- Published: November 24, 2021
- Updated: November 24, 2021
- Language: English
- Downloads: 14
In a hugely competitive apparel market, Levi Strauss & Co. is struggling to keep up the impressive sales figures. Not only are sales declining, but the available market share is also shrinking, with competition growing. Furthermore, Levi Strauss & Co. also needs to decide on their distribution channels as well as on the types of brands to be marketed within the Denim market, not to mention the type of approach to take when dealing with Wal-Mart, a potentially important partner within the apparel market. The most pressing problem for Levi Strauss & Co. is however, dealing with the rising debts, while at the same time addressing the shrinking sales and net income, which have mostly come about due to poor marketing, distribution and pricing strategies. Dealing with these problems must first start with streamlining in order to reduce overall costs, launching a new affordable product that is capable of recapturing the lost market share, as well as changing the redistribution channels typically used by the company. Perhaps worth exploring, would be the aspect of helping smaller players within the market design and produce their products; particularly chain stores such as Wal-Mart, Target and K-Mart. The need to reduce costs can be inferred from the fact that while sales in 1996 were $7. 1 billion, the net income was only a paltry $465 million, implying that operational, as well as other costs including advertising amounted to a significant $6. 7 billion.
Top on the list of changes, would be reducing the wage bill, even though admirable, keeping a bloated workforce simply for social welfare purposes does not make good business sense. As such, the first step towards recovery would be to trim the workforce to the bare minimum in order to significantly reduce the wage bill. Secondly, the amount of funds spent on advertising seems a bit high for a company the size of Levi Strauss. This is further compounded by the fact that the approach adopted is also quite wrong. The company essentially enlists the help of prominent personalities to market its brand, a misguided approach. Utilizing a targeted approach to advertising could not only lead to lower costs, but would also be more effective, by allowing the company to market its individual brands to the target markets. When it comes to pricing, a majority of customers are usually found on the extreme ends of the price spectrum. As such, Levi Strauss & Co. needs to develop products that target the extremes, as opposed to those in the middle (Jeans worth less than $20, in addition to their brands priced at $100 and above). Doing away with so many products could also help reduce costs. The concept of a one stop shop is no doubt an appealing one, and partnering with Wal-Mart as a distribution channel would be the best course of action. While Wal-Mart can be used to distribute the low priced jeans, Chain and Department stores, as well as Specialty stores can be used to market the high priced brands. The continued rapid growth of mass merchants such as Wal-Mart, means that using it as a distribution channel will provide better market options compared to the current channels in use. Furthermore, it guarantees exposure of the new cheaper jeans brand to the target market.
The strategic issues of concern in this case are therefore, reducing operating costs, ensuring proper brand placement as well as pricing. In addition, the company also needs to create a leaner and more efficient marketing campaign. Proper pricing and marketing are becoming more and more important due to the growing competition and the need for a strong corporate strategy within the apparel market. The market within which the company is operating is a difficult one, as not only is the bargaining power of consumers significant, as evidenced by the need to focus on lower pricing, but the existence of competitive rivalry as well as the threat of new competition within a shrinking market, make gaining a competitive advantage a complete necessity. Part of the assumptions made when making the recommendations above, are that the market for jeans will continue to shrink or remain the same. Further, it can also be assumed that mass merchants and one stop shopping are trends that are here to stay, making the adoption of the suggested strategies prudent.
Alternatives to the suggested solutions would be to do nothing, to streamline the available brand without any specific target markets, to use Wal-Mart as a distribution channel using the already existing brands, and to use more funds on the same advertising strategy. The first solution would no doubt solve the problem of reducing costs, but not necessarily improve the net income, while the second solution might not significantly improve revenues, as the customers would most likely opt for the cheaper available alternatives. Assigning more funds to advertising would only serve to worsen the problem, as it would result in greater costs without better brand penetration.
Levi Strauss &Co. therefore needs to downsize and cut on advertising costs to reduce its operational costs. It also needs to develop a new cheaper brand that will fall within the $20 bracket while doing away with brands that fall in the middle price bracket. It also needs to partner with Wal-Mart as one of its main distribution channels, perhaps even allowing it to sell the new brand as one of its private labels.