Levi’s Growth from 1964 to 1974 (From Rodeo Gear to Worldwide Icon)
Meet the author: Bud Robinson
Introduction
When I was promoted to President of Levi Strauss International in 1971, my boss, Harvard MBA Ed Combs, and I agreed that my replacement as General Manager of Europe should be PeteThigpen (rip 2018)), the Stanford MBA who had been Levi’s first expatriate merchandise manager. He had transitioned the product line from merely denim to a diverse and highly successful line of fashion jeans… especially those made from corduroy in a growing number of colors. Each new season brought the eagerly sought-after three or four new fashion shades like, pink, violet, burgundy, a gray named Belgian Fog, etc. And these unisex jeans were so wildly popular that the 9 European Levi’s subsidiaries (former distributors and a few started from scratch) would not let us drop any of the existing colors. The sole remaining independent distributor in France was even pressuring my replacement to add new silhouettes, particularly one with patch pockets on the front as well as on the rear (being sold for astronomical prices by French jeans upstart, Newmann). This, of course, was rejected by the new GM since it was bad enough to have grown the line to 28 colors with both straight legs as well as bell bottoms, in 10 waist sizes and 6 inseams! (Hmm…let’s see now, 2810×6 x2x …isn’t that 3,360 separate corduroy items in the inventory?)
Adding the new model would of course double these astronomical stock keeping units (sku’s as they were affectionately called by the bean counters). No way Jose!
To further justify our refusal to the French, we pointed out that Levi’s two biggest and best US factories were churning our these basic corduroy sausages at unheard-of efficiencies, and a new model changeover would so decimate their profit flow that they had refused to cancel our long-term commitment. Ed had fought too hard to get these prime factories devoted exclusively to us to take this purely French fight to the front office.To the French business mind, that logic became a carte blanche for them to source the new jeans themselves, and they found an all-too-willing co-conspirator in our own Hong Kong General Manager. After all, we had carved each part of the world into a profit center, run by eager young expatriate Harvard and Stanford MBA’s, and this one smelled BIG BONUS! If the French would guarantee him 1 million pair the first year he would make the patch pocket model. Done and done!
Can you sense the impending doom?
No one should ever underestimate the French Fashion Nose!
As soon as the new style’s first shipments hit Galleries Lafayette in Paris, all of the hip young Europeans doffed their ugly old jeans and clamored for the new ones (in 28 colors, of course). Wrangler’s were the first to break price to move their decaying inventories, followed quickly by Lee, and lastly by us. After all, the US factories were still grinding out sausages.
By the time this latest American smoke over Europe cleared away, newly public Levi’s had to take a $12 million markdown, and I was “promoted” to Director of Corporate Marketing, to make way for an executive from BVD, hired to “fix” the International problem and assuage Wall Street .
This sad tale became a Harvard Business School case study designed to help their new graduates maintain some perspective, and you can read about it in the attached April 1974 issue of Fortune magazine multi-colored corduroy story as “When Levi Strauss Burst It’s Britches”. The story spawned several attractive job offers, particularly one from Revlon also attached as “An Evening with Charlie”.
I later left Levi’s to become Executive Vice President of The Gap, a new idea in retailing, based on selling only products made by Levi’s, a company that I was involved in starting in 1968 .
So let’s revisit some of the milestones on this Indigo Blue Brick road, that Ed and I had traveled seeking fame and getting…Fortune…
CHAPTER 1
Me and Ed and Levi’s…the Beginning
In early 1961, after Procter&Gamble allowed Honig Cooper, Clorox’s San Francisco ad agency, to bend the rules and hire one of their former advertising department managers, I was asked to be the agency’s assistant media director, concentrating on bleach and servicing the Clorox management in Oakland, newly acquired by P&G. I also worked on accounts like Italian Swiss Colony Wine, C&H Sugar, and Levi Strauss & Co makers of Levi’s jeans, a major rodeo sponsor. The company was convinced that their consumers were inspired by the “Macho” image of real cowboys. Philip Morris obviously agreed and copied this image for their famous Marlboro Man, successfully changing it from a small brand favored by women to the world’s top selling filter cigarette. Ironically, I suffered a lecture several years later from the man responsible for this cigarette image program, Phillip Morris Chairman Joe Cullman III, who became Levi’s first outside director after Levi’s was listed on the New York Stock Exchange.
One of my first projects was for Levi’s, heading a crew that counted the butts of fans entering professional rodeo’s, like The California Rodeo in Salinas, California, and The Grand National at San Francisco’s Cow Palace. Our butt watching was to gauge how many were wearing Levi’s jeans vs. those of arch-rivals Wrangler and Lee.
1961 was not yet the ‘Dawning of the Age of Aquarius” in San Francisco, and the only flowers in anyone’s hair were from spent Cannabis blooms on those Levi’s-clad hippy poets at Grant Avenue’s Co-Existence Bagel Shop (clients had to be taken there to gawk and use the unisex bathroom with a peephole in the door, but no lock). But there were growing signs that America’s youth were being inspired to a new rebellious independence by marijuana, rock-and-roll music, and iconoclasts like Marlon Brando, Marylyn Monroe and James Dean, who all wore Levi’s. The Paris youth riots and Berkeley’s Free Speech Movement were still a few years distant, but early young rebels were putting on their Levi’s as soon as school was over, to thumb their noses at their parents and at high school dress codes that forbade the wearing of blue jeans to class.
Cowboys’ wearing apparel was the farthest thing from their often chemically altered minds, so I tried to get Levi’s account supervisor, Bill Day to shift some rodeo advertising dollars to media favored by these teenagers, like top- 40 radio, but he was not interested.
My real kindred spirit at the agency was Ed Combs, the Clorox account executive, an ex-Nestle product manager and Harvard MBA, and I was soon transferred to the bleach account as Ed’s co-account executive. In retrospect, I often think of Humphrey Bogart’s immortal closing line from Casablanca about the beginning of a beautiful new friendship, because that’s exactly what it became.
Two busy and exciting years later, Ed, determined to return to the international business career he had started at Nestle in Switzerland, took a job as Time Inc.’s first European manager. A few months later I accepted an offer to help make Texize, a Greenville, South Carolina bleach and soap company into a national presence and did what Thomas Wolfe said not to do; went home again…to the Deep South. The agency offered to make me account executive on Levi’s if I would stay, but, counting butts and butting heads with Bill Day didn’t interest me.
On my frequent trips to New York, where Ed was in training at Time Inc., we would drink beers near his Greenwich Village townhouse and reminisce about San Francisco, often regretting leaving ‘Baghdad by the Bay’. One night Ed announced his return to San Francisco as General Manager of the newly established International division of Levi Strauss & Co, whose owners felt a need for consumer product management expertise to format their growth.
I was green with envy at his return to San Francisco, but uneasily wondered if he wasn’t making a major mistake going to work for a cowboy pants company.
Then one night in 1964, Ed called and ordered me to San Francisco ASAP to be interviewed for Advertising Manager of Levi’s, having convinced their management that I was the man for the newly created job. And so it began……
CHAPTER 2
Putting On My First Pair of Levi’s
My first meeting was with Levi’s President, Walter Haas Jr., who, like Ed had earned an MBA from Harvard. As Ed was before me, I was both charmed and inspired by “Wally”, as Levi’s president insisted he be called, and I soon became a believer in the future of the company under his and Ed’s leadership. I carefully explained my reticence about fighting Wally’s father and his friend Bill Day to redirect Levi’s entire promotional effort as I felt it should be, but Wally said I would be reporting directly to him and guaranteed to back me 100%. He assured me that Bill Honig would also, and added that Honig was simultaneously interviewing a new account executive, a Canadian MBA, named John Johnson, from Lever Brothers. Although John would work under Bill Day, he would work directly with me, should we both join the fight. I gave Wally my conditional acceptance, pending a discussion with Bill Honig the next day and John signed on too.
Lunch with Bill (replete with crab, sourdough bread, and wine) centered initially around Bill Day. I learned that the agency management, as well as Wally, were as frustrated as I had been years earlier with Day’s refusal to consider advertising directly to the youth market (the only youth concession that Day had allowed in the past 3 years was to show teens dressed as cowboys, sitting on a corral fence as a horse was broken to the bit).
Honig said that if I took the Levi’s job, he would change its reporting structure so that he would become the agency’s chief management contact with Wally.
