Levis at Wal-Mart
In 2002, Levi Strauss entered a close business collaboration with Wal-Mart to produce "Signature" brand of jeans as well as other apparels for exclusive sale in Wal-Mart stores until 2006. It was a tough strategic decision to make for Phil Marineau, the CEO of the company. Department and specialty stores like Wal-mart were witnessing loss of back-to-school business to mass merchants. INTRODUCTION Levi Strauss & Co. (LS&CO) was founded in 1853 by Levi Strauss. In 1870s, the company started production of denim overalls.
Levi Strauss & Co. is a company privately held by the descendants of the family of Levi Strauss. The stock of this company is not publicly traded. However, the stock holdings in Levi Strauss Japan K. K. , the Japanese affiliate, are publicly traded in Japan. Levi’s employs around 10,000 people worldwide, including approximately 1,010 at San Francisco, California Headquarters. In 1994 the strategic alliance between Wal-Mart and Levis came to an end over a dispute in Canada about Levi's Orange Tab jeans.
With this the sell of Brittania, one of Levis’ value brands at Wal-Mart, also stopped. Following this the sales of Brittania fell dramatically and it was sold to VF Corp. Since its founding, the company’s product has been synonymous with blue jeans. CONCEPTUAL INSIGHT Environmental scanning refers to acquisition and analysis of events and trends in external environment of any organization. Levi’s used environmental scanning to analyze external factors influencing their business, such as competition, market trends, labor costs etc.
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These considerations were made to determine the strategic placement of product locations and channel management. The company was faced with low supplier power challenge, against the high buyer power. The strategic alliance between Levi’s and Wal-Mart was based on following the cost leadership strategy in a broad market and marked Levi's debut at a discount chain. THE CHALLENGE “It is the same Levi Strauss store in downtown San Francisco that used ‘fit ‘em all’ which is almost empty. ” Levi's had strong competitors on each level of the price-point spectrum.
The market share was being increasingly taken away by designers and retailers such as Diesel, Flying Machine on the higher end, while on the lower end people preferred to buy low cost affordable brands such as Target, Wal-mart. Even the middle of the spectrum had vertically integrated retailers like American Eagles, Gap. “This is a company that’s dropped in size 40 percent or so over the past couple of years. The move to Wal-Mart could be sizable. " -Ira Kalish, a retail industry economist. Table Source- SEC Filing Levis Strauss & Company A STRATEGIC MOVE
In early 2002, Levi's CEO Phil Marineau strategized the company’s products and operations, as a bi-pronged approach to stem the company’s declining sales. With an aim to achieving cost leadership, Marineau moved 16 manufacturing bases from North America to cheaper offshore sources. The management team also worked to rejuvenate the brand image and product placement to broaden the appeal. New Products, New Pricing , New Technology, New Channel Levi’s was facing continuous sales erosion and loss of market share. The company decided to enter the discount channel, as the most effective way to reverse its sales trend.
It was a marketplace where Levis had never sold its brands. Levis launched “The Signature” jeans priced between $18 to $24, which was 15 to 35 % less than the $30 to $35 price for Levi's most popular basic jeans called The Red Tab, aiming to achieve cost leadership. It was a significant strategic move in the apparel manufacturer's marketing and merchandising channel. "They’ll get the volume they’ll need to survive” - Harry Bernard, Executive at Retail Consultancy Colton Bernard. Bernard worked to modify the technology of a company to accommodate "mass channel" characteristics of big discount stores.
The supply chain at Wal-mart was also to be modified. As Bergen said, “Our supply chain could not deliver the services Wal-Mart expected". The supply chain had to be modified the way it met Wal-Mart requirement, which were actually the customer requirements. Levi’s system lacked the ability to track the movement of product while it was in pipeline, something which wouldn’t fly with Wal-Mart. Wal-Mart was a supply chain pioneer, where products movement off its shelves was tracked in real-time, quicker than any retailer and expected replenishment on time to keep costs down.
The demand-replenishment system was improved using the Hammann credits. Another addition was the Dashboard envisioned by Bergen. It was placed on executives’ desktops. It resembled a website in interface and showed sales performance for any given product. It helped in matching demand with supply. "Now I can drill down to the product level. "- Hammann says. Levi’s also implemented AS2 technology to enable support collaborative forecasting with Wal-Mart EDI transactions. CONCLUSION The new Signature brand sold at Wal-Mart almost doubled Levi's sales from $26.
7 million from $13. 7 million last year. The doubling of sales was further aided by decreased marketing costs, currency fluctuations and incentive-compensation costs. Levi’s successfully transformed its supply chain by adopting SCM solutions which enabled the company to partner with Wal-Mart strategically and technically. Bergen’s new systems were a great success. The percentage of products delivered on-time quickly rose from 65 percent to 95 percent. Questions & Answers Q1. Describe the various stragetic moves made by Levis in consideration of its declining market share.
Which of these strategies was closest to the concpet of “think globally, act locally” ? Q2. Critically analyze why Walmart entered into strategic alliance with Levis. Q3. Explain how a pair of the same Levi’s jeans can cost $30 in US, $63 in Tokyo, and $88 in Paris.
Works Cited http://www. allbusiness. com/retail-trade/4301546-1. html http://www. levistrauss. com/Downloads/AR_2005. pdf http://en. wikipedia. org/wiki/Levi's http://www. levistrauss. com/Financials http://www. cio. com/article/31948/Supply_Chain_Partnerships_How_Levi_s_Got_Its_Jeans_into_Wal_Mart http://ir. 10kwizard. com/files. php? source=224&fg=24
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