Levi’s Fatal Flaw

Levis has been losing money for eight years now; that has to be some sort of record.

Fashion is fickle and there is very little Levis can do when the young people of the world decide your brand just isn’t hip anymore. Maybe it was the Levi stores that popped up in every mall that made them uncool. Maybe it was the years of awful advertising.

But what really bothers me is that Levi Strauss & Co. closed its last American manufacturing plant last year. The company is trying go high end; it pulled out of Costco and now it thinks it can compete with the likes of Diesel. If it were still made in the US I’d say it had a shot. There will come a time when more people will want an authentic American brand and will pay a premium for it. Perhaps Levis can play up its ancient history while sidestepping its recent history, but I doubt it.

Levi’s fatal flaw is that it got obsessed with cutting costs instead of increasing margins. I still don’t see the long-term logic of the Wal-Mart deal.

I suspect that Levis will open a US plant again, perhaps just to crank out “small batch” brand of jeans. And it won’t have to compete with the Chinese on price because people will pay a premium for made in the USA.

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Author: John Yunker

John co-founded Byte Level Research in 2000 and is author of The Web Globalization Report Card. He also co-founder of Ashland Creek Press.