But, Honig wanted to table the youth issue and discuss the immediate Levi’s project on the agency’s docket, the introduction of a new Levi’s product called Sta-Prest slacks. Bill explained that Sta-Prest was a revolutionary permanent press process for which Levi’s had obtained an exclusive license from inventor Joe Koret, a fellow San Francisco apparel manufacturer. Joe was the owner of Koret ladies sportswear, and had developed and patented “Koratron”, a permanent-press process which actually baked the garments in an oven, to help market his popular, but maintenance-heavy, pleated skirts.
Years later, I discovered that Joe had “borrowed” the idea from a major British fabric supplier, who had developed it for an English pleated skirt firm.
Ironically, Adrienne Jonas, the English secretary to Levi’s new casual pants merchandiser, had been laughed at for suggesting that her newly purchased British skirt’s permanent pleats might be adapted to Levi’s casual pants. This, of course was prior to Joe’s US patent.
Levi’s, frustrated in their weak attempts to sell casual slacks, saw permanent-press as a way to become dominant in the washable slacks market. Plus they could use Sta-Prest to expand their jeans distribution in major department stores by requiring them to stock Levi’s jeans if they wanted to have a 6 month market exclusive on the new miracle Sta-Prest pants.
So, Levi’s had approached Joe with the idea to adapt Koratron to men’s cotton slacks, and pushed him hard for an exclusive 6 months license before he would let other pants companies have a license. The only difficulty with the negotiations was that Levi’s insisted on calling the process Sta-Prest, a name they had hurriedly registered, but this was soon resolved by Levi’s agreeing to use Joe’s Koratron hang-tag on each garment, and credit Koratron in their ads.
Using typical P&G daytime soap operas, Sta-Prest was to be advertised to mothers on TV, and in newspaper ads paid for by carefully pre-selected major department stores granted an exclusive for their market’s introduction (particularly those who had not yet stocked Levi’s jeans). A team of Levi’s executives had just returned from spanning the country with portable clothes dryers in hand where they demonstrated the Sta-Prest miracle to the selected department stores in their executive offices. As the presentations began, they put a pair of wet Sta-Prest pants in the portable dryer, which ran noisily while the merchants were obliged to watch a slide show describing the process, timed to end with the dryer’s loud finishing signal.
Honig said that every store was amazed when the perfectly pressed Levi’s emerged from the dryers. They not only enthusiastically signed up for an exclusive local introduction of Sta-Prest slacks, but also took the “suggested” Levi’s jeans assortment. They even acquiesced to pay 100% for their local newspaper ads and to be featured on Levi’s local TV spots, unheard of by vendors like Levi’s who refused to pay “co-op” money as a condition of sale.
Excited by this major new P&G-type program, I did relegate the youth question to the back burner and accepted the job from Wally that same day. I was passed between various top Levi’s managers for their stamps of approval, and the deal was sealed.
When I told my Eastern friends and associates of my move West to Levi Strauss & Company, they unanimously asked “Who…?” and when I described the unfamiliar firm’s products, they added “a DUNGAREE manufacturer…?…you’ve got to be kidding!” But, knowing my love for San Francisco, they graciously attributed my madness to “The City’s” famed sourdough bread, wine, and crabs (not completely irrelevant to my decision!)
CHAPTER 3
The Birth of Levi’s Youth Image
Peter Haas, who was running the operations side of the company (while Wally specialized in Marketing), mandated an initial two week cross-country drive from South Carolina to the Golden Gate, replete with stops at two Levi’s distribution centers, the new ovens for baking Sta-Prest slacks in Knoxville Tennessee, and six southern sewing factories. By the time I re-crossed the Golden Gate Bridge, I felt like a veteran ragman or “Schemata-man” as we disparaging called ourselves in the Yiddish vernacular’
Digging in on the TV commercial planning for the post-introduction Sta-Prest spots, I had the agency do some focus group research with local teenage boys to learn their attitudes about pants as well as their family’s laundry habits. A focus group is done by professional researchers behind a one-way mirror, like those favored by police interrogators, where a small group of the target market is led in a group discussion designed to elicit attitude responses. We discovered that a surprising number of young men at the time were ironing their own cotton slacks (Khakis primarily) prior to a date.
We also confirmed that most either directed the specific clothing brands to be bought for them by their mothers, or they did their own shopping. This was all the ammunition I needed to change the Sta-Prest television commercials from the planned P&G-type “Slice-of-Life” directed to mothers to those aimed straight at teenagers on such programs as Dick Clark’s American Bandstand and the new “Hootenanny” on ABC.
So, my back-burner plan to advertise Levi’s to young rebels actually started by encouraging young men to become sex objects (much like today’s beer commercials) by wearing ultra-neat Levi’s Sta-Prest slacks on their dates. The first spot was called “Hey…There’s a Neat New Guy in Town”, which, not too subtly, implied that you might get into her pants if you got into our pants.
The next plank in our rush to becoming a Youth Icon was generated by our teen customers’ own tricky dodge around those school dress codes that forbade wearing blue jeans to class. These young rebels were bleaching their Levi’s to the extent that they became canvas colored, almost white. As soon as this ploy made the news, Levi’s jumped up with a new product dubbed “White Levi’s”, an exact copy of their blue jeans, but made in light canvas colors and offered with the new Sta-Prest feature. This was a reverse play on the 1950’s pre-dirtied white buck shoes that were offered to “Joe College” as a short-cut to being “hip”.
To reinforce this new, more acceptable school garment, I mounted a major letter-writing campaign to every public and private high school we found with a “no Levi’s” dress code. Our letters acknowledged their right to set dress standards, but enjoined them to refrain from forbidding blue jeans by using our protected trademark “Levi’s” in a generic sense. We pointed out that the name Levi’s also meant perfectly acceptable neatly pressed White Levi’s, and of course the famous Sta-Prest slacks. We even offered to give them pre-printed colorful brochures that communicated to the students, in their own jargon, what type of Levi’s were acceptable school wear. The program was highly successful and with the students help, many school’s dress codes were soon relaxed.
The following quote is from an educator’s recent talk regarding the 60’s dress codes:
“Like most people who grew up in the 60’s, I’m a veteran of the culture wars. One war I particularly remember was the battle we fought in high school over dress codes. When I was in 12th grade I participated in a massive sit-in on the lawn to protest our school’s “rigid and archaic” rules about what students could and could not wear to class. We had a short but forceful list of demands:
- girls should be allowed to wear pants and should not be required to wear hose;
- boys should be allowed to wear jeans and t-shirts.
To our great amazement, we won the battle and our requests were granted!
I remember one elderly teacher – she was probably about 50 – shaking her head telling a group of us that we would all rue the day that dress codes were abolished. “When students start wearing sloppy clothes, they’ll start behaving in sloppy, disrespectful ways,” she said. “You watch and see what happens to the way students act around here.”
We, of course, ridiculed the idea that the way you dress could influence the way you behaved. But in recent years, as I’ve seen more public schools turning to uniforms, and heard the way kids talk to their teachers and to one another, I’ve wondered if that teacher wasn’t right after all.”
Most of this new agency activity was opposed by Bill Day, or started behind his back by John Johnson and me, but when he learned that the agency had started seeking out new San Francisco acid rock bands to do Levi’s radio spots, he decided to confront the issue head-on. He began by bending Walter Haas Sr.’s ear on the way to work about how these two young outsiders (John and I) were destroying a revered brand name by attempting to get in bed with drug addicts, juvenile delinquents, and draft dodgers. Bill urged Walter to stop us before it was too late. John had even heard that Bill Day was about to fire him or take the account to another agency, without him.
But on the next Sunday after Bill had launched his attack, John called my home at 8am and announced that Bill Day had died in his sleep. (With his boots on??)And so, with this sad news, Levi’s headlong advertising rush to get close to the youth of America proceeded with no further impediments. After a suitable mourning period, Walter Sr. called an unannounced board meeting, including all department heads, to discuss our new youth image program, and was pleasantly surprised to learn that virtually everyone approved of the direction we were taking.
As a direct result of that meeting we closed the money losing authentic Western Wear division, the sole purpose of which had been to maintain Levi’s cowboy image, and transferred its manager to head of fabric quality control, mainly denim from Cone Mills.
Chapter 4
Levi’s Presents…The Jefferson Airplane!
