn around its fortunes (Case Study notes). Alternative Courses of Action In making assessment for alternative options for action by the management of Levi’s, we make use of information available from case study as follows: a. Reopen Closed Factories and employ more workers This strategy may have its good and bad side. The good side is that with assured market appetite for the company’s products, market demand will most probably be met because production will increase. The other good thing is that there will be the creation of employment and improvement of lifestyles for the families employed. The company can also manufacture enough to satisfy its demand, and it may also manufacture for other firms provided they are not its direct competitors. The strategy’s bad side is that it may involve huge capital outlay given that the company is already in financial distress. This, therefore, may not be a practical option unless necessary resource inputs are available. b. Retain existing number of factories and employee base BUT: i. Diversify existing product range New rebranded products will be introduced into the market while existing ones will either be phased out or improved if a market for them still exists. ii. Expand to new markets The company must focus to reach out to other markets with diversities in terms of people’s demographics, regional distribution and social-economic as well as cultural lifestyles. iii. Put in place a comprehensive customer relations program Management must be ready to embrace effective customer care through a professional workforce to meet customer needs and maintain client base. iv. Re-establish retail distribution networks This is to increase its distribution of the customer favorite brands and gain market share. v. Implement an elaborate marketing and promotion campaign To achieve its objective of restoring market presence to turn around financial performance for growth prospects, the company must undertake marketing. This strategy has more advantages than disadvantages in that the firm shall more or less work with the existing resource ability to begin a shift for business growth. The strategy involves making maximum use of available limited resources as opposed to the first strategy, which calls for new resource inputs. On one hand, this strategy aims to maximize on the strengths and opportunities that the company has while minimizing on the weaknesses and dealing with the threats. Conclusion or Final Decision Based on the foregoing discussion, Levi Strauss has a number of options it can explore under the above strategies to spur business growth. The best strategy is to retain the existing resource base to avoid further strain but embrace strategies such as product diversification and improvement, expansion to new markets, improved customer relations and care, Re-establishment of retail networks and effective marketing through promotions and advertising. In order to regain market dominance and restore lost glory, the CEO has plans to increase customer attention, address their needs effectively by diversifying the products range to include more relevant products as well as engage the masses through intensive marketing strategies. He intends to achieve this by immediately unveiling new fashionable and stylish cloth lines for the youthful market to increase the company’s competitive edge in the textile industry. He also has plans to broaden the company’s appeal to an existing market niche; that of grownups. He intends to do this by extending the coverage and scope of certain brands of the company like the Dockers and Slates casual-pants. Additionally, straightening the bends that exist in manufacturing and shipping hence preventing rush for new products into the stores will go a long way in increasing productivity and efficiency to boost sales for growth. Implementation To implement the best strategy as discussed above, the management will come up with action plans to undertake the following: i. Diversify existing product range The CEO acknowledges that indeed Levi’s has missed trends in fashion and style. New rebranded products will be introduced into the market while existing ones will either be phased out or improved if a market for them still exists. The CEO has, for example, stated that a new stylish and fashionable clothing line that meets customer expectations will soon be selling out there branded as Engineered Jeans, which is a reinvention of the five-pocket jeans. The jeans will have bigger pockets for items like pagers. Levi’s, however, must leverage on its existing and popular product range and custom it to the current needs of the customers to rebuild confidence and loyalty. ii. Expand to new markets The company must focus to reach out to other markets with diversities in terms of people’s demographics, regional distribution and social-economic as well as cultural lifestyles. Harry Bernard, a San Francisco marketing consultant, advice that it would be dangerous for Levi’s to target only the under-25 market; this is because it is the most unpredictable and may shift goals any time. iii. Put in place a comprehensive customer relations program In order for the company to achieve product diversification and wider market objectives, its management must be ready to embrace effective customer care through a professional workforce to meet customer needs and maintain client base. The CEO already reckons that the company will endeavor to make its flagship brand just as attractive to the new generation of kids as it is to their boomer parents. iv. Re-establish retail distribution networks The company will as a result of the aforementioned efforts have no option than to increase its distribution of the customer favorite brands through engaging more retail outlets to market and sell on its behalf. The management will enter into arrangements with existing retail clothing lines to distribute its products to a wider market resulting in increased sales and growth. v. Implement an elaborate marketing and promotion campaign The marketing of the range of products envisaged above is not an option if indeed Levi’s intends to achieve its objective of restoring market presence to turn around financial performance for growth prospects. The company must set aside a budget to carry out extensive marketing through promotions and advertisements. It must set out to brand each and every product it produces perhaps doing this based on the target market in mind. Levis’ has already begun this through an upcoming television campaign for frayed cutoff shorts, which will feature a lady hurling her jeans to be clashed by a train. To create a new impression of the company’s image in terms of its financial position and product competitiveness and to leverage on its long lived market presence to restore customer confidence and loyalty, the company must make use of media marketing through advertising and promotion. Reference Case Study - Can Levi's Be Cool Again? Read More