What Went Wrong With Levi's Web Strategy



What Went Wrong With Levi's Web Strategy

Author: Anne Standley

November 03, 1999

Levi Strauss and Co. recently decided to stop selling its products on its own web site. What can manufacturers learn from this shift in Levi's strategy?

Issue

A Change in Strategy

On October 29, Levi Strauss announced that after Christmas it will sell its products online exclusively through the web sites of its retailers, including J.C. Penney and Macy's. The decision represents a dramatic reversal of Levi's web strategy. Previously, Levi's had allowed its products to be sold only on its own web sites. Levi's sites will now be used strictly for marketing and branding purposes.

In explaining its decision, Levi's said that managing e-commerce on its own sites – and – had proved too expensive. Levi's withdrawal may also have been prompted by the sites' disappointing sales.

Manufacturers can draw two lessons from Levi's missteps. First, they should be open to the possibility that their retailers can sell their products effectively online as well as offline. Second, they should recognize that much of their success in selling online will depend on the strength of their core operations.

Analysis

New Channel, Old Problems

Levi's about-face raises the question: did it make the right decision in choosing to sell online? Selling on the Internet was a sound strategy for Levi's. The online market for basic apparel is rapidly growing, and Levi's Generation X and Y customers – one of its core customer groups – are more Internet-savvy than any other age group. While the Gap and private label jeans have made inroads into Levi's market share in the last decade, Levi's brand retains the power to drive traffic into brick and mortar stores, reducing its vulnerability to retailer retaliation. Indeed, when Levi's began to sell online, its retailers not only continued to sell its products offline, but they complied when Levi's insisted that they stop selling its products on their own web sites.

The best explanation for Levi's low online sales lies not in the economics of selling online or in conflicts with its retail channel, but in the same problems that produced its flagging offline sales, which dropped 15 percent in the last two years. These problems include the loss of its connection with teenage customers, who were lured away by the wide leg jeans and cargo pants produced by JNCO, Fubu, and other manufacturers.

Levi's sales also suffered from its failure to sufficiently differentiate its product, through styling, branding and pricing, from powerful competitors like the Gap and Old Navy, Abercrombie and Fitch, and American Eagle. Although Levi's has attempted to keep up through updated styling and now offers 14 styles of jeans, many are difficult to distinguish from one another. The Gap, in contrast, sells 9 styles of jeans with easily understood labels and clearly defined features.

Levi's also failed to coordinate its pricing strategy with its brand and marketing strategies. Its jeans are priced 15 percent to 40 percent higher than those sold by the Gap or other private labels, placing them in a premium category. However, Levi's brand does not possess the distinctiveness that would justify higher prices, and its marketing targets mass-market customers rather than those who prefer designer goods.

Online Alternatives

Despite these problems in its core product strategy, Levi's could have taken steps to improve the likelihood of success in its online business. For example, it could have used its web site to establish a clearer brand identity and to differentiate itself from its competition. It could have also mined the data from its online sales to gain a better understanding of its teenage market.

Levi's could have further strengthened its online sales by selling through its own site and those of its retailers simultaneously. It could have marketed its own online store as offering a breadth of selection that its retailers lack, while helping the retailers to provide a product selection online that would appeal to particular demographics or focus on Levi's most popular styles. Moreover, Levi's could have given offline retailers incentives to accept returns from online purchases at its web store, which would have increased both offline and online sales.

Implications

E-Commerce Lessons

Levi's experience offers manufacturers valuable lessons for selling online. Manufacturers should not limit themselves to selling on their own web sites, but should look for opportunities to sell through the sites of their retailers. Such arrangements not only help offline sales by strengthening relations with retailers, but enhance online sales by promoting the unique value propositions of the retailers' and the manufacturers' web stores.

Manufacturers can also learn from Levi's experience that launching a web site will not solve problems with their core business. While the economics of selling online are quite favorable for a manufacturer of basic apparel with high brand recognition, Levi's will have no more success in selling online than offline until it regains the teenage market, clarifies the differences between its products' styles, and resolves the inconsistencies between its branding and pricing

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