STRATEGIC MANAGEMENT

TOPIC: FASHION- LEVI’S

BY:
x
 ACKNOWLEDGEMENT

We would like to express our sincere gratitude to xxx who gave us an opportunity to work a real
time project. Working on the project under his guidance has given us an idea of what awaits us
in our life post our MBA. The project helped us learned the strategies adopted in Fashion and
apparel industries through various analysis.

Once again thank you sir!

Contents
Introduction ................................................................................................................................ 3
Growth and Marketing Strategy .................................................................................................... 1
Pricing Strategy............................................................................................................................ 2
POP and POD ............................................................................................................................... 3
PESTEL Analysis ........................................................................................................................... 5
Porter’s Five Forces Analysis ........................................................................................................10
BCG MATRIX ...............................................................................................................................13
Feasibility of Vertical Integration..................................................................................................15
Bibliography ...............................................................................................................................19
 Introduction

Established in 1853 the company had been successful in placing itself as a distinguished brand,
the organization is known for its tough and durable apparels. The reason behind the
organization’s success are satisfied customers, which induces repeat buying. One denim of
Levi’s undergoes thirty-three steps during the course of its manufacture, each side is double
stitched so as to ensure maximum durability.

The denim jeans are further divided into three sub brands Levi’s Strauss signature, Dockers and
Levi’s. With more than fifty thousand outlets spread across 110 countries Levi’s stands tall in
terms of market share and customer base, serving more than 1 million satisfied customers.
 Key Partners: Key Activities: Value Propositions: Customer Customer
 Suppliers of  Manufacture of apparels  Wide range of Relationships: Segments:
materials  Export of finished apparels to choose  Focuses its energies on  Dockers – Higher
 Transporter apparels from consumer driven end customers
agencies for  More than 50% of the  Global leader in terms approaches  Signature by
logistics finished product is of manufacture of  Sponsoring music events Levi’s Strauss &
 Owners of exported jeans
 Researching night clubs Co. – High and
retail outlets  Highly durable
 Connecting with youth middle high range
across 110 materials customers
through social media
countries  Value for money platforms  Levi’s – Middle
 Supplier of Key Resources:  Highly flexible price and middle low
machineries range so as to suit the Channels:
 Factory area  Denizen – Lower
 Lessor of affordability of all  Through the chain of
 Office Area end customers
factory area, categories of people more than 50,000 retail
 Machineries
warehouses  Apparels stores spread across 110
 Retail outlets
and office manufactured based countries
 Warehouses
areas on prevailing fashion  E-commerce platforms
 Human Resource
trends

Cost Structure: Revenue Streams:


Maintenance, repair and replacement of machineries  Revenue generated from sales of apparels through

Depreciation of fixed assets various retail stores and E-commerce platforms

Cost of raw materials  Revenue generated from granting ownership of

Cost of maintaining required inventory level franchises to various dealers

Interest on working capital demand loan

Manufacturing and sales overheads

Cost of transportation since more than 50% of the manufactured products are
exported
 Rent of factory, warehouse and office area
 Salary of employees
CANVAS MODEL
 Wages FORinLEVI’S:
of workers factories
 Share of profit to the franchise owners
CANVAS MODEL FOR LEVI’S – Post Vertical Integration

Key Partners: Key Activities: Value Propositions: Customer Customer

 Suppliers of  Manufacture of apparels  Wide range of apparels Relationships: Segments:
raw materials  Export of finished to choose from  Focuses its energies on  Dockers –
 Transporter apparels  Global leader in terms consumer driven Higher end
agencies for  More than 50% of the of manufacture of approaches customers
logistics finished product is jeans  Sponsoring music events Signature by
 Owners of exported  Highly durable  Researching night clubs Levi’s Strauss
retail outlets Key Resources: materials  Connecting with youth & Co. – High
across 110  Factory area  Value for money through social media and middle high
countries  Office Area  Highly flexible price platforms range
 Supplier of  Machineries range so as to suit the customers
machineries  Retail outlets affordability of all Channels:  Levi’s – Middle
 Lessor of  Warehouses categories of people  Through the chain of and middle low
factory area,  Human Resource  Apparels manufactured more than 50,000 retail  Denizen –
warehouses  Vehicles for based on prevailing stores spread across 110 Lower end
and office transportation fashion trends countries customers
areas  Retail stores  E-commerce platforms

Cost Structure: Revenue Streams:

 Maintenance, repair and replacement of machineries  Revenue generated from sales of apparels through
 Cost of raw materials various retail stores and E-commerce platforms
 Cost of maintaining required inventory level  Revenue generated from granting ownership of
 Interest on working capital demand loan franchises to various dealers
 Manufacturing and sales overheads
 Cost of transportation since more than 50% of the manufactured products are
exported
 Rent of factory, warehouse, office area and retail stores
 Salary of employees
 Wages of workers in factories
 Share of profit to the franchise owners
 Cost of fuel
 Cost of opening and maintenance of retail stores
 Wages of drivers and other workers involved in the logistics division
 Growth and MarketingStrategy
Market Growth Strategy: The company was launched as a dry goods retailer during the gold
rush in California, then in 1870s company got its breakthrough as this is the time when it
patented the use of rivets in order to strengthen the invention of blue jeans and work pants.
The day was recorded as May 20,1873.As the time passed many Hollywood stars adopted Levi’s
jeans which made it as high fashion item and led to increase in demand. This way slowly the
company penetrated globally.Whenever there was fall in sales company adopted new and
innovative strategies. Taking the case of 1989, Levi’s Strauss made the transformation due to
40% freefall in sales and the transformation was world’s biggest and oldest one. The strategy
involved was “Always acting like a start-up”. The changes involve as the part of strategy are:
 Target and segmentation: focus on new target which includes investment in expanding
the range of clothing to women’s wear which previously was just jeans and menswear.
 Focus on new markets: opening of new plants and stores in the untapped global
markets such as India, China and Russia.
 Adoption of eCommerce platform: commencement of use of eCommerce trend in order
to expand the scope.
 Incorporating Changes: Hiring the young bright minds by altering the top team in order
to bring in more ideas into space.
Marketing strategies:
 Marketing by celebrity: In order to make real impacts company tried to have
collaboration with various famous celebrities.
 Levi’s virtual artist: incorporating the artificial intelligence chatbot to help customers to
find the suitable clothes
 Sustainability story telling: Meaningful Campaigns which went viral and led to the
impact on people.

Levi’s always focussed at boosting brand exposure

 Pricing Strategy

Being an established brand, Levi’s follows the policy of maintaining standard fixed prices
globally. Also, price of pair of jeans of Levi’s is influenced by number of factors such as:

● Cost of the product: Launching the different class of product for different class of people
like for Upper class (Dockers), upper middle(Signature), middle class(Levi’s) and lower
class(Denizen). The different variation leads to different cost and hence this is one the
main pricing strategy adopted by company.
● Affordability of the product: The product is available even at lowest cost which make it
buyable by lower class, when it comes to luxury product company serves its customer
well which implies its is affordable to all class of people.
● Product demand: Due to various growth and marketing strategies adopted by the
company, it led to more awareness globally which increased in demand. Going by the
economics law increase in demand leads to increase in cost keeping supply constant.At
the end this all helped the company to grow.
● Uniqueness and innovative features of the product: As we have already seen in growth
strategy company always tried to bring innovation in order to make its customer
satisfied. Due to uniqueness customer becomes brand loyal , so no matter what if price
increases customers are still willing to buy its product.
● Signature Jeans in order to maintain revenues: Due to diversification of product
portfolio, Levi’s can expand direct to customer ranges which includes upper middle
class. The signature jeans helped to increase its revenue.
● New Labeling and Styles developed to differentiate products: expanding the clothing for
men to women’s category clothing helped the company to grow.
● EMI facility: The EMI facility helped the customer to make jeans affordable. The zero
EMI option makes it feasible to have high brand jeans.
 POP and POD

Points of parity:

 Manufacturer of Jeans:
Just like the other players and competitors in the industry, Levi’s too is known for its
jeans and denims.
 Middle - range price positioning:
Similar to its major competitors Levi’s too follows the middle range pricing strategy so as
to cater a wide spectrum of customers belonging various economic categories.
 Distribution channel:
Offline retail stores and E-commerce websites are the major distribution channels used
by Levi’s to float its products in the market. This is in line with other competitors
competing in the market.