The newly unfettered Levi’s creative group at Honig Cooper was challenged to pull out all the stops in their thinking and devise new ways to promote to the new young rebels who were driving Levi’s growth. Underground newspapers like The Berkeley Barb were flourishing as a new youth medium and psychedelic art posters were adapted to Levi’s print ads. Embroidery on jeans was getting popular and Levi’s sponsored art contests using the product as the canvas. Jeep introduced a Levi’s model with denim seats and leather trim. School notebook covers made with the distinctive Levi’s back pocket were sold. Levi’s sponsored Battles of the Bands, popular local high school competitions, and because “hot-dog” skiers were wearing jeans on the slopes, Levi’s began a junior ski competitions at major resorts where the entrants had to compete in Levi’s jeans.
But far more challenging was finding a way to become an actual part of the rock music scene that was such a compelling element in youth’s new separation from ‘The Establishment’. Dealing with the top-40 radio stations of the day, which had had the power of life or death for new rock groups, was a tricky business. Most of them were basically whores, or rather pimps, for their top disk jockeys (or Jocks as they were known) who had local cult followings at least as great as that of the stars they made by promoting their records. These stations still charged advertisers based on whatever the market would bear, and had just been hit hard by government scrutiny of their business practices. These headline grabbing inquiries and congressional hearings resulted in the passage of a strict new “Payola” law, whereby, record companies could no longer pay these star jocks to promote new groups and records, regardless of their “merit”.
The world Payola was coined to describe the bribes Jocks routinely took to give a new group air time. Payola” is a contraction of the words “pay” and” Victrola” (LP record player), and entered the English language via the record business. The first court case involving payola was in 1960, when, on May 9, Alan Freed, arguably the country’s top rock and roll Jock on New York’s WABC radio, was indicted for accepting $2,500. Freed claimed it was a token of gratitude and did not affect airplay. He paid a small fine and was released. His career faltered and in 1965 he drank himself to death. In 1986 Freed was among the original inductees to the Rock and Roll Hall of Fame in Cleveland, and In 1991 a comprehensive biography, Alan Freed and the Early Years of Rock & Roll was published. That same year, Freed received a star on Hollywood’s Walk of Fame.
Before Alan Freed’s indictment, payola was not illegal; however, after the trial the anti-payola statute was passed under which payola became a misdemeanor, with a penalty up to $10,000 in fines and one year in prison.
But we were in San Francisco, not New York, and our eventual answer to joining the rock scene with our Levi’s brand image advertising was all around us. During the 1950s and 1960s, San Francisco had gained a reputation as the preeminent Bohemian community in the United States. This reputation was never more deserved than during the mid-sixties, when the hipster of the Beat movement grew into the hippie of a more mainstream counter-culture. By the 1960s, the literary North Beach scene had given way to the emerging Haight-Ashbury, and radical politics had a niche across the Bay at the University of California at Berkeley.
San Francisco’s venerable Fillmore Auditorium was the new center of the The City’s “acid rock” revolution. Audiences experienced musical and cultural renaissance that produced some of the most innovative, exciting youth music ever to come out of San Francisco. The careers of the Grateful Dead, The Jefferson Airplane, Santana, Quicksilver Messenger Service, Big Brother and the Holding Company, Moby Grape, the Butterfield Blues Band, and countless others were launched from The Fillmore stage. The most significant musical talent of the day was appearing there: Jimi Hendrix, Otis Redding, Cream, Howlin’ Wolf, Captain Beefheart, Muddy Waters, and The Who, to name a few.
Finally, the agency came up with a truly radical way for Levi’s to become an integral part of rock and roll itself, legally using the nation’s top-40 radio stations’ local cult status, who could no longer be bribed to play a new record.
They proposed that we get involved with promoting new local rock groups just as they were on the cusp of national recognition, and have them actually write and produce the radio spots for us in their group’s own style. We would simply give them loose copy guidelines, placing restraints only in the areas of taste and potential censorship by the stations. Then we would require them to make at least twice as many different spots as we actually wanted so we could cull out the best for consideration. They would be paid a modest up-front fee for their work, enough to cover their time and expenses, and would they get a standard commercial contract only if we accepted the work for broadcasting.
The main incentive to the group would be that, if aired, the spots would clearly identify the name of the group at the beginning of each commercial and Levi’s would run saturation schedules on every top-40 station in the country, tied in with Levi’s store promotions and personal appearances by top Jocks. These promotions would be negotiated by the agency before signing the air-time contract.
Since the spots would showcase the group’s name and style, Jocks would be virtually forced to discuss and play their new albums.
The agency had discovered legal Payola! What a brilliant concept! So we gave the green light and the agency quickly honed in on The Jefferson Airplane.
The Jefferson Airplane, which became one of the most popular psychedelic rock bands of the 60’s, was formed in San Francisco in July 1965 by Marty Balin as a sextet and was soon joined by Grace Slick, a sexy-voiced vocalist/songwriter who had just folded her own band, The Great Society. The Airplane, as they were known locally, had played the in the very first show that year at Bill Graham’s Fillmore Auditorium, had landed a deal with RCA Records for $25,000, and just released their first album, “Jefferson Airplane Takes Off”; but the group was still largely unknown outside California. They were very popular in the Bay Area, performing at the Fillmore with other local acts like Big Brother and the Holding Company, Paul Butterfield, Quicksilver Messenger Service and the Grateful Dead.
Bill Graham was a veteran of the local artistic community, but his greatest talents were his keen business acumen and his ability to organize events. In 1965, Bill managed R.G. Davis’s San Francisco Mime Troupe, whose “Commedia Del ‘Arte” production of Il Candelaio was deemed “too risqué” by the San Francisco Parks and Recreation Commission, but they performed it anyway and were subsequently busted.
Bill staged a benefit for the group’s legal defense at the Fillmore to raise money for the troupe and to increase awareness concerning growing censorship. To lure a crowd, he enlisted several aspiring new local rock bands an even got Bob Dylan to promote it.
Thousands flocked to the Fillmore, and the general mayhem created an event which ignited the hippie community. Inspired by the success of the event, Bill staged the Fillmore’s first non-benefit concert in February 1966 headlined by The Jefferson Airplane and marking the true beginning of Bill’s rock impresario status and acid rock’s enshrinement of the Fillmore. By March, the youth happenings were a huge phenomenon, which the police didn’t like at all, so Bill’s request for a dance hall permit was denied and a subsequent police raid on the unlicensed Fillmore happenings resulted in the arrest of 14 juveniles and Bill Graham himself.
Public pressure resulted in charges against Bill being dropped and the Board of Permit Appeals reversed its decision, certifying Bill as a “dance-hall keeper.”
It was into this newly legitimate den of rock and roll’s subculture that John Johnson and I boldly went, naively assuming that Bill, who was The Airplane’s manager by now, would eagerly accept our offer to have the band sign a national radio commercial contract to do Levi’s spots. After all, the band lived in the product as did Bill, and the money we offered was good. Maybe our button-down shirts and ties set him off, but ignite he did, and, as he told us where to put the contract, he threatened to throw us out bodily. “There’s no way the Airplane is going to sell out to the “Establishment”’ (the author’s censored version of his epitaphs). We finally managed to calm him down and when we explained exactly how we wanted them to participate, he began to warm to the concept.
Knowing that The Airplane’s first album was in early release from RCA and was not selling too well due to their lack of notoriety outside the Bay Area, we proposed the following:
- Using only a brief list of product points we wanted to convey, we wanted them to write and produce the entire contents of five 45 second spots, words and music.
- We would dub the beginning of each spot with “Levi’s presents The Jefferson Airplane” providing the group with priceless national name recognition,
- Levi’s would run saturation schedules on all the top-40 radio stations, timed to coincide with the early 1967 release of their second album, “Surrealistic Pillow”,
- Levi’s would not attempt to exploit the group in any commercial way, other than using the spots for a six month period, after which The Airplane could re-sign for more commercials at their option.
Being a good businessman, Bill agreed to talk to the group and get back to us. They agreed and we signed them a few days later for much less than the $25,000 that RCA had given them.
In less than a week Bill called us to come to the Fillmore and hear the results of a single all-night creative burst when The Airplane had produced a dozen studio-quality 45 second spots.
We sat is awe as the thunderous words and music shouted our products features. The Airplane had made Levi’s sound as if they were as important to a young rebel as his love of the music and distain for conformity. I couldn’t believe that they had done this tour de force in just one night until a younger member of Honig Cooper’s creative staff suggested that they probably had help from a muse named “Mary Jane” (a popular euphemism for marijuana).
