Early History
Levi Strauss, born in Bavaria in 1829, emigrated to the United States with his family in 1847, at the age of 18. In New York, he was met by his two half-brothers, who had already established a dry-goods business. A year later, he was dispatched to Kentucky to live with relatives and walk the countryside peddling his brothers' goods.
While Levi Strauss was still traveling about the hills of the South, his older sister's husband, David Stern, established a dry-goods store in San Francisco, California, in the wake of the 1849 California gold rush, and the company that would come to bear Levi Strauss's name dates its beginning to this 1850 founding. Three years later, Strauss made the arduous sea journey around Cape Horn to join his brother-in-law. San Francisco at the time was a booming frontier town, and the opportunity was ripe for a well-run business to flourish. Strauss and Stern set up their small store near the waterfront, where they could easily receive shipments of goods from the Strauss brothers back east.
Jeans, which would become the staple of the family business, were invented when Levi Strauss, noting the need for rugged pants for miners, had a tailor sew pants from some sturdy brown canvas he had brought with him on his journey. Once the supply of canvas was exhausted, Strauss turned to a thick fabric made in the French town of Nimes, known as serge de Nimes, which would be shortened to denim. The denim pants, dyed with indigo to make them blue, sold quickly, and the business of Levi Strauss & Co. expanded rapidly, moving three times to new and expanded quarters in the next 13 years. In 1866 the company moved to a luxurious new location on Battery Street, only to have the building cracked from roof to foundation in an earthquake two years later.
In 1872 the proprietors of Levi Strauss & Co. received a letter from Jacob Davis, a tailor in Nevada, offering them a half interest in the patent on a technique he had invented for strengthening the seams of pants by fastening them with rivets. In return, they would pay the cost of obtaining the patent. The cost was negligible, and Strauss and his brother-in-law quickly took the tailor up on his offer. The following year, the company was granted a patent on the use of rivets to secure pocket seams, and also on the double-arc stitching found on the back pockets of its pants.
At first, the company had the pants sewn by tailors working individually at home, in the same way that the Strauss brothers in New York manufactured goods. Soon, however, the demand for the new pants became too great, despite the economic depression that had struck California in 1873, and the company collected its stitchers under one roof, in a small factory on Fremont Street, which was managed by Davis, the tailor from Nevada. Such remarkable success brought envious competitors, and Levi Strauss & Co. filed its first lawsuit for patent infringement against two other makers of riveted clothing in January 1874. On the second day of that month, the founder of the San Francisco concern, David Stern, died. About two years later, Strauss's two oldest nephews, Jacob and Louis Stern, entered the firm with their uncle.
In 1877, in a climate of dire economic conditions, mobs attacked San Francisco's Chinatown, sacking and burning shops and homes in a three-day riot. White men, unable to find work, took out their frustrations on the Chinese, who had been willing to work for lower wages. In the wake of this event, Levi Strauss & Co. solidified its policy of courting its customers' goodwill by relying exclusively on white women as seamstresses. Because this entailed paying higher wages, the company had to charge higher prices for its products, and thus find ways to deliver higher-quality goods.
In 1877 the Levi Strauss & Co. factory expanded, and the notable features of Levi's pants--the dark blue denim, the rivets, the stitching, the guarantee of quality--became further standardized. By 1879 the pants were selling for $1.46, and they had become widely worn in the rough-and-tumble mines and ranches of the West. The firm also continued to sell other dry goods, chalking up sales of $2.4 million in 1880, and it prospered throughout the 1880s.
In 1886 the "Two Horse Brand" leather tag, showing a team of horses trying to pull apart a pair of pants, began to be sewn into the back of the company's "waist-high overalls," the term Levi Strauss preferred to "jeans." In 1890 the firm assigned its first lot numbers to its products, and the famous number "501" was assigned to the riveted pants. In that year as well, Levi Strauss & Co. was formally incorporated and issued 18,000 shares of stock in the company to family members and employees.
In September 1902, the patriarch of the company died. In his later years, Levi Strauss had entrusted the business more to his four Stern nephews, who inherited the firm, in order to devote his energy to charitable and civic causes. Four years after Strauss's death the company endured another shock, when the Great San Francisco Earthquake and Fire of 1906 struck. Both the company's headquarters building on Battery Street and the factory on Fremont Street were destroyed. Along with the rest of the city, Levi Strauss & Co. rebuilt, but the ensuing years were difficult. In 1907 a financial panic, which started in New York and crept westward, caused a slowdown in business, and the company began to streamline the merchandise it sold, relying more and more on its own products. Overall, however, sales were flat, and the four Stern brothers had drifted into a pattern of hands-off management.
