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Levi's Shoots for the High-End Hipster

By RACHEL DODES

In the wake of a recession that caused consumers to question the value of $198 jeans, LeviStrauss & Co. is reintroducing consumers to its $198 jeans.

The 157-year-old company is trying to reinvent itself as not just a purveyor of basics but as anedgier brand suitable for the fashion cognoscenti. By opening lavish boutiques, like one inLondon, renaming its high-end labels, and hiring executives from competing designer brands likeRalph Lauren and 7 for All Mankind, the company is seeking to improve its fashion street cred, amove that it hopes will reignite sales, which have stabilized at around $4 billion annually afterpeaking at $7.1 billion 1996.

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Levi's, whose first-quarter profit rose 17%, is burnishing its image.

The company doesn't disclose dollar sales of its expensive jeans, which are a small part of itsbusiness. They are important, however, because they cast a halo over the brand name.

The latest results look positive: On Tuesday, Levi's reported that it earned $56 million in its firstfiscal quarter ended Feb. 28, up 17% from a year earlier. Revenue rose 9% to $1.04 billion, ongrowth of the brand's world-wide footprint and favorable exchange rates. On a constant-currencybasis, the company said net revenue rose 4% in the quarter. Levi's is closely held but it reportsresults because of its publicly traded debt.

Levi missed out on the premium denim craze that began several years ago as it focused on morepressing issues namely a crushing debt load, the result of a buyout that consolidated ownershipin the hands of a few descendants of the founder.

Levi brought in turnaround experts Alvarez & Marsal in late 2003 and the resulting retrenchmentwas fortuitous. Because Levi had restructured its operations prior to the onset of the recession, itwas better positioned than competitors to survive, says Jeff Feinberg, managing director at

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Alvarez & Marsal. "The people who were running the company were prepared for itthey hadbeen through the wringer already," he says.

Now, as competitors have slowed retail expansion or closed stores, Levi's is using its strong cashposition to burnish its image and grab market share. It opened 154 stores last year, including the

acquisition of 73 Levi's and Dockers outlets, compared with 60 the prior year.

"It was our intent going into the recession that we would be able to attack coming out of therecession," says Robert Hanson, president of Levi's Americas division, which saw sales rise 7%in the quarter to $545 million on a constant-currency basis.

"We are going to continue doubling down on our efforts to build the brand," says chief financialofficerBlake Jorgensen. As evidence: The company spent $426 million in its most recent quarteron selling, general and administrative expenses, up 26% from $339 million a year earlier.

The high-fashion overhaul comes a year after Levi created a "super-premium" division based in

Amsterdam called "Levi's XX." The company has since consolidated several Levi's premiumsub-brands under just two names: Made & Crafted, a premium denim line featuring better fabricsand fit, and Levi's Vintage Clothing, offering reproductions of items from the brand's historicalarchives. The Levi's Premium and Capital E lines as well as several other high-end names werediscontinued.

Levi also started distributing to unconventional retailers, like New York's Opening Ceremonyboutique, where it unveiled $148 corduroys, and J. Crew, where $200-plus dark wash men'sjeans are paired with classic Red Wing work boots. All the while, Levi's focused on improvingits bigger, more affordable lines, adding trendier styles.

Levi's finds its brand particularly challenged in Europe, where it generates about a quarter of itsglobal sales. Operating profit in Europe fell 40% last year as retail clients slashed orders. But inthe first quarter of 2010, European sales rose 6% on a constant-currency basis to $306 million.The company attributed the gains to the 2009 acquisition of the footwear and accessory licensein the region, which gave it better control of design and quality, and the expansion of thecompany's retail network.

Last year, to bolster its image internationally, Levi's standardized the fit of its classic 501 jeans,rather than have the fit vary from country to country, and launched its first global ad campaign.

Earlier this month, Levi Strauss overhauled its biggest store in Europe, a 8,500-square-foot

boutique on London's Regent Street, home to high-end retailers such as Burberry. Modernshelving mixes with history: Downstairs, a 1920s pair of Levi's jeans unearthed in the MojaveDesert sits in a display case.

At the same time, the Made & Crafted premium denim line began arriving at luxury retailerssuch as Saks Fifth Avenue and Barneys New York.

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Levi's says it is has no intention to stray too far from its salt-of-the-earth roots as the uniform ofchoice for 19th century laborers. "Luxury is the antithesis of Levi's," says Armin Broger,president of Levi's Europe, Middle East and Africa division.

Another reason why Levi's may be polishing its global image: to prepare for an IPO. Analysts

have speculated that family-owned Levi was preparing to go public ever since it brought in Mr.Jorgensen as CFO from Yahoo Inc. last May. More recently, the sale of the Tommy Hilfigerbrand to Phillips Van HeusenCorp. for $3 billion, led to predictions that Levi may be trying toset itself up for a sale.

"I can say nothing about [a sale or an IPO] other than we're focused on operating the business aswe have for 150 years, and if the opportunity comes along to change the capital structure, wewill consider that, but we have nothing planned right now," said Mr. Jorgensen.

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