Levi Strauss & Co. is a flourishing business. Since the early days, it has been a leader in the garment industry. The original and most famous Levi Strauss product is blue jeans. Jeans have become desirable and even fashionable clothing for not only miners, farmers, and cowboys, but also for movie stars, executives, women, children, and teenagers from all over the world. Throughout its history, however, the company has researched and developed a number of other products. The company now markets a wide range of clothing and accessories, all under the brand name Levi’s. Many new Levi products have been launched over the years. Some of these have succeeded beautifully, but others have flopped completely. The company is still best known, however, as the maker of Levi jeans, the pants that are guaranteed to shrink1, wrinkle, and fade2.
In 1954, flushed with the success of the cotton twill pants it had introduced a few years earlier, Levi brought out a line of permanent press (no-iron) slacks. Within six months, 5 out of every 100 pairs sold had been returned, and Levi had to admit it didn’t have the right fabric for permanent press. Fifteen years later, as the company was planning its major expansion, it hit on a couple of equally dramatic flops. First was the denim bathing suit—which, when wet, weighed the wearer down to the point of imminent drowning. Next was a line of disposable (throw-away) sheets and towels. These, Levi discovered, were not high on the consumer’s list of priorities. Unable to interest hotels in the product, the company was saved when the factory that made the sheets burned down. Levi absorbed the $250,000 loss.
Eventually Levi created six new divisions, ranging from jeans to accessories and including a sizable effort in women’s sportswear, Levi’s for Gals. The diversification3 worked. In the mid-1970s Levi’s sales hit the billion-dollar mark, having taken 125 years to reach that milestone. Four years later sales hit $2 billion. In 1979 the company ranked 167 on Fortune’s4 list of the 500 largest industrial corporations, and 20 in net profits.5 Between 1970 and 1980 Levi had grown an average of 23 percent a year. In 1979 alone it sold 143 million garments.
In menswear, though, all Levi products had been aimed at the middle of the market. The company had brought out a line of moderately dressy slacks and polyester leisure suits—the Action Slack and Action Suit—and was doing a brisk business with them. But the tempting upper end of the market remained untouched.
“If we want to grow we’re probably going to have to go to upper moderate price points,” one Levi official explained, “and somewhat higher taste level for our products.” In short, they needed to sell more expensive clothes—like the Tailored Classic. If Levi could sell sport coats, dress slacks, and, above all, suits, a whole new market would open up. The Tailored Classic might make money all by itself. But even more important, it would get Levi into the business of producing fancier and costlier clothing. The consumer would come to think of it as a manufacturer of dress apparel and it could spin off6 many more such lines in the future.
Why, with such a record of success would any company be worrying about making new products? Part of the answer, obviously, is the sheer riskiness of depending so heavily on a single item. The boom in jeans was in many ways a historical accident, and what history has given it can also take away.
Then, too, the demographics of the marketplace were already beginning to change. Jeans, to be sure, were no longer the exclusive province of youth: baby boomers7 who had grown up on Levi’s kept on wearing them into their twenties. But they would no longer be wearing them everywhere and all the time, as they did when they were teenagers. And the next generation of adolescents was not so numerous. The birthrate had peaked in 1957; by 1964, demographers agreed, the baby boom in the United Stated was over. The bulge in the population that the boom had created would soon be moving into a world of casual slacks, leisure suits, and coats and ties. From a marketing point of view, that’s where the action would be.
Finally, the competition had been gearing up. Levi’s had always shared the market with Blue Bell’s Wranglers and other national brands like Lee. But now everyone seemed to be selling jeans. Back in 1970 Levi probably couldn’t have foreseen the popularity of “designer” jeans skimming off8 the upper end of the market. But they could certainly anticipate cut-rate models gnawing away at the low end. To sell their wares, Levi knew, retailers would have to slash prices. The profit outlook in a saturated, competitive marketplace like this was bleak.
Adapted from: Boyd, F. (1994). Making Business Decisions: Real Cases from Real Companies. USA: Addison-Wesley Publishing Company.
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