Points of differentiation:

 Blue jeans pioneer:

Levi’s is known for its blue jeans, unlike its other competitors which do not stress much
on a particular color of jeans.
 Quality and Strength of products:
In order to ensure quality and strength of product, each pair of jeans, during the course
of its manufacture undergoes thirty-three processes and are double stitched so as to
ensure maximum durability.
 Authenticity of brand:
Unlike its competitors Levi’s had been successful in creating its authenticity as a brand
over the years. Every pair of jeans that is manufactured carries a red button which has
 Levi’s logo printed on it. It not only helps in creating authenticity but also form a part of
its pricing and customer segmentation strategy, which is discussed in later sections of
this report.
 Strong brand awareness:
Levi’s had been actively trying increase its brand awareness by focusing its energies on
consumer driven approaches, sponsoring music events, researching night clubs,
connecting with youth through social media platforms.
 PESTEL Analysis
Politics:
Being a multinational company, Levi’s is concerned not only with political forces acting in any
one country, but in all the political factors in any of the countries it’s operating in. Some of the
factors that play a part in this are as follows:

● Political Stability of the country in recent times.

● Corruption levels in the government
● Business and contract laws of the country
● Trade barriers with other countries

Considering the fact that Levi’s is operating on a global scale, this factor turns out to be
immensely important because of the fact that political decisions often impact the social
behavior of an individual, Levi’s being a foreign brand will always have the threat of losing its
business against local brands solely due to political influence. Besides political impacts may also
give rise to situations such as increase of import duty, stiffening of entry/exit barriers, thriving
of a foreign business in a domestic market. Moreover, Levi’s as a brand needs to have political
tie ups in the countries of operation. One way of doing so is involving political leaders as brand
ambassadors or sponsoring political events to increase its visibility.

Economics:
The economic conditions in a country hold the potential to make any company operating in it
either highly successful or a failure. Things like the inflation rate, the foreign exchange rate and
the interest rate have direct effects on the levels of demand, investment available and level of
growth, and thus define the environment the company must operate in.

A few key factors are:

 ● The economic system - Is the marketplace a monopoly, an oligopoly, or a proper
competition?
● GDP growth, which defines the rate of growth of the economy.
● Unemployment rates, which set the demand for jobs and availability of manpower.
● Efficiency with which the market operates.

Now considering the Levi’s as a brand, operating on a global factor and labelling itself as
premium brand might be impacted by economical scenario of a country. Imagine a situation of
country whose economy is in the decline stage or the economic status is going down; Can the
citizens of such country afford to buy Levi’s apparels? The answer is definitely “No”. Moreover,
economic scenario is something which develops over time and hence the organization should
be conscious and vigilant so as to be in a position to assess such kind of situation much in
advance and take necessary steps to mitigate the same.

Society:
The social and cultural makeup of the country in question heavily affects all sides of the
company. Both the potential employees and customers are shaped by the lifestyles, education
levels, beliefs, attitudes and values present in a country.

● Population demographics determine which products may or may not be feasible to

market.
● Class distribution among the population defines what rules the company must
differentiate its offerings under.
● Health standards and educational backgrounds decide what kind of people the company
can look forward to hiring as well as what people there will be in the customer base.

Society and culture form the very basis of human civilization. Considering the operational
domain of Levi’s it becomes very important for this organization to not to get involved in any
kind of activity or launch any kind of apparel which directly or indirectly hurt the sentiments of
the local people. Countries across the globe, besides being open to experience the flavor of
different cultures are also very sensitive with regards their own culture. So, anything that hurts
the sentiments of customers should be avoided. This becomes crucial because of global
operational scale because the organization will have to take into consideration multiple cultural
mentalities while manufacturing and promoting its apparels.

Technology:
The levels of technology in a country, as well as the focus on advancement and innovation are
vital for the company to operate successfully and turn a profit.

● Any recent technologies and their potential in the marketplace need to be understood
so the company can properly adapt and capitalize on new opportunities.
● The speed at which technology diffuses through the country determines things like
copyright claims and profitability of any given innovation.
● Impact of technology on costs may dramatically affect profits, allowing for further R&D
and advancement.

With advent of technology, Levi’s too had tried and had been successful in adopting the same
as the civilization progressed. With various E-commerce shopping platforms coming into
existence Levi’s too had collaborated with the same to make its products and apparels available
at attractive prices. This had helped Levi’s to not only maintain its existing customer base but
also to grab more of them. So, Levi’s did welcome changes in its operational model in terms of
technology and it should do the same in future so as to keep up with the market pace.

