UK: JEANS GENIUS.

UK: JEANS GENIUS. - Most companies can produce a mission or value statement, if required. But few are prepared to spend half a billion pounds backing up their fine words. Levi Strauss is.

by Rhymer Rigby.
Last Updated: 31 Aug 2010

Most companies can produce a mission or value statement, if required. But few are prepared to spend half a billion pounds backing up their fine words. Levi Strauss is.

At first glance it doesn't look that good, does it? Here is a company in a famously unprofitable, rather stagnant sector, where low costs and often dubious ethics are the order of the day. Run by the descendants of its founder, the firm operates in a notoriously fickle market where it relies heavily on a single product.

The sector is textiles and the product a pair of trousers. But the company is Levi Strauss, one of the select few businesses whose name has made it into the global vocabulary. And unlike many of its peers, the company's conduct is more usually the cause of admiration than of question. Competitors eye the firm with jealous regard. Consumers love their 501s. And the socially concerned put its ethical credentials up there with the best. Meanwhile, financially, with 1995 profits of over $700 million (£467 million) on a turnover of $6.7 billion, the company is in fine fettle by anyone's standards. By those of its sector - where 5% is normally considered a cause for celebration - its performance is little short of miraculous.

The company's history is long and folksy, starting back in the 1850s when the original Mr Strauss began hawking his proto-jeans to San Francisco's gold-rush miners, yet it is only the last couple of decades which have seen the creation of the phenomenon we know today. As recently as the early 1980s, the popularity of jeans, having endured for as long as anyone could remember, was beginning to fade. Furthermore, Levi's, having rather lost its way, had become something of a market follower, diversifying into general apparel, hardly its area of expertise.

All this changed in 1984 when Bob Haas, a company employee since 1973 and a member of the founding family, took over as chief executive from his uncle, Peter Haas Senior. Within 12 months, Haas and Co acquired the 63% of the firm's equity which was in public hands via a highly geared management buy-out, thereby ending Levi's 14 years as a listed company. Haas's move was motivated by a belief that the baggage listing carries - demands from shareholders, analysts and the like - seriously impairs corporate vision. So well timed was the step, however, in terms of corporate performance, that lawsuits from shareholders who considered themselves hard done by resulted.

Having changed the ownership structure, Haas set about streamlining the company. For a firm with such a reputation for being so out-and-out nice to its people, he was fairly ruthless, laying off some 12,000 workers, over a third of the total labour force. Having shed its flab, the company then went back to its knitting - or more accurately to making its jeans.

Thus, in 1985, with its famous Launderette advert, Levi's relaunched 501s in the UK, where annual sales of the garment had fallen to something under 10,000.

Gwyn Jones, a board account director at Bartle Bogle Hegarty, Levi's UK advertising agency, explains the creative reasoning behind the campaign: 'Levi's decided to go back to their roots,' he says. 'They (the 501s) were the original and definitive jeans. The creative answer was to pitch the ad in a mythical America where the values embodied by the jeans became resonant.' Mythical America was clearly a good place to be: within the first year, UK 501 sales went up by 800%. And, on the back of what has arguably been one of the most successful advertising campaigns ever, the rise has continued, almost uninterrupted to the present day. (Oddly enough, despite their strong stateside flavour, the ads that we see in Britain are destined for European markets only. Although the jeans enjoyed a relaunch in the US, it was to a very different market, where the 501 is more a sartorial staple than a fashion item.) Even the competitors acknowledge Levi's marketing successes freely. Says Phil Spur, marketing manager of Pepe Jeans, 'We recognise them as the main competition; everybody looks at Levi's and sees them as number one. When they brought out the Launderette ad in 1985, they reinvented jeans advertising. Now they almost own the medium of TV advertising in the jeans world. You have to take your hat off to what they've achieved.'

More striking even than the company's marketing successes in the savvy world of advertising is the way that this flair is combined with the soft stuff, the firm's people management policies. Earlier this year, for example, Levi's was in the headlines for launching its Global Success Sharing Plan, a scheme which means that, assuming certain (fairly attainable) targets are met over the next six years, each employee will receive a bonus equivalent to their 1996 salary.

As the attention the GSSP has attracted suggests, even for a company with a benevolent reputation, such a move is a little unusual and, with a price tag estimated at around the $750 million mark, expensive.

The scheme begs two big questions: how and why? The why, explains UK general manager, Janie Ligon, is that, 'Bob Haas had been looking at a way in which he and the family could more broadly share the profitability with all employees'. In Haas's own words, the plan came about for both philosophical and commercial reasons. 'Throughout our history, we have sought to conduct our business in ways that are consistent with our values, which include recognition - both psychic and financial - for those who contribute to our success. This plan is particularly faithful to our values because everyone will work towards a shared objective in order to receive individual rewards.

'Motivated employees are our source of innovation and competitive advantage,' he continues. 'By acknowledging and rewarding their efforts, we not only demonstrate our appreciation, but also encourage them to continue striving for new standards of excellence. It's a positive upward spiral that benefits both the individual and the company.' This philosophy goes to the heart of a company whose code of ethics defines commercial achievements as 'broader than merely financial success'.

As to the how question, well, the sum that will be paid out at the end of 2001, if the targets are met, represents around a year's profits at present levels, and the company is privately owned. It does have non-family shareholders, but these are relatively few in number: 94% of the stock is owned by the descendants of the original Mr Strauss and, of this, the lion's share is in the hands of the families of Bob and Peter Haas. While Ligon is keen to point out that they are still shareholders looking for a return, such a constituency is a far cry from the normal rabble of dividend-hungry institutional investors.

