Levi Strauss & Co., an icon of American culture, announced yesterday that it would close half of its manufacturing plants in the United States and Canada and lay off 5,900 employees, or 30 percent of its North American work force.
The embattled jeans maker, whose sales declined 13 percent last year, to $6 billion, said the move would allow it to compete more effectively with rivals who largely make their products overseas and to concentrate on improving the marketing of its jeans, which have been losing favor among younger consumers in recent years.
The San Francisco company, founded during the California Gold Rush of the 1850s, eventually grew to be the largest maker of blue jeans in the world. And as jeans evolved from miner's gear into the outfit of movie star rebels and then suburban youth, Levi's jeans became synonymous with American style.
Perhaps complacent about its brand's place in the culture, Levi Strauss has not responded well to a wave of aggressive competition in recent years, and its jeans have lost some of their cool.
Levi Strauss stayed committed to its five-pocket button-fly 501 jeans, which until recently were an integral item to any high school wardrobe, but high-end designers like Ralph Lauren and Tommy Hilfiger carved out market share with fashionable bell-bottom and cargo-pants styles.
Mid-market retailers like Sears, Roebuck & Co. and J. C. Penney also have taken a chunk of the giant's sales by introducing their own low-cost brands.
"We took our eye off the consumer, and we weren't as nimble as we should have been," said Robert Haas, the company's chairman and chief executive.
The company had warned employees several weeks ago that such cutbacks were imminent. Levi Strauss offered a package of benefits to its workers worth about $245 million, including features like eight months' notice, three weeks of severance pay for every year of service, and an allowance of up to $6,000 for each employee to reimburse education and retraining costs.
Bruce Raynor, secretary-treasurer of the Union of Needletrades, Industrial and Textile Employees, which represents many workers at Levi Strauss plants, said, "As benefits packages go, this is as generous as it gets."
This is the second round of layoffs for Levi Strauss, which closed 11 U.S. plants in 1997 and laid off 7,400 workers. But unlike the first round, which was intended to cut excess production, this cut heralds an effort to ship production overseas.
11 plants targeted
Four plants in Texas, two in Tennessee and one each in Georgia, North Carolina, Virginia, Arkansas and Ontario, Canada, will be closed. Gavin Power, a Levi spokesman, said the plants would likely be replaced by "a network on contract facilities" in the United States and in Latin America.
Although most of its competitors have long ago moved jeans operations to Asia or Mexico where labor costs are much lower, Levi Strauss, which posits itself as something of a corporate do-gooder, has clung to a century-old tradition of manufacturing, at least in part, in the United States.
Haas said the closings were a tacit acknowledgment that this ideology wasn't practical for the current cutthroat environment. "Certain kinds of work are not going to continue to be done in America," he said.
'Not denying reality'
A conscientious employer can do best under current conditions, he said, by "not denying reality, as we tried to do for too long, but by owning up to our obligations to the workers who've helped us grow and trying to do the best to help them move on."
The company's troubles extend beyond managing production costs, however.
Kurt Barnard, president of Barnard's Retail Trend Report, explains, "Levi is one of the best brand names in the world, but it has lost much of its potency over the last few years. Its core product has not changed and it is stodgy."
According to Teenage Research Unlimited, there has been a dramatic drop in the number of 12-to 19-year-olds who named Levi's as a "cool brand."
7% of teens found them 'cool'
Jill Kilcoyne, associate director of the Illinois research firm, said that, since the fall of 1997, only 7 percent of teens surveyed named Levi's as "cool" in previous years 15 to 16 percent had. Both Tommy Hilfiger and the Gap were more frequently bestowed with that hip moniker.
Not all Levi Strauss brands are moribund by any means.
According to the company, which is privately owned and does not usually release sales figures, Dockers, its casual-line of khakis, had a record year for both sales and earnings.
Slates, a brand of upscale dress pants, also had a strong year. But the core brand, Levi's, which accounts for about 70 percent of the business, is slumping.
Haas said the closings would allow Levi Strauss to change to a "marketing company," which would focus mostly on shaping and maintaining brand image.
But Harry Bernard of Colton Bernard Inc., an industry analyst and consultant in San Francisco, argued that announcing the transformation from manufacturing entity to marketing entity isn't enough. "They need a different outlook, a different set of rules," he said. "And I haven't seen it from Levi's yet."
Pub Date: 2/23/99