Environment:
Both the actual environment in a country and its policies relating to the environment are very
important for Levi’s to operate. It needs to avoid missteps like becoming subject to a boycott or
wasting resources overcompensating. At the same time, customers can have ethical
preferences towards more environment-friendly companies.
 ● Weather conditions may affect the supply chain of the company, and thus increase or
decrease the operating costs.
● Certain products can also be affected by climate change, like winter wear in a country
where winters have turned mild due to global warming.
● Endangering any species or producing excessive amounts of wastes can cause
governmental or public backlash against the company.

Environment in which an organization is operating matters a lot, because it accounts for almost
everything that an organization should take into consideration before entering the market and
to maintain its feet in market. Although, Levi’s had so far managed to keep up with the various
environmental conditions, it is expected to do the same in future. Environmental factors
specially impact fashion industry because clothing needs keep changing throughout the year
and it is different in different countries. One cannot expect a customer to buy sleeves clothes in
winter nor can one expect a person to buy heavy jackets during the summer season. Hence,
environmental factors play a crucial role in deciding the production cycle and should be taken
into consideration.

Legal:
The legal framework of a country, holds huge relevance and importance for Levi’s, and must be
analyzed for a complete understanding.

● Intellectual property laws and data protection laws are important to protect the
company’s patents and competitive advantage, without which it risks huge losses or
even failure.
● Discrimination, hiring and dismissal, and workplace safety laws hugely impact the cost of
operations for Levi’s.
● Quality and customer protection laws also affect the fate of the company hugely, as
they can elevate costs in order to protect the customer.
This mainly plays with manufacturing standards, entry/exit barriers, hinders operation in a
market and if tampered beyond limits might also create problems with regards to
import/export. So, once again legal regulatory environment plays a highly significant role in
influencing the operations and growth of any organization in any part of the globe. Although
currently there are not much legally binding regulatory norms impacting this industry, but one
cannot predict what await in future? And hence it is necessary to keep this factor in mind while
taking any decisions with regards to business growth and expansion.
 Porter’s Five Forces Analysis

Competition in the Industry

The industry is fragmented and the company faces intense competition for market share. The
competition has grown in recent years with casual apparel, jeans wear and other similar
companies also participating. Growth of the international market, rise of e-commerce and entry
of the sportswear companies into the Jeans market has also been a major reason behind the
growth in competition.

Vertical integration in the industry has also been strengthened. Main rivals of Levi are Lee,
Wrangler, Spyder and Tommy Hilfiger, among others.

New Entrants
Barriers to new entry are very low, as there is little-to-no governmental regulations or policies.
Levi’s has an advantage in location of outlets and brand equity, but it’s a very small advantage.
Private labels are also giving stiff competition.
The only threat that Levi’s currently faces as a brand is the pricing because the civilization is
moving away from brand consciousness and are more concerned about adhering to the latest
trends. Moreover, the new entrants are trying to set a firm step in the market by lowering their
prices. So, on one hand we have a brand like Levi’s which lies somewhere between big to
medium pulse business whereas on the other hand we have these new entrants which are
more of low pulse business. Hence, they pose a serious threat to Levi’s in terms of customer
acquisition, these small pulse businesses might end up stealing a major chunk of Levi’s
customer base due to their low pricing strategies.
Suppliers

Materials and suppliers for everything except cotton are plentiful, so suppliers have very little
power over the company. For cotton, many factors dictate availability of supply, like weather,
governmental policies and regulations, energy prices etc. which results in disproportionate
influence over the company’s sales.

Levi’s relies a lot on outsourcing, and more than 95% supplies come from independent contract
manufacturers, giving them power over the company as they’re free to terminate their
contracts anytime. This can pose a major threat, as the industry is on its expansion stage, a lot
of new brands are entering into the market. Whereas, the number of suppliers remain almost
the same in the market. Hence, this might give an edge to the suppliers in the market in future
and the suppliers might have the power in future to drive this market.

Buyers

Levi’s products are sold in more than 110 countries. Wholesale buyers account for >30% of
their revenue, giving them a lot of bargaining power over the company. Contracts with the
customers aren’t long-term, meaning either party can terminate the contracts at any time.

The company can suffer a lot considering the fact that the wholesalers either might decide to
stop selling their products or reduce the floor space, so buyers have a lot of bargaining power.
Besides, with numerous new brands entering the market with low pricing strategies, Levi’s
might suffer due to bargaining power of the buyers since the buyers will now have a wide range
of apparels to choose from whereas, the available market for apparels stay the same.
Substitutes

Very high, as there are no switching costs. Increasing competition and subjectivity to customer
moods leads to high need of investment in R&D and differentiation strategies. Especially after
considering the pace at which new brands are entering the market giving birth to a plethora of
options for substitute products.

