Niche labels rip into Levi’s

The rise of designer jeans is putting the squeeze on Levi-Strauss, as more and more consumers turn to niche labels. Levi’s has cut its staff – will it now be forced to cut prices to protect its 7bn global sales?

A century-and-a-half after Levi-Strauss began making clothes for US workers, denim has not only become essential global clothing but an integral part of some of the world’s most exclusive designer collections.

So versatile has denim’s appeal become, that about 30 million pairs of jeans are sold in the UK each year at prices ranging from 15 to 100 each.

Yet Levi’s “The original workers jeans” are now retailing at only a fraction less than some of the niche designer labels.

Levi’s now wholesales its jeans at about 23 a pair and retailers are expected mark them up a 100 per cent.

Industry critics believe that while Levi’s has successfully convinced customers that its jeans are worth more than its traditional rivals, Lee and Wrangler, which retail at just over 30, it is now foolishly trying to pitch itself against increasingly popular designer brands such as Diesel, Calvin Klein and Ralph Lauren.

Diesel’s marketing director Jethro Marshall says: “The reason niche designer brands can price their products high is because they offer their customers’ exclusivity. Levi’s is trying to match our prices but without the strict distribution policy which makes products sought-after and desirable.”

Although Levi’s figures show a six per cent growth in sales outside the US in the past 12 months and a seven per cent sales growth in the US – total sales of 7.1bn worldwide – the latest information from Taylor Nelson AGB indicates a serious threat from the designer brands.

In the men’s under-25 market, “premium” designer brands have grown from a three per cent share in December 1995 to an eight-and-a-half per cent share in December 1996. Own-label brands, including Marks & Spencer and the Gap, © have grown from a 24 per cent to 33 per cent share.

Wrangler’s UK marketing director, Tim Henshall, says the reason designer label jeans are such a growth area is because they are “the common man’s entry into designer land. Jeans, along with fragrances, are the door to designer labels”. “They are not as expensive as other designer items and are very durable. With its premium-price positioning Levi’s is starting to move in to a lifestyle and Saturday night jeans market. The strategy is confusing – I keep wondering which ball it has its eye on,” he adds.

Diesel’s Marshall claims that when people buy niche designer labels they are buying into a certain lifestyle. “A niche label carries so much more than just the product. When people buy our jeans they are aspiring to a certain exclusivity and uniqueness.” He believes a crucial part of this is the way the products are retailed, with brands such as Diesel and Calvin Klein having very strict distribution policies.

“We will only sit our products in environments we are happy with and next to other suitable brands,” adds Marshall. “Levi’s distribution policy is all over the place and this disappoints a lot of customers.”

Being a private company, Levi’s is not required to release separate sales figures for the different markets and the VF Corporation, which owns Lee and Wrangler, does not publish separate figures for each brand.

Levi’s corporate affairs spokesman in the UK Mark Elliot says it is up to the individual retailer, including Levi’s own stores, to decide what prices they charge.

He says: “If the demand is there and retailers can get away with charging up to 50 a pair, then that is their choice.”

William Grant from retail consultancy Management Horizons says the denim market is one of the most difficult to analyse because of the lack of specific market figures. “There does seem to be an increasing number of players in the market, which are undoubtedly keeping it alive, but if the older players start to report falling sales figures we wouldn’t know whether the figures were coming from jeans or cotton shirts,” warns Grant.

Last month, Levi’s in the US announced it would be streamlining its operations by laying off 1,000 of its 28,000 US staff across the board. This has fuelled speculation that it is being squeezed by rising competition.

Simon Ratcliffe, account handler for Lee Jeans at Grey Advertising, says: “The industry believes Levi’s is finding it tough and the company is being squeezed from both sides of the market. Virgin is understood to be reviewing its much trumpeted entry into the jeans sector in light of market saturation.

“Levi’s decision to streamline its operations is probably a reaction to both the apparent global stagnation of the jeans market and increasing competition. It is becoming harder for every brand to fight its corner.”

Elliot denies reports in the press last month that the redundancies mark the decline of denim. “Costs have started to get ahead of themselves and are exceeding the industry average,” says Elliot. “We have recognised that in order to strengthen our competitiveness we must streamline our operations.”

He says Levi’s is happy to see a lot of “interesting” new brands coming into the market because it keeps the jeans image fresh. But he believes it is too early to say whether the niche brands will have a lasting impact.

This competitiveness is reflected in the plethora of jeans advertising campaigns expected to hit our screens over the next few weeks. A slew of brands, from Easy to Diesel, are promoting their version of the original 19th century riveted clothing – the only real difference being the price and the image.

If over a decade of Levi’s mould-breaking advertising is anything to go by, then maybe it can continue to revolutionise the jeans image.

But if exclusivity is the new fad and more niche brands from Budweiser to Guess, continue to enter the market, then Levi’s may have to streamline its prices as well as its staff.

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