Levi's efforts to be a good employer do not end with the pay packet, however: initiatives abound. When shipping times changed at the company's Northampton warehouse, for example, extensive consultation with workers took place to determine the 'boundaries' on employees' time, by looking at areas such as childcare arrangements. 'People were allowed to swap off (work patterns) with each other,' says Ligon. 'We couldn't do it so that every person was happy, but the majority certainly were.' The company is also keen to stress its commitment to diversity, the idea being that a workforce should reflect the ethnic and social mix of the areas in which it operates. Recruitment policies are designed with this in mind, and the net is cast as wide as possible; a point is made, for instance, of advertising vacancies 'in magazines that reach black and disabled people,' says Ligon.

Like so many others, Levi's also publishes a paper mountain of aspiration statements, ethical guidelines, codes of conduct - you name it, they most certainly have it. But, to be fair, the company's actions do tend to follow through on its worthy words. Ethical policies stipulate the company will not operate in countries where human rights abuses routinely take place, for example, and so Levi's is phasing out all its operations in China, marketing and distribution included. Bob Dunn, vice-president of corporate affairs, says the company took the move 'to ensure that it is comfortable about the places where its products are made and sewn'.

Meanwhile, the company's Global Sourcing Guidelines are intended to ensure that, in the developing countries where the company does operate, it is not collaborating in sweatshops staffed by nimble-fingered children. John Bank, lecturer in human resources at Cranfield School of Management and an occasional consultant to the company, highlights the sensitivity with which Levi's can approach such issues. He cites examples in Bangladesh and Turkey, 'where children were working for contractors, providing their family's only source of income. Levi's paid the contractors to keep them in school until they were 14; it cost them more, but it's a long-term view.' It's all part of the company's published ethical stance which promises 'a commitment to conduct which is not only legal but fair and morally correct in a fundamental sense'.

Manifestations of this holistic ethical attitude are rife. The company aims to make 50% of its products in the market in which they're sold and undertakes to pay workers wages commensurate with the going rate. There is also considerable charitable giving, with 2.5% of profits going into The Levi's Foundation, a trust which makes donations to worthy causes, among others the Terrence Higgins Trust, the UK AIDS charity.

If all this caring and sharing sounds a bit too much like stakeholding, the similarities don't end with the treatment of employees and community involvement. Levi's also maintains excellent relations with its suppliers, most famously with Cone Mills, the US company which produces the unique 501 fabric: under a long-standing gentleman's agreement, Levi's is the sole customer for the product. Coats Europe, Coats Viyella's European arm, is another supplier, in this case providing the thread for Levi's European factories. Says chief executive, Nick Kershaw, 'We found them (Levi's) very unusual in the beginning: at our first meeting we all showed up in suits, and they arrived in their jeans and checked shirts. But they're very clear about where they're going and very open and friendly - the whole thing is to work together for mutual benefit.'

A similarly innovative approach is taken to the jeans-buying public, with the recent introduction of a service enabling individuals to be measured up for bespoke jeans. Though, if the idea that we are part of one big happy family sounds a bit cloying, don't worry, there's a hard commercial edge to all this. Prices reflect whatever people will pay, meaning a Londoner pays over twice what his or her San Franciscan counterpart would be required to stump up for the same product. Perhaps unsurprisingly, half the company's revenues and a shade over half its profits come from outside North America.

Nonetheless, the corporate ethos means Levi's measures up well to the ideals set out in the RSA's Tomorrow's Company report. Mark Goyder, director of the Centre for Tomorrow's Company, sees Levi Strauss as an example of what companies should be striving for: 'Yesterday's company says that profit is everything. Companies such as Levi Strauss - tomorrow's companies - say that you can't disentangle the various constituents and relationships.'

Goyder argues that schemes such as the Global Success Sharing Plan need not remain the preserve of private ly owned business. Other companies may, through corporate good citizenship, improved investor relations and better long-term understanding earn the space to be able to do this sort of thing, he believes.

Dr Elaine Sternberg, principal of Analytical Solutions (a research consultancy) and research fellow at the Centre for Business and Professional Ethics at Leeds University, disagrees fundamentally, arguing that Levi's behaviour would not be ethical for a normal plc. Levi's, she says, may do whatever it wishes (including spending a windfall $750 million on its employees) because it is a private company. But listed businesses should be maximising owner value. For them to try this sort of thing without shareholder agreement would be highly unethical.

How far Levi's marketing campaigns are assisted by this feelgood factor, the halo surrounding its community-friendly philosophies, is hard to quantify.

Far easier to nail is the fact that, although sales in the UK and most European countries are still climbing - we still don't buy as many pairs of jeans per head as the Americans, and our markets are, as yet, unsaturated - the populations in the company's traditional markets aren't getting any younger. A couple of new product lines have been designed to help remedy the problem, including an improved range for women - no doubt a godsend to the 99% of the female population who can't actually wear their boyfriends' 501s without running the risk of mockery. Another innovation is casual office wear, an area whose most visible manifestation is Dress Down Fridays. A survey undertaken by Levi Strauss in 1992 suggested that, in the US, where such trends invariably start, there has been a shift towards adopting casual dress for at least part of the working week; certainly traditional suit sales have fallen off considerably during the 1990s. Levi's has addressed this need with its Dockers brand of smart casual clothing, which, unlike earlier diversification efforts, has been highly focused and, with over $1 billion in sales to date, highly successful.

Meanwhile, the company has also been active in newer markets in Eastern Europe and South America, where there is considerable untapped demand for its traditional products. For these consumers, Levi's jeans represent an affordable way to buy into a Western lifestyle. Back on Levi's shop floors, all those waiting for their GSSP payout must be hoping that Mr Strauss's rough and ready trousers continue to hold up well.

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