We ended up spending more time picking the best five spots than they did in making them. Not trusting our buttoned-down minds to be the sole judges we decided to use our favorite focus group technique to let the customer tell us which were best. Too bad we had agreed to use just 5 spots, because Bill was keeping us to that pledge.
The young ears that screened these gems agreed that each was like a mini-song and no two were alike, but we all voted and two stood out above all the rest: Grace Slick singing nothing more than the names of the five colors of the new White Levi’s to an excellent take-off of her surreal “White Rabbit” music track from the new album. White Rabbit became a Billboard top ten hit on the charts for weeks later that Spring
And, in the other winner, there was a strong Airplane acid rock track with no words at all for 20 seconds after the intro, which suddenly stopped to a loud “Quack! Quack!” followed by… “I am a Duck…I can’t wear Levi’s…You are probably human…You have all the luck!” (fade to retailer tag).
When we proudly previewed these gems at the next weekly Levi’s management meeting, there was a stunned silence from the older contingent, but the younger ones were smiling and waiting for Wally’s critique. “Well” he said, “I guess the agency knows what the kids like…Let’s go with it!” But after the meeting he asked for a copy to play for his and Peter’s kids to see for himself. Fortunately, The Airplane proved worthy to them
We immediately approached each major top 40 radio station, most of which had serious local competition, with a big spending proposal, telling them that we were “considering” their station, but would spend on the stations that offered us the best overall deal. These stations were constantly fighting each other for market share by staging dances, shopping center remote broadcasts, celebrity interviews, etc., and freely offered sponsor participation as a quid pro quo. We usually settled for a major promotion that would involve their celebrity Jocks, and our retailers with the station’s coordination, but under Levi’s control. Then we legally offered the exclusive promotion to the stores of our choice by making the radio station the source of this valuable co-op money. One of the most popular items in these promotions was a 45 rpm record made from the master commercial disc that Levi’s sent to the stations for broadcasting, The Airplane’s Levi’s spots. Those 45’s were gobbled up in record numbers, and today would be a collector’s item if you could find one.
You can hear two of these historic spots on track 16 of The Airplane’s 1987 RCA release, “2400 Fulton Street: An Anthology”, an otherwise unremarkable release according to some fans; witness the following online review:
“The collection “2400 Fulton Street” is a decent survey and worth looking into for the “musical roots” of the awakening of America. It’s worth the struggle through the cheese, when it got way too commercial and became pure crap, but the old Levi’s commercials’ tracks are pretty cool”.
Levi’s and The Airplane took off like a rocket, but they declined to do any more commercial for us or anyone else, including turning down big money from Coke. It seems that their fellow rock performers and many of their oldest fans were very critical of The Airplane’s flirt with “The Establishment”, especially the fact that they had lent their signature music style to the commercials.
The San Francisco Chronicle explained this attitude of the bands of 1960’s:
“Commercialism was condemned and selling out was a horror, but every San Francisco rock’n’roller had to decide whether to sell out or change the world, and some decided they could do both at once. For example, the Jefferson Airplane, who did Levi’s commercials, then went on to sell out to future spaced-out generations by changing their name to Jefferson Starship”
The Airplane’s sudden fame was also keeping them busy with TV appearances and road trips, so Levi’s de-planed after the 6 month deal ended.
We attempted to continue this radical new form of radio advertising with similar efforts solicited from other new groups like The Sopwith Camel, Country Joe and The Fish, The Grateful Dead, The Sons of Champlin, and Paul Revere and The Raiders, but none approached the impact of The Airplane. They all tried to make actual commercials instead of just being themselves as The Airplane had, and they were mostly too contrived, so very few similar new spots were made.
Levi’s continued to seek out new young music talent, but concentrated on outfitting new bands with Levi’s rather than using them in commercials. Network television advertising was getting more and more of our budget as we grew from a regional to a truly national brand, and youth-oriented TV programming was expanding rapidly.
The Conquest of Cool by Thomas Frank, (University of Chicago Press October 1998) recalls the marriage of the 60’s turmoil and Menswear retailing with this opening paragraph:
“For as long as America is torn by culture wars, the 1960s will remain the historical terrain of conflict. Although popular memories of that era are increasingly vague and generalized—the stuff of classic rock radio and commemorative television re-playing of the 1968 Chicago riot footage—we understand “the sixties” almost instinctively as the decade of the big change, the birthplace of our own culture, the homeland of hip, an era of which the tastes and discoveries and passions, however obscure their origins, have somehow determined the world in which we are condemned to live”.
And while this was happening, I was turning Levi’s advertising attention more and more to retail co-op advertising as we rapidly gained distribution with the major department stores, who all demanded, and got, big advertising spending by their major vendors.
Chapter 5
Getting in Bed with the Big Stores
Levi’s had for years provided their independent retailers with “ad mats”, a term used for an actual Paper Mache mold from which a newspaper could make a lead printing plate. This service was free, but, of course dictated the exact style and content of the ad All the store could do was add their own name and address and a small amount of copy. This was fine for small retailers, but department stores had their own advertising departments, produced all their ads, and were supported largely by major co-op dollars from their vendors. Some more aggressive stores actually made a profit from their advertising department. The practice was rife with coercion and actual fraud, when it came to proving how much they had spent on a vendor’s ads. Plus many deducted these unsubstantiated ad costs from their usually late merchandise payments with no proof of spending at all. Many smaller apparel manufacturers were totally at these big stores’ mercy on co-op deductions, so the survivors had built hefty margins into their prices to cover it.
Levi’s had refused to play this game by not offering co-op money to any store, but then, they had done so little business with department stores prior to the 60’s that the question was moot.
Now, the resounding success of Levi’s Sta-Prest and the new wave of young shoppers demanding Levi’s jeans from these stores was making co-op spending loom large in every discussion with a major store. As the inevitability of starting a co-op program loomed, I embarked on a swing around the country meeting with Advertising Managers of all our major new accounts to help understand exactly what we could afford that would help solidify our position as a “Major Preferred Vendor”. Complicating the issue was increasing scrutiny from federal Anti-Trust and Fair-Trade watchdogs. In general, sections 2(d) and 2(e) of the Robinson-Patman Act require that a seller offering payments to resellers for promotional services or providing such services is obligated to make the offer to all competing customers on proportionally equal terms
To avoid their wrath, a co-op program had to meet at least the following criteria:
- The offer to provide anything of value to a customer must be offered to all customers in a given market, defined as the US Census Standard Metropolitan Area (SMA). So you couldn’t do one thing in Manhattan and another, or nothing, in Brooklyn.
- The offer must be in writing and distributed to all customers in the SMA.
- Both the vendor and the merchant were required to keep auditable records of co-op spending.
- Both parties were enjoined from making co-op dollars a condition of sale.
Virtually all department stores abused and/or ignored these rules and few were ever brought to task over the issue.
So we did learn how to play the game and Levi’s launched their, first-ever, new co-op program in 1966.
Of course, Honig Cooper, like all agencies, was opposed to co-op because it ate up clients’ advertising monies that became unavailable to them to spend. In those days virtually all advertising agencies were paid a 15% commission on the money they spent on behalf of an advertiser in reputable media (plus actual net costs of production material). This commission was remitted to them by the media as a discount from the published rate cards. So a retailer got the same discount for his ads as an agency earned for its clients, but not both for the same ads.
From zero dollars spent on co-op programs in 1965, Levi’s retail ad budget mushroomed to over 25% of its annual total by 1968 and threatened to continue climbing as big stores became more important to Levi’s. Our national brand image program was actually contracting as co-op expanded, but we were certain it was helping build our national distribution, so we simply tried to control it as best we could.
The main controls we had limited our total dollar exposure to 2% of the customer’s prior year’s purchases, rigid copy, product pricing, and trademark rules, and a list of pre-approved media, beyond which, prior approval was required. We also demanded proof of performance for each ad claimed, and verified that the account had not exceeded its percentage of sales allowed by us for co-op. Finally, we applied our own published Levi’s maximum approved local ad rates that were our estimates of what the big stores actually paid the media, (national advertisers paid much higher rates than local companies). Only then would we pay our 50% share for the ads. Our credit department would not allow us to refuse merchandise payment from a customer that had unauthorized deductions for advertising, but they aggressively pursued collections from those we had disputed. Another control we developed was based on the fact that our co-op program refused to pay retailers for any production costs for their ads. So any advertising that had excessive production costs, like TV or four color newspaper inserts, were the claims that we carefully scrutinized.
This excessive internal auditing was expensive, but soon proved worth it, as major stores gradually learned that we were not patsies, and began more honest co-op claiming from Levi’s.
