LEVI'S GETS THE BLUES

By Stacy Perman

By the time half a million hippies danced button fly to button fly at Woodstock 28 years ago, the miners' blue jeans first made by Levi Strauss in 1873 had been adopted as the uniform for class rebellion. But the enduring, red-tagged faded blues have recently earned another reputation. "My mom wears Levi's," says Hannah Gasner, 15, a Manhattan high school sophomore, uttering the words that youth marketers dread. "I think about them as the first jeans invented. Levi's are reliable."

In the cutting-edge world of blue jeans, reliable just doesn't cut it. While Levi's has remained a wardrobe fixture, its market share has shrunk to an uncomfortable fit and sales have slipped. The San Francisco-based company's pocket has been picked by a passel of fashion-conscious, private-label designer jeans and edgy upstarts in the $10.6 billion industry. The new entrants have hit the shelves with stylish cuts attractive to both teens and folks north of 20. "It's not about the brand of the jeans but the shape," explains Gasner. "Jeans are always in style, but the style changes, and it's the fashion that counts."

Levi's, which has stayed true-blue to its denim, has been slow to move on fashion trends like the currently favored wide-leg pants. "It's a fair assessment to say we were behind in fashion," says Gordon Shank, president of Levi Strauss, the Americas. "Levi's strength is that it is never the most fashionable but the most relevant." But that has cost the company. Levi Strauss's U.S. sales last year hit $4.3 billion, but fierce competition and a leveling off of demand forced it to announce last week a round of belt-tightening measures. The company will close 11 factories in four states and lay off 34% of its North American workforce. Levi's, which has nurtured a culture of progressive corporate responsibility, cushioned the bad news with a $200 million severance package, including extended benefits.

Like Levi's, denim's other big brands, VF Corp. (maker of Lee and Wrangler) and Guess?, have got a kick in the pants of late. "The story here is the competition," says Isaac Lagnado, president of Tactical Retail Solutions. In the world of blue jeans, denim pluralism was until recently considered blasphemy. That is, until Gap Inc. successfully introduced a complete store-brand jeans line in 1991. According to Lagnado, market share for private-label brands has grown from 8% in 1990 to 18% last year. Levi's has fallen from 31% to 19%.

Once considered hopelessly unhip, J.C. Penney and Sears made their affordable house jeans cool. Penney's introduced Arizona six years ago; it's now a $1 billion business. Sears launched Canyon River Blues two years ago and just last year sales topped $200 million. By washing away the stores' image from that of the jeans, the once stodgy retailers have attracted the most discriminating jeans buyers: teens. In a recent poll of favored brands of jeans, conducted by Teenage Research Unlimited, Arizona ranked second. "The very retailers we sell to have cracked the code on how to create and sell their own brand," acknowledges Levi's Shank.

So have the designers. Fashion houses with distinctive personalities have been able to hew their brands to consumers' bottoms. Donna Karan, Tommy Hilfiger, Ralph Lauren and Versace have all successfully introduced their own line of jeans, with couture prices to match ($100 and up). Last year Calvin Klein, no stranger to America's hips, spun his jeans and sportswear empire into $470 million in sales for licensee Designer Holdings.

A provocative mix of alternative companies has also entered the fray. Diesel, based in Molvena, Italy, has flogged its $99 jeans with imagery of naked blow-up dolls sitting at a board meeting with an obese ceo. Its U.S. sales have grown from $2 million to $23 million in four years. JNCO, of Los Angeles, considered the progenitor of today's wide-leg craze, has taken off from the backsides of skateboarders to the broader jean community. The company, with industry estimated sales of more than $40 million, has led the industry with styles such as suede chaps and huge hem widths. "When the rest of the industry comes in, we're already into the next style," says Tam Miller, a JNCO vice president.

Mainstream VF has undertaken a savvy comeback, revitalizing its fashion line with a gritty $150 million ad campaign and a hip new line, Lee Riveted. Riveted now accounts for about 40% of Lee's $1 billion jeans business.

Meanwhile, Levi's is in the midst of "assessing every aspect of market mix to protect and maintain leadership," including its once vaunted advertising, according to Shank. Next fall it will launch Red Line, a blend of traditional- and contemporary-style jeans. Says Shank: "Anybody can bring out a wide-leg jean. Only we can bring the individuality of our brand." Levi's had better start stitching soon.