Why Levi's Dominates Denim

What was the most lucrativeproduct to come out of the California Gold Rush?Not gold.

At least, not for the vast majorityof miners, for whom the Gold Rush was basicallya bust.

But the merchants who served those miners?Well, they had a golden opportunity indeed.

Allthose new miners needed products, housing, food, and clothing.

Lots and lots of clothing.

Enter Levi Strauss.

Sound familiar? Yeah, he should.

But hold on a second.

Strauss was a Germanimmigrant who arrived in San Francisco in 1853 to openLevi Strauss & Co.

, a wholesale dry goodsbusiness to cater to California's explodingpopulation.

That went okay.

But it tookanother 20 years for Strauss's real breakthrough: bluejeans.

That's why you know his name.

Oneof Strauss's customers, a tailor from Latvia named Jacob Davis, bought denimfabric from Strauss to sew various productsfor his customers: tents, wagon covers, and now, pants.

Davis wrote to Strauss for help topatent and market his invention: denim pantsstrengthen with copper rivets.

They received apatent for the pants in 1873.

But while jeansare still a worldwide sensation 150 yearslater, Levi's itself hasn't always struck gold.

The companyrose to fame as a hearty, all-American brand.

Everybody has a Levi'sstory.

First date, first kiss, going to college.

Everybody has a Levi's story, and we've capitalizedon that.

But it has struggled to maintainthe public's loyalty.

Now, after a rockyrecovery, it's poised to go public again in 2019.

The big question now? Will this be a boom orbust for the company that invented jeans? For its first 70 years, Levi's were the pant of America's workingclass: miners, ranchers, factory workers andmore.

Levi's dominated the jean market until 1913, when rival brand Lee rolled out its UnionAlls.

A few decades later, Wrangler introduced itsjeans fashioned with felt seams and deeper watchpockets for the modern day cowboy.

So competition was heatingup.

But the denim market was about toexperience a major boost.

How? World War IIand the baby boomers.

Jeans made their worldwide debutduring World War II as American soldiers worethe casual pants around Europe when off-duty.

That kind of got consumersto just see something a little bit differentbecause everybody was so much more formal.

Menwere wearing hats and suits, ladies wore suitsand coats and, you know, fur scarves.

I mean itwas a very formal culture, globally.

And I thinkthat was really, like, the start of thisglobal trend within denim.

When soldiers returned, jeansstuck around.

But it took a boost fromthe silver screen to transform jeans from strictlyfunctional to fashion statement.

John Wayne first popularizeddenim with his rugged cowboy characters inpopular Western movies during the 1930s and40s.

But denim's real breakthrough came from1950s Hollywood movies and the teenagers who watchthem.

When James Dean donned jeans and aleather jacket in Rebel Without A Cause, hekicked off a fashion sensation.

Jeans, leatherjackets, those hats, I mean it was very, very rebellious.

It was very different from what theculture was used to.

Though Dean wore jeans fromLevi's rival company, Lee, Levi's themselves graced thelegs of famous stars in other popular movies.

These films introduced jeansas a symbol of sexy rebellion to America'steenagers.

Some school districts even bannedstudents from wearing them.

This growing popularityhelped Levi's expand nationwide.

Young BabyBoomers across the country wore their Levi's to thesock hops of the 50s, the music festivals ofthe 60s, and the protests of the 70s.

What makes the Levibrand so successful is their ability to keepre-engineering and introducing themselves to the nextgeneration.

They are one of the few denimbrands that continually maintain their customer base and findways to get the new and upcoming youth marketto think about denim and Levi's together.

Capitalizing on thissuccess, Levi's went public for the first time in1971, and its sales grew at an annual clip of 37percent during the late 70s.

The denim market asa whole was booming, peaking in 1981 with nearly590 million jeans sold.

Levi's and its toptwo competitors, Lee and Wrangler, represented over40 percent of the denim market.

But thisdenim rush slowed in the early 1980s.

Levi's, thoughfirmly cemented as an iconic American brand, began to struggle.

First the company fell behindfashion trends.

Amid the slumping jeans market ofthe 80s, designer jeans from Calvin Klein andJordache came into vogue.

They gave the pantsthe sex appeal that Levi's classic 501s lacked, and consumers bought them for nearly double the costof Levi's.

At the same time, the majorclothing retailer VF Corporation merged with Wrangler'sparent company Blue Bell.

Now, two of Levi'stop competitors for the classic American jeanmarket, Wrangler and Lee, were both under VFCorp.

Levi's revenue plunged 78 percent in the firsthalf of 1984, a worrying stumble for apublicly-traded company.

Levi Strauss's descendants decidedto take on 1.

6 billion dollars in debtto buy back the majority of the company, takingit private and freeing it from the pressures ofWall Street.

It was the biggest deal of itskind in the apparel industry at the time.

Once it went private, Levi's acted fast to compete in a tough denimmarket.

It closed eleven plants and laid off 3, 600employees.

It invested in marketing and technologyand introduced its business casual brandDockers in 1986.

Dockers focused on trendier, non-denim trousers, which cut into VF Corp'sjean sales.

Denim boomed again in the 1990s.

Levi's salespeaked in 1996 at $7.

1 billion dollars.

The companywas paying its debt years ahead ofschedule, so Strauss's descendants borrowed another 3.

3 billiondollars to buy back the rest of thecompany.

But Levi's still struggled to stay relevant.

It missed the baggy jeans trend of the90s and the hip-hugging style of the early 2000s.

Cheaper private label brands sold at J.

C.