We experimented with legal ways to work with a major store who wanted to do special advertising that we thought would benefit the brand, and found one that worked. We published a special offer to all Levi’s customers in the store’s markets and which paid 50% of all production material, but only for the specified time period that the big store needed for the project. We labeled this special offer as a test that was available only in the specified SMA. Usually no other store was able to take advantage of the offer with such short notice, so we were able to legally pay production cost co-op for just the targeted store’s special program.
In 1968, the success of this “test market” approach lured us into a major debacle in Chicago when we did a similar market-wide test designed to impress the 10,000+ prestigious menswear stores attending a major apparel show. We wanted these stores’ management to see Levi’s ads being run in The Chicago papers each day by their local contemporaries during their stay in Chicago.
| McCormick Place Convention Center |
Even though Levi’s was rapidly gaining new distribution, we still felt like poor country cousins to the many prestigious menswear stores and their quality vendors who exhibited their new lines with impressive presentations at the Menswear Retailers of America (MRA) annual conventions. MRA was the official organization of the leading upscale independent menswear stores that were so dominant in post-war America. These stores felt that Levi’s were just an insignificant teenager’s product, but the Sta-Prest line was rapidly expanding to include more tailored slacks for men in a new group named “Mr. Levi’s” and we desperately wanted the attention of these prestige stores.
The 1968 show was scheduled for Chicago, where we had fairly good distribution, so we decided to offer all local Levi’s retailers a special co-op deal to last only during the
5 days of the MRA at McCormick Place. The deal was that Levi’s would pay 100% of the expensive color premium that newspapers charged in addition to 50% of the regular black and white rates, for any store that would run a full page color ad for Levi’s during that period. We felt pretty safe in making this generous offer, since the cost of producing color ads was much higher than black and white, and a full page ad was too expensive for smaller stores anyway. Only the largest of Levi’s specialty and department stores were spending this kind of money for single ads and most of them had the in-house ability to produce 4-color. And, of course, Levi’s was not paying for production costs. So, routinely, we mailed the special offer to all Chicago area Levi’s account several weeks prior to the show.
The day the show opened, I was up early, in spite of having worked well past midnight overseeing the setup of Levi’s expansive (and expensive) display booth at the convention center. Our display was festooned with huge geometric piles of square cardboard boxes printed on all sides with our new magazine ads.
I eagerly open that day’s Chicago Tribune, and was astonished to see 8 full page Levi’s 4-color ads from small stores I never heard of, plus 2 from major stores. The less expensive tabloid Sun Times had 12!
Over the next 4 days, Levi’s was definitely the talk of the entire show, as each day’s papers shouted Levi’s from an eventual total of over 50 pages of 4-color ads, many of them from the prestigious stores we had “targeted”, but most from smaller stores with strangely similar ads. I soon discovered from a visitor to our booth that an enterprising art studio had gotten its hands on our written co-op offer, and convinced his bosses to produce a selection of full page color ads for Levi’s that met our requirements. They gave these production materials to any small stores who agreed to run a full page ad, and subsidized this by getting a special commission from both papers for selling the ads on their behalf.
After all the bills were paid for this debacle, I had spent over $100,000 of Levi’s co-op budget in 5 days, and had to promise Wally to never again offer a “test market” deal to cater just to department stores.
Putting this $100,000 into perspective, Chicago’s SMA population was 4% of the US, which projects the Chicago one week expenditure to $2,500,000 if it were national, and over $100 million if it were repeated weekly. This amount would surely have earned a place in the record books.
In later years, when chided about this event, I could only weakly protest that Chicago had become Levi’s best Eastern sales region, and remains so to this day.
CHAPTER 6
Levi’s “Rolls Royce” Ad
As wearing Levi’s jeans quickly became “hip” or “chic”, celebrities like Marylyn Monroe, British Royalty, and even President Jimmy Carter began wearing 501’s, the button fly original version of Levi’s. This phenomenon, in turn, quickly moved Levi’s and all other jeans from the 60’s “Sub-Culture” to the mainstream masses that were influenced by fashion leaders.
There are several negative product aspects of 501’s that make the goal of owning a well-worn pair quite tedious, and contribute to their mystique. They shrink a significant amount in the length and only slightly less in the waist, so the buyer must follow a size guide if the product is to fit after washing.
- They also shrink all over, resulting in a much tighter fit than when new (most females like this feature), hence the Levi’s slogan “Shrink-to-Fit”.
- 1They will also mold themselves to one’s body if they are put on wet and allowed to dry while wearing them. The action of salt water contributes to the worn look and is also effective in setting the indigo dye somewhat, so it was common for early surfers to wear a new pair while in the water on their boards.
- When new, Levi’s exclusive XX heavy weight denim is as stiff as a board, and only relaxes after frequent wearing and washings.
- The Indigo dye used will fade into anything that is washed with a 501, so they must be washed totally separately for many times, before the dye dissipates.
- The fly is buttoned, not zipped, and quite difficult to handle until the fabric finally softens.
Prior to 1968, the major stores in the East who were selling Levi’s jeans, had eschewed 501’s as being too much like a hardware store item, and had had stocked only the versions that featured pre-shrunk denim and a zipper fly, and even some models that were “vat-dyed” to prevent fading.
These products sold well enough to Easterners who had never seen 501’s, but we soon began getting frequent letters from Eastern customers who wanted to buy the “real” Levi’s.
On a flight home from a visit to Macy’s where we had failed to interest them in stocking 501’s, I saw an Rolls Royce ad in the New Yorker magazine that gave me the germ of an idea. The ad’s headline made a simple product claim:
“At 60 miles per hour loudest sound you hear is the ticking of the clock.”
In the center of the ad was an illustration of the latest Rolls with detailed copy explaining each unique feature of the car. I don’t recall another ad that was so compelling and informative, drawing the reader into each separate story, all of which served to justify the extraordinary, unmentioned, price. And the tag line at the end of the ad was a clincher…”Of course if you are diffident about driving a Rolls, we can offer you the Bentley”.
The special appeal to me was that the ad broke almost all the existing “rules” which most copy writers followed, mainly of brevity, and concentrating on a single major selling point, three at the most.
When I showed the ad to Levi’s creative director the next day, with the suggestion that they might copy the style, I was, naturally rebuked.
No agency likes the client to dictate creative content…that’s what they get paid for. But when I explained what I had just run into at Macy’s New York while trying to interest them in being the store to introduce 501’s in the East, they began to warm to the idea. It had been made obvious to me that a now-routine Levi’s special co-op program was not enough to get Macy’s to stock 501’s, and the mere hint of putting them in on consignment was unthinkable to Levi’s.
What we needed to do was motivate New York consumers to demand the product from their favorite department stores, and that usually meant heavy advertising. And if the consumers responded and couldn’t easily find the product, the money was wasted and no one was happy. But my P&G background told me there must be a way,
We hashed the problem around for several hours and reached a consensus:
- The New York Times Sunday Magazine would be our medium for the NY assault. It was not only equal to the New Yorker magazine in its quality content, but it had become a major national fashion chronicle, read religiously by apparel retailers and fashion leaders everywhere. It also had the virtue of being saved by the typical Sunday Times reader long after Monday’s trash caught the rest of the paper. I justified the high, unbudgeted, cost by canceling one Women’s Wear Daily trade ad and borrowed the rest from co-op funds.
- A consumer money-saving mail-in coupon would be included in the ad, unheard of in the apparel industry at the time, which would be redeemable only at the stores which carried 501’ in Metro New York.
- We would not limit our ad to just one major store, but would feature all major stores that agreed to buy a pre-set and sizeable initial stock of 501’s. We were actually asking Macy’s and Gimbel’s to be in the same ad…along with Abraham & Strauss, Bloomingdales, Lord& Taylor, and Bonwitt Teller. This was retail heresy!
- I would ask Levi’s for a $.50 per pair retail price increase to help pay for the coupon and follow-up promotions, (The existing suggested retail price for 501’s was $6.25, and price changes to the sacred cow, which had never exceeded, $.25, required board approval).
- The project was to be kept confidential until we all had a chance to see the ad and I could present it to Levi’s management at the same time I asked for the price increase.
Within a short time, Honig Cooper’s entire creative department was working on this project, each one eager to be the originator of a 2-page spread in the prestigious New York Times Magazine that would be groundbreaking in apparel introductions.