In 1912 the company introduced its first innovative product in decades, Koveralls, playsuits for children designed by Simon Davis, the son of tailor Jacob Davis, who had followed his father into the business. Advertised widely, Koveralls became the first Levi Strauss & Co. product to be sold nationwide, helping the company to eventually break out of its regional market. The coming of World War I, and the boom in production for the war, had little or no impact on Levi Strauss & Co., since the company held no government contracts. Its riveted denim goods were sold only to the western laborers for whom they had originally been manufactured, and resale of eastern goods accounted for twice the sales of goods made at the San Francisco factory. Slowly, under the hands of the aging Stern brothers, who were resistant to change, Levi Strauss & Co.'s enterprise was losing ground.
New Leadership
In 1919 Sigmund Stern, who would take over the presidency of the company from his brother, Jacob, in 1921, brought aboard his son-in-law, Walter Haas, to give new blood to the leadership of Levi Strauss & Co. The Haas family, part of the Stern and Strauss clans by marriage, would continue to lead the company into the early 1990s. Walter Haas had little background in the family business, but one of the first changes he made was to update the company's inefficient system of keeping financial records. Despite Haas's attempts at efficiency, the company was battered in the early 1920s by a steep drop in the cost of cotton, the primary raw material for its products, that allowed competitors from other parts of the nation to undercut its prices. Company profits fell by one-third in 1920. In addition, Haas discovered that Levi Strauss & Co. was losing $1 on every dozen Koveralls sold. After a brief internal struggle, the price of Koveralls was adjusted, and steps to increase overall productivity, including the implementation, at this late date, of the assembly-line system, were taken.
The company began attaching belt loops to its basic denim pants in 1922, in addition to the traditional suspender buttons. Throughout the 1920s, Levi Strauss & Co. did business at a profit under the direction of Haas and his brother-in-law Daniel Koshland, a banker, whom he had brought into the firm to assist him. The firm found itself relying increasingly on the pants it manufactured, rather than the other dry goods it wholesaled, for the bulk of its profits. By 1929, 70 percent of the firm's profit derived from its sale of jeans.
The Great Depression and Thereafter
With the stock market crash in 1929, and the subsequent Great Depression, Levi Strauss & Co. fell on hard times. The widespread unemployment that swept the country throughout the 1930s hit the manual laborers who bought the company's pants particularly hard. By 1930 the company's profits had vanished, and it posted a loss on sales that had fallen one-sixth. Unwilling to cut back production by firing workers, the company amassed a large backlog of unsold products, and then put its employees on a three-day work week. By 1932 company sales had dropped to half their 1929 level. With the coming of the next year, however, the Depression had started to lessen, and sales of Levi's pants slowly began to pick up.
In the economic turmoil of the 1930s, the growing U.S. union movement gained a new stronghold in San Francisco. Although workers in the Levi Strauss & Co. factory had not joined a union, organized labor's insistence that union workers wear union-made clothes sharply limited the company's sales in the heavily unionized San Francisco area. In 1935 Levi Strauss & Co. employees joined the United Garment Workers with management's acquiescence, thereby averting a strike and ending the virtual union boycott of Levi Strauss & Co.'s products.
The Depression and subsequent farm failures of the 1930s eventually worked in the company's favor, enabling it to break out of the relatively small market it had served since its inception. Western ranchers, unable to support themselves through agriculture, turned in the mid-1930s to tourism, inviting easterners to visit "dude ranches," where they were introduced to the cowboy's habitual garb, Levi's jeans. In addition, the advent and growth in popularity of Hollywood western movies further spread the word about Levi's jeans. In its advertising the company had always emphasized durability, but now it also stressed a certain western mystique. To capitalize on its growing brand identification, the company added the trademarked red "Levi's" tab to the back pocket of its pants in 1936, the first label to be placed on the outside of a piece of clothing. As demand increased, the vast stockpile of denim pants accumulated during the early years of the 1930s became depleted, and the factory returned to normal operation.
By 1939 the Levi Strauss & Co. blue denim "waist overall" had just begun to be popular outside the world of blue-collar workers. College students in California and Oregon adopted them as a fad, and slowly this humble item of clothing began to take on a status all its own. After the United States entered World War II, the government declared the jeans an essential commodity for the war effort, available only to defense workers. This restricted distribution made them an even more coveted item, and contributed, in the long run, to the brand's success. In the short run, however, wartime price restrictions cut into the company's profits.
With the war's end, the company was well-situated to prosper. Demographic shifts had brought a large number of potential new customers to the West Coast, and Levi Strauss & Co. now operated five jeans factories, in a futile effort to keep up with demand. The immediate postwar years brought a significant production shortage, and the company instituted a strict program of allocation, favoring retailers that were long-time customers. By 1948 company profits for the first time topped $1 million on sales of four million pairs of pants.