Penney andGap ate into Levi's sales in the 1990s, followedby new upscale competitors like 7 For AllMankind, Diesel, and True Religion in theearly 2000s.

Battered by competition, Levi's salesfell every year from 1997 to 2002.

Stillsaddled with debt, the company recruited thefirst non-family member to serve asCEO: Phil Marineau.

Marineau and hissuccessor, John Anderson, cast around for solutions.

They considered selling the Dockers brand andteased going public again.

Levi's sales recovered somewhatby 2007 but fell again when thefinancial crash devastated the garment industry.

Someanalysts argue that Levi's reputation as a classicAmerican brand has seen the company throughfickle fashion trends and economic woes.

They can ride outthe storm.

They're not worried about being thefirst and the trendsetter, they're worried aboutmaintaining their volume and their corecustomer business and achieving growth within the newcustomers.

But even that all-American reputationhas faded.

The 80s and 90ssaw the rapid outsourcing of garment production from theUS to countries with cheaper labor.

Thisallowed Levi's competitors to slash prices, luringcustomers away from the Levi's brand.

This flewin the face of both Levi's all-Americanreputation and its longstanding relationshipwith its employees.

When the great SanFrancisco fire burned down the Levi's factory in1906, Levi's kept paying workers.

And when salesfell during the Great Depression, Levi's paid itsemployees to put in new factory floors ratherthan laying them off.

So Levi's resistedoutsourcing.

It closed some plants in the 80s and90s, but held onto others until finally closing itslast U.

S.

plant in 2004.

When announcing thefinal plant closures, a Levi Strauss Company spokesmantold NBC News: “We tried to do ourbest to maintain manufacturing in the United States, butwe have to be competitive to survive as acompany.

” Now, the vast majority of Levi's all-Americanjeans come from China, Vietnam, Mexico, and elsewhere.

So by the mid2000s, Levi's faced massive debt, sluggish sales, and awaning reputation as an all-American icon.

They've got their base.

What they've got to appeal to is sort of breakthe mold of Levi's as Levi's classic, to increasetheir fashion-ability and that so of speak.

Butthey can't go too far.

Enter Chip Bergh.

Bergh, another Levi's outsider, took over as CEO in 2011.

The brand lost its wayback in the late 90s and early 2000s.

We lost alot of consumers.

We lost our mojo.

I saw thisas kind of an enormous opportunity andan enormous challenge.

He encouraged the companyto focus on what worked, like the coremen's bottoms business, and strengthen weaker areas.

He revamped stores and its e-commerce site, butfound the most success with women's jeans.

Using its new Eureka Innovation Lab, anin-house research and design initiative, sales increasedfrom under 800 million dollars to overone billion dollars in under three years.

Additionally, fashion trends are finally back onLevi's' side.

Nostalgia for the 1980s and 1990shas brought back light wash, distressed, and mom jeans, and a taste for Levi's 501s.

Kanye West wearsa Levi's vintage trucker jacket, while his famousfamily sports Levi's on Instagram and intheir 2017 Christmas card.

Levi's even got a tasteof the hysteria of a high-profile sneaker dropwhen they remade the Air Jordan IV sneakers indenim in June of 2018.

Finally, Levi's placeditself prominently in the public eye.

First, in2013, it signed a 20-year 220 million dollar dealfor the naming rights to the San Francisco 49ersstadium.

The stadium and its employees, includingthe cheerleaders, are now plastered withLevi's advertising.

“The people who attend concertsand NFL games are our core customers, ” Berghwrote for The Harvard Business Review.

“So thiswould put our brand back at the centerof the cultural conversation.

” Second, Levi's joinedother retailers and taking a public stand againstgun violence in 2018.

Bergh, a former Armyofficer, wrote an op-ed for Fortune promising 1million dollars in donations to anti-gun violence activistsand five hours of paid volunteer timeeach month for Levi's employees.

He hadpreviously asked customers not to bring firearms intoLevi stores in 2016.

Burke stated that hereceived threats against Levi's Stores and even himselfafter posting the op-ed, but he responded thatthey “pale in comparison to threats against otheractivists and the daily threats of gun violencefaced by many across the country.

” This brand is at itsbest when we're at the center of culture.

We werethere when the Berlin Wall fell down.

We were therethrough the riots in the 60s and 70s.

So weput the brand back at the center of culture.

So with innovation, trends, and bold public moves, Levi seems to berecapturing some its iconic essence.

They consistentlycaptured around 11 percent of the U.

S.

total denim market from 2012 to 2015, and theirannual sales slowly crawled back up to 4.

9 billiondollars in 2017.

It was their highest sales numberssince 1999, and it happened as the restof the U.

S.

jeans market took a beating.

But this is still afar cry from its 1996 sales.

Staying private helped thecompany make long term investments in its business, but it still has more than a billiondollars in total debt.

So today, with the denimindustry set to grow, Levi's is once againconsidering going public in 2019.

Sources tell CNBCthat Levi's is aiming to raise as much as800 million dollars, which would value the company atfive billion dollars.

That kind of cash could helpit finally pay off its remaining debt and focuson growth.

CNBC reached out to Levi's foran interview, but they declined.

This potential IPOcomes as the parent company of Lee andWrangler is splitting its denim division into itsown public company.

VF Corp.

announced a decisionin August 2018, saying it wanted to focuson its activewear brands like The North Face andTimberland.

It's a move some say indicates its denimbrands were weighing on overall profits.

Butmost analysts maintain that Levi's still stands togain quite a lot from going public.

It couldbe a golden opportunity to reclaim its placeas an American icon.

.