They developed several very compelling ad concepts, but clearly the best was a direct copy of the Roll Royce ad, but with a creatively reversed negative headline claim:
“Guaranteed to Shrink, Wrinkle, and Fade”
Each negative feature of 501’s was bulleted and explained in small copy boxes, just as the Rolls ad extolled positive features. Both pages were crowded with boxed copy, but each spoke to the center illustration of a well-worn and faded pair of Levi’s Original, XX denim, five- pocket, buttoned fly, riveted, shrink-to-fit, free-pair-if-they-rip, 501 jeans!
And, the lower right corner had a coupon for a $1 dollar refund if they would send a receipt to Levi’s, dated within 2 weeks, from any of following stores…
It was gorgeous!
I hurriedly called a Levi’s management meeting to present this surprise project that we had kept entirely under wraps, and phoned each board member to assure their presence. A packed boardroom got the entire pitch before the agency unveiled the ad.
After each one had time to follow the reading of all the copy, and the coupon details, I sprung the price increase request on the board. After all the pointed questions about the ad itself were answered, Wally said, “I love it and we will definitely run it, but you don’t get the price increase” Then I told the group that I had the ad cost covered already, and since there was a 2 week limit on the rebate coupon, it would undoubtedly be a minor price to pay for the new distribution.
I went with the National Sales Manager to pitch the stores, and we came home with firm orders from Macy’s, Gimbel’s, A&S, and Bloomingdales, all agreeing to share the space (definitely a first!)
501’s had successfully crossed the Mississippi, and while some of this new Eastern distribution of 501’s was replacement sales from zippered models, most of our sales were to totally new customers.
cHAPTER 7
Avoiding tennis and meeting joe cullman iii
By 1968, Levi’s new products, booming youth business, and new cooperative attitudes about working with major stores, were well known in the trade. And, I found my time was being spent more and more with key accounts, and with the myriad of outsiders eager to profit from Levi’s new national prominence.
Each new major customer proposal involved them looking to Levi’s as the key vendor that could help them to lure teenagers into their stores. Yes, big stores were finally looking to the newly emancipated teenagers as a huge potential revenue source and were seeking them out, rather than throwing them out. New departments were springing up everywhere with loud colors, the latest teen fashions, younger sales clerks, and even rock music blaring in the aisles. Special events were all the rage to draw young customers, and Levi’s store promotions became more and more important. Frequently store Presidents and top merchandisers would visit our offices to meet with their Levi’s counterparts and plan the following year’s sales increases. We were fast becoming a “Major Preferred Vendor”, and entire Levi’s departments were springing up in these flagship stores. Of course, they always had their hands out for more and more cooperative efforts to build their business with us, and we did our best to accommodate them.
One of my less enjoyable new responsibilities was when Wally asked me to “handle” certain people for him. Most of those, increasingly referred to me for quick dispatch, were friends or social acquaintances who wanted something from Levi’s and Wally didn’t want to be the bad guy who declined to help them.
The simplest cases to discourage were those who wanted us to advertise in media inappropriate to Levi’s new youth marketing focus…”Thank you, but we no longer support cowboy events…etc.…click!”
Some, like Wally’s sister-in-law’s boss, Gladys Heldman, the publisher of World Tennis, a new tennis magazine aimed at professional players and their fans, used larger caliber weapons to gain access to our budget.
Gladys had gotten Joe Cullman III, the Chairman of Phillip Morris, a tennis playing pal, to advertise his cigarettes in her first issues. In fact, his established brands, as well as the new Virginia Slims were virtually the only ads she had gotten so far in World Tennis’ initial issues. Wally was an inveterate tennis player, having been on the varsity team at Cal Berkeley, and he had played occasional games with Joe in New York. So Gladys had Joe, via Wally’s wife Evie, via Evie’s new sister-in-law, Sarah Palfrey Danzig (the new advertising manager of World Tennis), put the bite on Wally for Levi’s advertising support in World Tennis. Whew! Is that convoluted or what?!
Here is a bio of Sarah’s tennis credentials from the Women’s Tennis Hall of Fame records: The five Palfrey sisters were a brood of tennis prodigies, each of whom won at least one U.S. junior title, but Sarah was the one to achieve international renown. After her playing career, she was a successful business executive (as Mrs. Jerry Danzig) in New York where she was Advertising Director for World Tennis Magazine. Sarah died in 1996.
I was soon summonsed to an audience with Joe Cullman III, Chairman of the mighty Phillip Morris Company in New York on my next trip east. I took my wife Wanda with me, knowing we would be wined and dined by Gladys and Sarah in Manhattan’s top celebrity bistros, and thinking we might as well enjoy the first phase of the eventual brush-off. They were perfect lunch and dinner hostesses, leaving the hard sell to Joe, who had begun his cigarette career as Advertising Manager of Phillip Morris. But I was getting far more concerned than usual about finding a polite way to say no to Joe.
Fortunately Joe showed me the way.
Sitting at attention in his cavernous top floor executive suite, I was first assaulted with a hard-sell monologue on the virtues of being in on the ground floor of professional tennis, as Joe proudly showed me his multiple ads in World Tennis. I listened attentively, nodding occasionally, as he next launched into a long lecture about the importance of consistent spending on consumer brand image advertising. Joe used multiple examples of the way Phillip Morris did it, and finished with a strong warning that if I didn’t convince Wally to start a similar consumer image advertising program right away, the Levis brand was doomed. He sat back and waited for my response.
What an opening!
I told Joe that in the past two years Levi’s had, in fact, spent significant monies on a strong brand image campaign directed solely at our teen target market, young men aged 12-17, and we were planning to double the budget this year! Then, before he could recover, I added emphatically that I was personally delighted to know that he was totally unaware of it! Continuing to pre-empt his response to my impertinence, I explained that 100% of our budget was being spent exclusively in the budding new youth-oriented media, like TV’s teen dance party shows, rock and roll radio, underground newspapers, and psychedelic posters, and the fact that Joe and his age group had never seen or heard any of it was proof positive that Levi’s advertising money was not being wasted by reaching non-prospects like him.
I couldn’t resist a parting barb, asking Joe how he thought advertising cigarettes to professional tennis athletes, to whom wind and stamina are crucial, could be justified as good target marketing.
Of course, in my self-righteous young zeal, I severely underestimated the depth of Joe’s passion for tennis. Nor that he would persevere in its support, making The Virginia Slims the world’s preeminent women’s tennis event, as described in Gladys’ obituary:
NEWPORT, R.I. Tuesday, June 24, 2003– Gladys Medalie Heldman, a tennis Hall of Famer who is credited with helping create the women’s tennis tour, died Sunday at the age of 81.She will most be remembered for her unstinting support and encouragement in helping women’s tennis start their own tour. A maverick herself, Heldman persuaded her friend Joe Cullman, head of Phillip Morris, to bankroll the seed money needed to fund the first Virginia Slims tournament in 1970.
Nor did I have any inkling that Joe would later become Levi’s first outside director, after Levi Strauss went public!
Here’s an excerpt from Joe’s Obituary
Philip Morris’s former chief, Joseph F. Cullman 3rd, an ex-smoker who evidently gave up in time, died yesterday at the age of 92. On Jan. 3, 1971, the day that the federal ban on cigarette advertising on television went into effect, Mr. Cullman, who by then had become chairman of the Tobacco Institute’s Executive Committee, appeared on the program ‘Face the Nation’. In response to a question about a study that concluded that smoking mothers gave birth to smaller babies than nonsmoking mothers, Mr. Cullman replied, ‘Some women would prefer having smaller babies.’
That’s our Joe.
CHAPTER 8
Falling Into The Gap
My next “handling” of Wally’s friends was infinitely more rewarding than giving Joe Cullman the brush-off, in that it helped spawn the Gap Stores!
One day, Wally asked me to meet with Don Fisher, a real estate broker, and fellow member of the private, largely Jewish Concordia Argonaut Club. Don had told Wally of some sort of crazy sounding new retail idea so I was very curious to hear what he might want from Levi’s that I, as Advertising Director, could influence or reject.
Later, I realized that this meeting had been one of the most productive of my young career.
Levi’s was now sold in virtually all the major department and specialty apparel stores, and had also held on to its loyal small retailers throughout this hectic expansion. All sorts of other retailers, like Sears, Wards, Penney’s, K-mart, Mervyns, and Target put tremendous pressure on us to sell them Levi’s branded lines, but we refused. Discounters constantly tried to get product from any source they could to run large loss-leader Levi’s ads to draw traffic. We thought we had reached a point of near-maximum distribution in the type of store we wanted and were devoting more effort on new styles and product lines like, Levi’s for Gals, Big & Tall men’s sizes, shirts, sweaters, belts etc., and improving service to existing customers for the bulk of our future domestic growth.