In the booming postwar economy of the 1950s, Levi Strauss & Co. underwent the most significant transition in the company's history. Taking advantage of demographic trends, the company began to focus its marketing efforts on young people, members of the "baby boom," who would wear its pants, now known colloquially as "Levi's," for play, not work. Targeting this new market involved widening the company's sales force to a truly nationwide scope, and shifting its emphasis from rural to more urban areas. As a sign of the company's future, Levi Strauss & Co. closed down its business wholesaling others' merchandise in the early 1950s.
Once again, in the 1950s Hollywood gave the company a large boost in its efforts to sell jeans to young people, when actors such as Marlon Brando and James Dean appeared in The Wild Ones and Rebel without a Cause, personifying youthful rebellion, and wearing jeans. The pants were losing their status as a symbol of the rugged frontier, and becoming instead a symbol of defiance toward the adult world. Levi's were on their way to becoming the uniform of an entire generation.
In 1954 the company branched out from denim to the sportswear business, launching Lighter Blues, a line of casual slacks for men. The following year the company added jeans with zipper flies, as opposed to the traditional five-button fly, in an attempt to woo customers in the East, where the pants, relegated to department store bargain basements, lagged in popularity. By the end of the decade, Levi Strauss & Co. was selling 20 million pieces of clothing a year, half of them jeans. The company was growing fast, and profits were robust.
Product Development in the 1950s and 1960s
In the late 1950s and early 1960s, Levi Strauss & Co. experimented with different products and lines of clothing in an effort to build on its reputation and diversify its offerings. In 1959 the company introduced "Orange, Lemon and Lime," pants in six bold colors, which were a short-lived hit. The following year, white Levi's were introduced, a duplicate of traditional jeans, but made in beige twill. Also in 1960, the company introduced pre-shrunk denim jeans, in an effort to overcome the objections of eastern customers, who were uncomfortable with shrinking pants. In 1963 stretch denim and corduroy Levi's joined the fold.
In 1964, after an arduous and expensive process of development, Levi Strauss & Co. introduced Sta-Prest permanent-press pants. Although the product was an initial sales success, problems with the chemical process that created a crease resulted in a large number of defective pants, and it was only later that the pants were perfected. The following year, the company expanded its international division to cover Europe, relying on Europeans to manage company operations in their home countries.
Throughout the 1960s, the company profited from movements in U.S. society, such as campus rebellions and the counter-culture, in which jeans became a uniform. The company's growth was mind-boggling. New manufacturing facilities were added steadily, but demand for jeans still outstripped supply. In the mid-1960s, sales doubled in just three years to $152 million in 1966. That year, the company negotiated a $20 million loan to finance further expansion. Two years later, the company reorganized, establishing a division to produce and market women's clothing. By 1968 the company had grown to become one of the six largest clothing manufacturers in the United States, with sales nearing $200 million.
Global Expansion in the 1970s
In 1971 Levi Strauss & Co.'s long-standing status as a wholly family- and employee-owned enterprise came to an end, when the company sold stock to the public for the first time. Denim jeans, Levi's in particular, had transcended the status of a mere product to become a worldwide social and cultural phenomenon, and the company could no longer raise enough capital privately to pay for needed expansion. The craze for jeans continued to grow, with seemingly no end in sight. The company coped with a constant shortage of denim. Levi Strauss & Co.'s existing, heavily centralized structure became inadequate, and operations were broken into four divisions: jeans, Levi's for women, boys' wear, and men's sportswear.
The company's phenomenal growth caught up with it in 1973, when its European division found itself with huge supplies of jeans in an outmoded style--straight-legged, as opposed to flared, or bell-bottomed--with more of the same on order. The problem was the culmination of years of under-management, and cost the company $12 million as it tried to unload the overstock. For the first time since the Depression, Levi Strauss & Co. announced a losing quarter, and the company's stock price fell dramatically. The following year, European operations were reorganized, and the company moved its headquarters from the site it had occupied on Battery Street for 108 years to new quarters. Seven years later, the company would move again to Levi's Plaza, a newly built complex.
Despite the sobering demonstration in Europe of the company's fallibility, by 1974 sales of Levi Strauss & Co. products had reached $1 billion. The following year the company was once again reminded of the hazards of operating in the murky waters of international business when it was revealed that Levi Strauss & Co. employees in international locations had bribed foreign officials on four separate occasions. When the incidents were discovered by the home office in San Francisco, the practice was immediately terminated. In addition, the company ran into trouble domestically in 1976 when the Federal Trade Commission accused it of price-fixing and restraint of trade because it prohibited retailers from discounting its products. The company reached an agreement with the government in 1977 in which it did not admit wrongdoing, but gave up suggested pricing, retaining the freedom not to sell to certain retailers. In the next several years, the company settled several suits, brought in nine states that charged illegal price-setting practices. The 1970s also saw the formation of the company's community-affairs department, which is Levi Strauss & Co.'s philanthropic arm, and of community-involvement teams, which are company-funded employee groups that participate in projects in communities in which Levi Strauss & Co. does business.
