Just weeks after he took charge of Levi Strauss, chief executive
Frustrated by Levi's inability to fulfill orders or to revive a diminishing "cool factor" among its young consumers, execs from large retail chains like
Not the smoothest of beginnings for Marineau, a turnaround expert who joined Levi's from
(combined net worth of $5.6 billion) have tapped an outsider from a soda pop company to fix their $5.1 billion (1999 sales) San Francisco company? Marineau is only the second person unrelated to founder Levi Strauss to head Levi's in its 147-year history. Outsider
Levi's has been looking as battered as an old pair of cutoffs in recent years. The company lost $207 million in 1999. Sales dropped for the third straight year, down 15% since 1998 and off nearly 30% from a peak of $7.1 billion in 1996. Marineau's changes have brought sales declines down to the single digits, improved inventory planning, limited costs and even started to justify the company's humiliating about-face online. But making Levi's hip again is trickier.
"This is not a quick fix," says Marineau, a baby-faced 53-year-old who created solid brands out of
Levi's surprised retail analysts with marginally promising quarterly results on June 20. Net sales for the fiscal second quarter ended May 28 dropped 6% to $1.1 billion. Earnings (before interest, taxes, depreciation, amortization and restructuring) grew 18% over second quarter 1999, to $144 million.
The company has also paid down its debt to $2.3 billion, compared with $2.7 billion at the end of 1999. Levi's was privatized in 1985, only 14 years after the Haas family took the venerable firm public. The Haas family bought back the remaining shares from employees in 1996 in a $4.3 billion deal. Levi's discloses some financial information because of its corporate bonds. Marineau is predicting flat sales or even modest growth next year.
The numbers may not have the Haas household popping champagne, but they show that Marineau was a good choice to replace Robert Haas, Levi Strauss' great-great-grandnephew. Robert Haas started off his tenure with a bang, launching the successful Dockers line of casual clothes in 1986, two years after he became CEO. He led the company to ten years of solid earnings growth. Then Levi's straightforward clothes went out of style, and the company began to stumble.
Marineau's first mending job focused on Levi's' strained relationships with stores like Macy's, J.C. Penney and
Retailers were also enraged when in November 1998 the company started selling jeans directly from its Web site--while forbidding them to do the same.
"Even if sales didn't amount to much, it was the equivalent of suddenly opening up a hundred Levi's stores in retailers' eyes," says Rick Snyder, an apparel analyst with Morgan Keegan in Memphis, Tenn. "It was an alienating move."
Levi's now says that selling jeans exclusively from Levi.com was a mistake. It says online revenue exceeded plans every month during its 15-month flirtation with e-commerce, but the company pulled the plug in January 2000 because the site was "unaffordable."
As well as publicly burning its retailers, Levi's realized that it didn't have a lick of experience getting products into customers' hands after they'd ordered them online.
"All the good marketing intentions in the world don't matter if you can't close the sale," says Marineau.
So Levi's has ceded control of its online sales to retail partners. In November of last year it let Macys.com and JCPenney.com add Levi's to their online wares. Levi's own site now swiftly directs customers to the two e-tailing sites, and the company is planning to offer its clothes to other sites that prove they won't corrupt the Levi's brand. Levi's says the result is that it's much easier to search for a pair of 501s online and that the company can now concentrate more on design and manufacturing.
"During the last holiday season," Levi's final months selling from Levi.com, "JCPenney.com and Macys.com sold 60% more of our branded products than we did on our own sites, and they had just begun," says Marineau.
For the first quarter of this year, he says, online partners sold 95% more than Levi.com did for the same period last year.
But that could be because the e-tailing wave was just starting to grow last summer. Shoppers can't order a pair of button-downs from Leejeans.com either, and Levi's is doing more with online partners than other "pure-brand" competitors such as
"Think online jeans, and you think Gap.com," says Morgan Keegan's Snyder. "You have to wonder if they're missing some incremental revenue."
The company insists that it hasn't lost out on any Internet opportunities. It developed the Web site for the WB television show Roswell and featured the stars of the youth cult hit in its ads, decked in Levi's denim. It is thinking about similar deals for its Dockers line of khakis. (With Survivor contestants, maybe?)
And Levi's hasn't ruled out occasional sales from its Web site, like the line it developed for rapper
The getup sold well, but it will take more than a few gorgeous young things modeling pants to make the brand cool again.
"The look right now is pimped-out and colorful," says Irma Zandl, an apparel consultant with the Zandl group in New York. "And that means brands like Guess? and Express to young people. Levi's still means stiff, blue denim."
And that is Marineau's biggest problem: In the fashion business, image is indeed everything.