Blue Jean Wars
Levi's Layoffs Hurt Dixie
By Robert Hess
Southerners have the blues over blue jeans. The stitches that once held together the lives of nearly 5,900 Southerners and 10 Southern towns have finally become unraveled due to Levi Strauss's recent decision to shut down 11 of its North American plants, idle 30 percent of its total workforce, and move operations overseas.
Levi's employees recently found themselves caught in the middle of an untenable and unwinnable war with The Gap, Tommy Hilfiger, JC Penney and Target, compounded by the Asian financial crisis, and the North American Free Trade Agreement. Some feel it was Levi Strauss's corporate management and marketing strategy that did them in.
The trouble for thousands of wage-earners who will soon find themselves out of work came to a head about three years ago, after decades of laissez-faire indifference toward marketing. For almost 50 years Levi's has declined to market its blue jeans line, which until recently actually enhanced its perception as "cool." Everyone can remember seeing teen idols James Dean, Marlon Brando, Bob Dylan, and Elvis Presley sporting their Levi's in the 1950s. This created a sense of hipness for the longtime jeans manufacturer, which had been in business since 1873. With little or no corporate prodding, Levi's continued to enjoy popularity in the '60s and '70s, becoming commonly associated with sexual freedom and rock 'n' roll, like the celebrities who wore them. During these two decades its sales increased dramatically, from $100 million to $1 billion, and continued to soar well into the '80s.
But the '90s held a new obstacle. America's youth was ready to take its five- pocket, stonewashed jeans to the neighborhood garage sale. Baggy was in. If it wasn't "loose," young people were not buying it. Brands such as The Gap, Old Navy, and Tommy Hilfiger introduced lines of jeans that shifted what dollar spending teenagers perceived as "kewl."
'We Didn't See the Signs'
Levi's, deciding that the baggy look was a fad, did not introducing any new lines or restructure its marketing, relying on its reputation for classic coolness to endure. But as Sean Dee, the new brand director for Levi's jeans, says: "Loose jeans is not a fad; it's a paradigm shift."
"We didn't read the signs that all was not well," says Gordon Shank, chief marketing officer of Levi Strauss. "Or we were in denial."
It is easy to see how this shift could have been overlooked, for as recently as 1996, Levi's saw sales peak at $7.1 billion dollars, creating a profit of more than $1 billion. But the next two years began to take their toll on Levi's. By 1998 sales had dropped almost 15 percent to $6 billion. This could be traced largely to the jump of young shoppers to the "baggy" trend.
Along with the shift in basic style came a shift in basic product availability. Department stores such as JC Penney and Target began to offer discount jeans produced by their own labels, such as the Arizona Jeans Company. These jeans, which mimicked both Levi's classic style and the new, baggy styles, found acceptance with price tags ranging from $20 to $30. This sandwiched Levi's, priced at around $45 a pair, between the discount brands and the $65-a-pair designer jeans, such as Tommy Hilfiger's. If losing its style appeal wasn't enough, even the Levi's price tag was beginning to look less desirable to the young consumer.
And Levi's was not just fighting its battles along the home front. The Asian financial crisis also had a catastrophic effect on apparel imports. The raw materials used in the process of producing clothing such as jeans saw drastic increases in price when the Asian markets collapsed. The effects of this even reached Cone Mills, a supplier of denim for Levi's. Cone saw a fourth-quarter loss in earnings of 13-cents a share and was forced to close.
Even the federal government was erecting barricades in the denim wars. The 1993 passage of NAFTA also worked against wholly American companies like Levi Strauss. With the passage of NAFTA, smaller and more flexible jeans manufacturers shifted production to South American sites, which offered cheaper labor. This allowed smaller firms to become more competitive and to offer more aggressive marketing campaigns with the money saved in labor costs.
Hard Times Ahead
Ten of the 11 plants marked for shutdown currently reside in Southern towns that depend on Levi's employment for economic prosperity. Towns that will be affected include Wichita Falls, El Paso, McAllen and Harlingen, in Texas; Morrilton, Arkansas; Johnson City and Mountain City, in Tennessee; Murphy, North Carolina; Valdosta, Georgia; and Warsaw, Virginia. Levi's will be moving those operations overseas.
So what will this cost the towns? For starters they will be losing an employer that cares about equity. Levi's has always been viewed as a liberal company, insisting on a racially diverse working environment even when segregation was the mainstay. They will also lose a community-oriented business that routinely contributes large sums of money to civic and neighborhood organizations. What will these closings cost Levi's? About $245 million in buy-outs. This is the price tag of the unprecedented benefits package Levi's is offering to all employees affected by the shutdowns.
Employees will receive eight months of fully paid notice, regardless of whether their plants continue to operate for the duration. Employees will also receive up to three weeks' severance pay for every year of service, up to 18 months of medical coverage, an enhanced early- retirement plan, and up to $6,000 for education, retraining, or business start-up expenses. In addition, Levi's will continue its donations to community organizations that depend on their money for survival.
Everyone remembers what happened to places like Flint, Michigan when the automotive industry took its dive in the '80s. Perhaps this scene will not be repeated in the South with a caring organization such as Levi's taking responsibility for its actions leading to the loss of 5,900 jobs. While failed marketing strategies, competition from smaller fashion-conscious firms, and foreign trade policy can be blamed for Levi's debacle, one thing is certain. The South's struggle for economic prosperity will not be any easier if it loses its pants to South America.
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Copyright © The Southerner 1999.