By 1977 Levi Strauss & Co. had become the largest clothing maker in the world. In addition to its original products, the company had grown through acquisitions, and also licensed its name to be used on other products, such as shoes and socks. Sales doubled in just four years, to hit $2 billion in 1979. Purchases such as Koracorp Industries Inc., a large maker of men's and women's sportswear, in 1979, and Santone Industries Inc., a menswear manufacturer, in 1981, prepared the ground for further growth.
The company, now an industry behemoth, ran into difficulties in the early 1980s, however, as the demand for denim stabilized, and its profits flattened. Attempting to increase its distribution, the company reached agreements with several mass merchandisers, including J.C. Penney and Sears, to market its products. Nonetheless, earnings dropped by nearly 25 percent in 1981, and the company undertook another reorganization, which included the elimination of one level of corporate management. Profits continued to plummet in 1982, and the company shut down nine plants, eliminating 2,000 jobs.
Levi Strauss & Co.'s fortunes made a short recovery in 1983, and the company planned a $40 million promotional tie-in with the 1984 Olympics to promote its relatively new active-wear division. Nevertheless, during the year of the Olympics, in which the firm dressed more than 60,000 participants in the games, profits were down again, and the company undertook a major retrenching, closing many factories and eliminating thousands of jobs. Faced with a demographic trend that showed the baby boomers outgrowing jeans, the company began heavy advertising campaigns, allied itself with designer Perry Ellis in an attempt to move into the high-fashion market, and continued its plans to retrench, as profits dropped by 50 percent.
A Private Company
In 1985, as Levi Strauss & Co. continued to restructure and cut back, the company was taken private in a leveraged buy out for $1.45 billion by the Haas family, descendants of its founders and long-time company leaders. Several other officers and directors also were members of the buy out group, Levi Strauss Associates Inc. The following year the company introduced a successful upscale men's pants line, Dockers, and, with increasing demand around the world for U.S. jeans, and with the addition of innovative finishes, such as bleaching or stone-washing, 1990 sales reached $4 billion.
Dockers was one of the most successful brand launches in the history of the American apparel industry. The cotton pants appealed to older customers, whose expanding waistlines didn't fit into traditional jeans any more. Sales of Dockers alone came to $1 billion by 1994, and Dockers represented almost 30 percent of Levi's domestic sales. However, this was only one part of the success of the newly private company. CEO Haas, along with Thomas Tusher, head of Levi's foreign operations, transformed the company's overseas markets. In the 1980s, Levi's had diversified its product in Europe into dozens of unrelated lines. Foreign operations accounted for only 23 percent of sales in 1984. Tusher and Haas moved to concentrate foreign sales on the classic 501 jeans, and positioned the pants as a high-priced, prestige product. The company began selling its jeans at posh boutiques in Europe and Japan, at prices more than double the U.S. price. By 1992, foreign sales represented close to 40 percent of the company's revenues, and over 50 percent of profits.
Levi Strauss also tried to upgrade the image of its pants in the U.S., with great success. Levi Strauss spent $230 million on advertising in 1992, in a campaign to add glamour to its old stand-by. Levi's jeans, which were being sold at lower-end department stores like J.C. Penney and Sears, Roebuck began to appear in Macy's, with a considerably higher price tag. The company also began to open its own stand-alone jeans boutiques. The flagship store in Manhattan opened across the street from Bloomingdale's in 1993. Standard 501 jeans there cost $47. Macy's charged $42, and J.C. Penney $29.99. Of course in Europe, the price could be over $80. The same pair of pants retailed at these drastically different prices depending on where it was bought. Not surprisingly under these circumstances, the company's profits soared. Earnings were $155 million on the average in the 1980s. By 1990, earnings stood at $251, and the next year increased to $361. The next two years each added a hundred million also, until by 1995 the company earned over $700 million.
By 1996, Levi Strauss was virtually free of debt, and the company announced it would undertake a second leveraged buy out later in the year, to concentrate its stock in fewer hands. The company made plans to spend $90 million to open stand-alone Levi's stores, Dockers stores, and discount stores for both brands in the United States. Levi Strauss continued to expand its foreign markets, moving into Eastern Europe and expanding sales in India, for example. The company believed that the American market would continue to grow as well. The trend toward casual dress by office workers seemed to be increasing&mdashcording to one study, 90 percent of U.S. office workers were allowed to wear casual clothes to work on Friday by the mid-1990s. As jeans became more accepted in the white-collar world, the market for Levi's was expected to widen.
Source: www.fundinguniverse.com
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