So after Wally’s friend described his idea to me in detail, I was intrigued.
Don was a minor partner in an expanding regional furniture chain, to which he primarily brought his commercial expertise of retail store location selection. He was definitely not a merchant, but, he had been recently intrigued by a successful new shoe retailer named the Tower of Shoes in Sacramento, CA. which had broken all three sacred tenets of real estate…Location…Location…Location, and yet was wildly successful.
The Tower had rented a cheap and decrepit Quonset hut in a Sacramento valley Industrial area, well away from any other retail stores, and stocked it with all the current styles and sizes of a good selection of top brand name women’s shoes. And, the Tower of Shoes was drawing record crowds to this cheap, remote location. How? Simply by spending large sums of his vendors’ co-op money on TV advertising that no matter what size or style of top brand name shoe a woman might want , she was sure to find it at The Tower of Shoes. Price cutting was not a part of his business plan. And there was a Tower of Clothing on the starting blocks.
Don’s real estate location expertise led him to think that a chain of small free- standing stores in low rent strip malls, adapting this new concept to the booming Levi’s teenage market, would be a winner. His store research showed that even a large Levi’s customer, like Macy’s California, had a relatively small selection of product in each branch, and the style, sizes and colors became “broken” as soon as the most popular ones were sold, resulting in unhappy customers and lost sales. On top of this, the department stores’ slow re-ordering cycle took weeks to replace the sold “heart” sizes of the bestselling products, resulting in even more unhappy customers, who, if they returned soon still couldn’t find their size! In addition, he saw that while most of these “prestige” stores didn’t yet understand how to cater to teenagers, they were learning fast.
Don’s stores would not only welcome this generation, they would cater to them exclusively, employing teens as sale clerks, and operating only from 3pm when school was out until 11pm when they had to get home (a single 8 hour shift!). And, as a drawing card, he would sell all the latest rock & roll records, allowing the customer to stay and listen to their hearts content! In fact he planned to devote exactly 50% of his floor space to records and listening booths.
But the most important element of his idea was in the total variety and depth of Levi’s he would stock, which was sure to satisfy every customer’s “right now” demands. He would carry every style, color, and size that Levi Strauss made for both men and women and have them available at all times. This would be at least 20 times the product variety and depth of a typical Macy’s departments for both boys and girls combined.
Another brilliant feature was that all merchandise would be stocked by size grouping, vs. the department standard display of a single style on a rack with all of its sizes together. Don’s sales clerks, (a fast disappearing species in department stores) need only ask what size a customer wanted and lead them to a virtual store-within-a store size section of a multitude of Levi’s styles and colors.
Also, every item in the store would have a special tear-off tag that showed style, size and color of the item. The clerks would be required to tear this tag off each item they sold for proper commission credit to them, and turn in all tag stubs each evening.
A clerk trained in an early version of the fax machine would summarize and transcribe that day’s exact sales directly to the Levi’s order entry desk in the warehouse over a night phone line to be automatically replenished in the next day’s shipments to Don.
Don’s expansion plan for the stores was pretty much based on the Mc Donald’s concept. Each new store would be exactly like all the others in design, layout, location, signing, etc. Store employees would be high school students and they would be promoted to management as soon as new stores were opened. All training would be uniform so that employees could walk into a new store and be immediately effective.
He would have a store opening team trained to move around the country and get new stores operational in record time.
What a brilliant idea! The more I heard, the more I was determined to find a way to make it work. Levi’s would virtually have their own stores, yet not own them, completely circumventing the existing apparel industry cardinal rule that wholesalers of brand name apparel could never have their own retail stores, and still hope to keep department stores as customers..
My first main obstacle was that Don wanted Levi’s to share all his large market-wide advertising and promotion costs 50/50 up front before the first store opened.
And then he needed a guarantee of first priority on his daily re-order shipments to keep his promise of a “never-out” inventory.
The ad money request was the kind we could legally justify for a large department store chain opening a new store, but never for a radical unproven single store that didn’t even exist yet. And to ask that his orders be placed in front of Macy’s on the priority list was heresy! Still… What an idea!
Spending the next several hours examining ways to make it work, we came up with the following tentative agreement:
- We solved the legal issue by Levi’s agreeing to offer the same ad co-op terms to any retailer in the Bay Area (and any in other markets Don opened) if they would agree to stock only Levi’s products, and in all styles, colors and sizes. This was the birth of the “Levi’s Only” category of stores, a concept that spread like wildfire and eventually threatened the capacity of US denim mills.
- TV’s high costs were prohibitive, so we agreed that Don would use only top-40 radio. Don’s and Levi’s target market was tuned into the hot new rock and roll radio stations more than television anyway. Plus Levi’s agency had become expert at producing very effective radio commercials and promotions with top 40 radio stations. These stations were eager to negotiate much lower rates for local advertisers like Don, than they charged national advertisers like Levi’s.
- To ensure that Don’s radio ads were of the same high quality as Levi’s, I agreed to introduce him to my agency’s chief radio commercial writer/producer and look the other way as he moonlighted as Don’s first ad manager (but only if Don would limit our mutual ad spending to radio and merely mention that he sold all the latest records as long as he didn’t specify titles).
- Levi’s initial dollar commitment to Don was set at 50% of an initial budget sufficient to buy a 3 month saturation afternoon radio schedule on all Bay area rock stations. These ads would run every weekday and Saturday during school sessions and on weekends during the summer. This program would bombard every hearing Bay Area teenager with Levi’s messages at saturation levels and surely drive them to the store.
- Don knew the stores couldn’t use the Levi’s name and promised to come up with a catchy new name.
With this agreement firmly in hand, I spent the next morning in a hastily called management meeting to outline this new concept. I assured Wally that we could afford to test the concept by reducing Levi’s own radio ads in the Bay Area proportionately, at least until Don’s store was open and we could gauge its appeal. The Sales Manager eagerly supported the test and agreed to personally handle the account, so that no salesman commissions need be paid for the new store(s), since there was no “selling” involved. Wally approved the test and, in turn, arranged for Levi’s extremely tough new account credit terms to be suspended (with a lien on Don’s opening inventory), and a promise to give the store top shipment priority for all automatic re-orders received overnight .
Don planned to open the first store in San Francisco and expand in the Bay Area to saturation before moving the concept to a second metro area. This controlled my initial co-op offer to the Bay area metro area, making it legal to refuse a similar deal to anyone else in another market, and it allowed our advertising dollars to achieve maximum efficiency. Don had decided on National Football League markets first, reaching saturation as soon as he could, before tackling the smaller American Football League Markets. Don’s logic was that the NFL had already done the research and picked off the best markets to reach men, so why should he argue with success?
Don not only got Honig Cooper’s radio wizard to moonlight for him by paying him well, but he eventually hired him as his first ad manager. The first radio spots he produced for Don were every bit as good as the ones he had done for Levi’s, and they did an excellent job of brand image advertising for us. By late summer 1969, Don was ready for his very first store opening, a San Francisco State University commercial neighborhood storefront on the same side of the street as the local movie theater. Of course, Don had already negotiated several other leases for his next Bay Area locations, and his master store plan was ready to duplicated at a moment’s notice.
The new store was named the Gap by Don’s wife Doris, (after the Generation Gap) and the first radio commercial had shouted to the blare of acid rock…”Fall into the Gap”, a clarion call that was heeded by the multitudes!
I attended the Grand Opening mob scene of teens and Levi’s on an August night and, reminded of the early Fillmore frenzies, I was certain that The Gap and Levi’s had an amazing future together. Very soon, The Gap stopped selling records completely to maximize the floor space for the far more profitable Levi’s, which needed no extraneous “draw” to attract teen customer. The Gap was rapidly opened wide indeed.
Who could imagine that a scant 5 years later I would become Executive Vice President of The Gap’s 350 stores in 1975, and that The Gap’s various divisions would eventually grow to over 3,000 worldwide locations in 2018 with revenues of $15 billion (over three times the size of Levi Strauss!).
And they would no longer sell a single Levi’s brand product!
CHAPTER 9
Since 1850?
