• Universiti Teknologi Mara

• ACCOUNTING BBDM2153

BBDM2153 – Operations Management Tutorial 10 Levi Strauss Goes Local It had been a tough few year for Levi Strauss, the iconic manufacturer of blue jeans. Sales at the company, whose 501 jeans became the global symbol of the baby boom generation and were sold in more than 100 countries, dropped from a peak of $7.1 billion in 1996 to just $4.0 billion in 2004. Fashion trends had moved on, its critics charged, and Levi Strauss, hamstrung by high costs and a stagnant product line, was looking more faded than a well-worn pair of 501s. Perhaps so, but 2005-2008 brought signs that a turnaround was in progress. Sales increased for the first time in eight years, and after a string of losses the company started to register profits again. There were three parts to this turnaround. First, Levi’s made cost reductions at home. Levi’s closed its last remaining American factories and moved production offshore where jeans could be produced more cheaply. Second, the company broadened its product line, introducing the Levi’s Signature brand that could be sold through lower-priced outlets in markets that were more competitive, including the core American market where Walmart had driven down prices. Third, the company decided in the late 1990s to give more responsibility to national managers, allowing them to better tailor the product offering and marketing mix to local conditions. Prior to this, Levi’s had basically sold the same product worldwide, often using the same advertising message. The old strategy was designed to enable Levi’s to realise economies of scale in production and advertising, but it wasn’t working. Under the new strategy, variations between national markets have become more pronounced. Jeans have been tailored to different body types. In Asia, shorter leg lengths are common, whereas in South Africa, women’s jeans need to be roomier in the back, so Levi’s has customised the product offering to account for these physical differences. Then there are socio cultural differences in Japan, tight-fitting black jeans are popular, whereas, in Islamic countries, women are discouraged from wearing tight-fitting jeans so Levi’s offering in countries like Turkey are roomier. Climate also has an effect on product design. In northern Europe, standard weight jeans are sold, whereas in hotter countries lighter denim is used, along with brighter colours that are not washed out by the tropical sun. Levi’s ads, which used to be global, have also been tailored to regional differences. In Europe, the ads now talk about the cool fit. In Asia, they talk about the rebirth of an original. In United States, the ads show real people who are themselves originals; ranchers, surfers, great musicians. Levi’s has also differentiated distribution channels and pricing strategy. In the fiercely competitive American market, prices are as low as $25 and Levi’s are sold through mass-market discount retailers, such as Walmart. In India, strong sales growth is being driven by Levi’s low-priced Signature brand. In Spain, jeans are seen as higher fashion items and are being sold for $50 in higher- quality outlets. In the United Kingdom, too, prices for 501s are much higher than in the Unites States, reflecting a more benign competitive environment. This variation in marketing mix seems to be reaping dividens; although demand in the United States and Europe remains sluggish, growth in many other countries is strong. Turkey, South Korea, and South Africa all recorded growth rates in excess of 20 percent per annum following the introduction of this strategy in 2005. Looking forward, L