Competition:

Besides major brands such as Pepe Jeans, Wrangler and Spykar. Levi’s is also going to face stiff
competition from new entrants mainly because of the latter’s low pulse business strategy.
 BCG MATRIX
It helps the organisation in understanding their position in the industry. According to this
model, Levi’s & Signature by Levis sub-brands of Levis Strauss & Co. is starred whereas the
brand Denziens& Dockers are question mark due to their low popularity and sales compared to
the other two.

Competitive Advantage:
Talking in terms of competitive advantage being gained by Levis we can focus on the following
factors.
● Broad Portfolio: the brand focuses on the sub-brands in order to be able to derive sales
through other channels as well. Product line extension, geographic and demographic
expansion helps the company in the same way.
● Visibility of the brand: Due to availability through the different channels company has
increased its presence in the market and become a name known in every household.
● Multichannel Approach: This method helps in penetrating the market. It basically talks
about having company owned outlets and franchised outlets.
 Feasibility of Vertical Integration

Vertical integration basically refers to a situation where an organization adopts the process of
supply and logistics as its internal process rather than outsourcing the same.

To check the feasibility of the same, let’s take a look at the following data:

Feb-19

Value in 000's

Raw Material $5,900.00

Work in Progress $2,889.00

Finished Goods $9,05,488.00

Total $9,14,277.00

Trade Receivables $6,33,534.00

Payables $3,29,913.00
Net Sales $14,34,458.00

PAT $1,46,577.00

Cost of Goods Sold $6,51,650.00

General Selling and Administration Costs $5,81,896.00

Gross Profit $7,82,808.00

General Selling and administration cost as a percentage of net 40.57%

sales

Cost of goods sold as a percentage of net sales 45.43%

General Selling and administration cost as a percentage of 74.33%

Gross Profit
After taking a careful look on the data presented in the available table, one can easily make out
that Levi’s urgently needs to work on reducing its inventory of finished goods, more than 95%
of the inventory worth carries the value of finished goods. Moreover, when one talks about
vertical integration, one needs to take care of the capital expenditure that would be required
along with the increase in the working capital required. Considering the fact that currently the
selling costs accounts for 40.57% of the net sales and 74.33% of the gross profit. Levi’s has its
outlet spread across 110 countries and vertical integration would mean that the organization
would have to have its production unit or warehouse in each of the country where it targets to
serve the local market.

Computation of Cash Conversion Cycle

Inventory Turnover Ratio 1.57

Inventory Turnover Days 232.64

Receivable Recovery Ratio 2.26

Days Sales Outstanding 161.20

Payable Pay-out Ratio 4.35

Days Payable outstanding 83.95

Cash Conversion Cycle 309.8959816

If one would take a careful look at the computation of cash conversion cycle of Levi’s as an
organization, it is very easy to understand that the organization is currently suffering from
working capital management issues. Considering that Levi’s currently stands as one of the
fortune 500 companies where the average cash conversion cycle is approximately 70 days
against Levi’s which has a cash conversion cycle of approximately 310 days, it would be very
difficult for Levi’s to even consider vertical integration as an option for its organization.

Besides operational and financial issues the company might also start facing identity issue in
case it starts setting up production units everywhere because the mentality of running behind
cheap raw materials and labour might give rise to quality issue. Moreover, Levi’s is not only
known for durability of its apparels but also the design and setting up production units might
impact both. Also setting up warehouses in each country might further lead to increase in
operational cost considering the fact that warehouse cannot be placed everywhere so firstly
the organization will have to bear to cost of transportation of products from production area to
warehouse, and from warehouse to store. Also, having more number of warehouses might lead
to further increase in value of finished goods inventory, as observed, currently finished goods
accounts for more than 95% of the organization’s inventory worth.
 Bibliography
[1] https://www.levi.com/global

[2] https://www.marketing91.com/marketing-strategy-levis/

[3] https://www.essay48.com/term-paper/13154-Levi%20Strauss-Pestel-Analysis

[4] https://www.slideshare.net/mobile/roneypatil/levis-final

[5]https://www.google.co.in/amp/s/www.porteranalysis.com/porters-five-forces-model-of-
levi-strauss-co-levis/amp/

[6] https://images.app.goo.gl/bQeJ2ZdkWdJXyA389