Levi's hit racks with $198 price tag

The iconic jean company launches premium line to compete with red-hot success of Joes Jeans, True Religion and others.

By InvestorPlace Apr 15, 2010 2:29PM

shopping with levis jeansThe number 501 is synonymous with Levi Strauss & Co. and its signature blue jeans. But if the company has its way, a new number will be tied to the brand -- $198. That’s how much Levi's think it can sell a new line of high-end jeans for at retailers worldwide.

 

The 157-year-old company is trying to reinvent itself as an edgier brand suitable for the runway catwalk -- and commanding high-fashion prices as a result. It’s pushing forward with boutique stores, including a flagship outlet in London, and renaming its pricier labels to look more like a company that caters to jet-setters and clubgoers instead of couch potatoes and landscapers.


But the real question is, can Levi Strauss & Co. rebrand itself as a premium clothing company -- and if it can, is the current era of tight-fisted consumers the right time to do so?

 

There’s no doubt that the company has big name recognition. For a time, “Levi's” was one of those branded terms like Kleenex or Xerox that muddled the marketplace for consumers, and married all denim jeans to this clothing company.


But as tastes have changed and as the retail marketplace has become increasingly crowded -- especially for younger shoppers -- Levi Strauss has lost some of its strut and failed to keep a following with the fashionable. Post continues after video:

 

Sales for the company are hovering around $4 billion annually after peaking at $7.1 billion in 1996, but things appear to be turning around. Earlier this week, the company reported that it earned $56 million in its first fiscal quarter that ended Feb. 28, up 17% from a year earlier, and that revenue was up 9%.

If Levi’s can successfully launch high-end jeans with a nearly $200 price tag, you can expect those numbers to soar. In the words of Robert Hanson, president of Levi's Americas division, "It was our intent going into the recession that we would be able to attack coming out of the recession.” This restructuring and rebranding may help the company do exactly that.

 

While the price tag of $198 may be jaw-dropping to those who grew up sporting jeans as cheap play clothes or durable work outfits, it’s not uncommon in a marketplace where other companies like Joe’s Jeans (JOEZ) and True Religion (TRLG) are peddling trendy jeans for teenagers, and companies like Ralph Lauren (RL) and The Gap (GPS) commonly market premium jeans for the older crowd with a price tag of $75 to $150.

And yes, people are still buying jeans at those prices. In fact, True Religion stock is up nearly 70% since Jan. 1 on booming sales, and Joe’s Jeans is up more than 100% YTD! Judging by the red-hot growth of these stocks, Levi's may actually be picking the perfect time for this move.

 

But the presence of these other brands in the market raises an interesting dilemma for investors. If Levi Strauss manages to break into the premium jeans market with its massive name recognition, are smaller clothing companies like Joe’s and True Religion in for a drop in sales?

 

The reality is that while some consumers are still spending on expensive goods like premium clothing, they are not as common as they once were. That means a smaller market for these companies to compete in. It’s natural to assume that one more seat at the table means less to go around for others in the sector.

 

Only time will tell who will win over consumers: Levi's or its competitors. But it’s not outside the realm of possibility that a successful launch of a premium jeans line for privately held Levi's may be followed by another dramatic launch.

 

That is, the initial public offering of shares as Levi Strauss joins the stock market.

 

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