Another aspect of Levi’s history that had puzzled me since my arrival, was the prominent tag line use on all earlier ads, stationery, signage, and on the product shipping containers themselves, to wit: ”Levi’s…Since 1850”. I wondered. “why 1850?…why not 1849? Didn’t Levi Strauss come West with the gold- rush prospectors in 1849?”
For many years Levi’s had been credited with the invention of the original copper riveted, sturdy “waist overalls” as jeans were known originally. The story had been told and retold that Levi Strauss made the first pair of these sturdy pants from a single roll of canvas, one of his few worldly possessions when the 1849 lure of “Gold in them thar Diggin’s” brought him to San Francisco. The patented copper rivets were to keep a gold miner’s jagged ore samples from tearing normal pants pockets
Every time I stood outside Wally’s door, chatting with Rita Guiney, his longtime assistant, I would scan the framed 1902 front page obituary of Levi Strauss from The San Francisco Bulletin: “Levi Strauss, Merchant and Philanthropist, Dies Peacefully at his Home.”
Casually mentioned in the details of his life history, was that he had arrived in San Francisco in January of 1853! Finally, it dawned on me that even the 1850 claim was wrong. I asked Wally about this anomaly and was told “you’d better ask my father about that”. Since I was the new “keeper of the brand”, I called Senior and put the question to him. He smiled and related the following:
“It seems that several years ago, an ex-salesman was brought in the home office to handle publicity, having proven his interest and skill in getting customers to promote Levi’s. This new publicity “flack” knew, and regretted, that Strauss hadn’t arrived in San Francisco until 1853, not 1849, and that the copper riveted pants weren’t invented until 20 years later by Reno tailor, Jacob Davis, not Strauss. Furthermore, during this double decade, Strauss had become a millionaire dry goods wholesaler, never having manufactured anything. Levi Strauss’ first pants factory wasn’t opened until 1873 when Levi Strauss was given ½ of the copper rivet patent by Davis for doing the paper work to get the patent approved”.
In return, Davis became the manager of the first Levi’s pants factory in San Francisco that year, and remained so for 35 years.
That Valencia Street plant building remained as Levi’s first, and last, company owned factory in the US until its closure in 2002, but recently the building has been renovated and sensitively rehabilitated into the San Francisco Friends School.
These facts were certainly not romantic enough for the new publicity man, so he set about molding history to suit himself “Out of Whole Cloth”. For two years, the date of Levi’s arrival in San Francisco was cheated back one year from 1853, and closer to his goal of proclaiming “Levi’s…Since 1849”, to correlate with the start of the famed Gold Rush. But, according to Walter Senior, the ex-salesman perpetrator of this myth died the year he had forged 1850 into the history books and his successor abandoned the quest to shave one more year.
I saw no benefit from replacing the well ingrained myth with the truth. Nor did anyone else, until the company cooperated with a corporate biographer named Ed Cray, who authored Houghton Mifflin’s 1978 book simply titled “Levis” and the entirely accurate history was published. Today Levi’s has a full-time Historian on the payroll that meticulously purveys the truth about Levi Strauss. But I wouldn’t want to test the majority of the public’s perception of what he did back then, “In Them Thar Diggin’s”.
So, for all those years, the Levi’s legend had been a total advertising fable, including Levi’s centennial celebration held in 1950 and attended by many celebrities (this bogus history was still being published in my daughter’s elementary school California History textbook as late as 1969)
But after Cray’s book set the clock straight, Levi’s delayed their sesquicentennial celebration until 2003, eliminating the purloined 3 years.
CHAPTER 10
The Challenge of Change and the Two Horse Brand
The last of Levi’s traditional weekend-long annual conventions, aptly named “The Challenge of Change”, was staged at the Fontainebleau hotel in Miami Beach in 1969. Prior conventions were far less grand and included more home office employees, but our growth in the number of management employees was only exceed by our sales increases, so continuation of the tradition was deemed too costly. Thus, we planned to make this last one especially memorable.
A New York theatrical firm was engaged to write and produce an original musical about the company, replete with very funny caricatures of top management, and it was the convention’s smash hit opening night show. My department had made a film of all our recent television spots, including unseen footage, and we unveiled what I still feel was the best Levi’s jeans commercial ever made. The commercial, named “The Two Horse Brand”, was greeted with an enthusiastic standing ovation.
Since the beginning, each pair of original 501’s has been adorned with a leather patch on which there is a “branded” image of a pair of work horse drivers, called drovers, with a team of horses, trying to tear the pants apart. It became Levi’s symbol of its original product’s ruggedness, and to this day every pair shows the struggle. But I was unable to learn if the tug-of-war event ever really took pace, and if so, whether the horses or the pants were victorious. This strength concept, promoted by referring to 501’s as “The Two Horse” brand, continued to intrigue me, beyond the clever double entendre.
Several customer letters over the years told of harrowing escapes from injury or death, thanks to Levi’s strength. One described being snatched from under a train’s wheels by the fact that his Levi’s got caught on a hook as he fell from the train. Another told of him and his car being towed from a ditch using just a twisted a pair of 501’s as an emergency rope. And there were many sad parting letters from those who were sending back their dead jeans, to redeem Levi’s famous warranty,” A New Pair Free if They Rip”. Many of these letters spoke as if they had lost a close friend.
Intrigued with the 501 product’s legendary strength, and needing a new jeans television commercial to direct to the growing age diversity of its buyers, I asked the agency to consider a TV spot that delivered a product strength message, or, perhaps actually re-created the fabled contest between dray horses and Levi’s.
Once again, I was testing the agency’s tolerance by attempting to dictate the creative content of their work, and once again they rose to the challenge.
Several ideas were shown that staged re-enactments of the “escape from danger” letters, and they looked promising, but the horse vs. pants contest was clearly the best. This proposed commercial’s storyboard (a scene-by-scene artist’s rendering of the commercial concept, complete with copy and staging notes) titled “Two Horse Brand”, was expertly described by the copywriter and director with embellishments not drawn on the board, as a third writer dramatically read the exact copy aloud.
It began with dramatic western music (like the Bonanza theme) and a close-up of the steaming nostrils of a huge dray horse, not unlike the Budweiser Clydesdales, on a cold early dawn in a dusty desert location. As the sun rose, the camera pulled back to reveal two drovers, dressed more like miners than cowboys, and cleverly drawn to look like young Levi Strauss himself. Each was urging a mighty horse to pull in opposite directions, with an iron rig between them attached to each leg of a pair of Levi’s 501’s.
To no avail, the horses snorted and strained in the morning chill, raising clouds of dust, but not dismembering the 501’s. As the battle ensued, the voice-over announcer spoke of Levi Strauss’s humble beginnings and the amazing pants he had invented that wild horses couldn’t rip apart. But if you did, you could get a new pair for free.
It sounded perfect, but we all wondered if it could be filmed without any “artistic license”…in other words, could it be done honestly without faking it. No one wanted to actually pre-test the contest without filming it, because of the excess cost of doing it twice if it worked, and the danger that, when repeating the scene on location, it might fail. The agency decided to discuss it with actual drovers and get their advice before we proceeded.
Their reports later came back that it had an excellent chance of success! It seems that good dray horses are trained to pull, not jerk, and when they meet a strong resistance, they hold their position, straining, but not enough to hurt themselves. The drovers assured us that they could coordinate the two horses sufficiently to make the commercial with no trickery or deceptive editing, and the pants would probably hold. We decided to chance it.
We set off from the Las Vegas Stardust Hotel and Casino for the nearby Nevada desert one cold pre-dawn morning. The location we had chosen was a desert foothills national park near Las Vegas, and we were set to stage test shots an hour before the sun rose. I couldn’t believe how big these silent monstrous horses were when I arrived in the dark. Their harnesses and iron tow bars that had been specially made to look old, were very heavy leather, iron, and wood. Each rig had a connection device that firmly gripped one leg of the jeans yet allowed the pants to be seen clearly between the equine behemoths.
The test shots were made using several different pairs of 501’s, each in a different stage of wear, and to everyone’s vocal relief, all but the most faded and worn pair survived the tug-of-war.The crisp crystal-clear Nevada morning air was broken by the sudden sun as we began final filming, and the desert took on a deep red “other- worldly” hue, rapidly turning to gold. The setting looked straight out of the 19th century, the colors were perfect, and the struggling drovers and their horses earned their Actors Equity cards.
And the 501’s held fast!
Only after our film was in the can and we were driving back to Vegas, did John Johnson admit that they had brought an unneeded emergency steel cable that would fit hidden inside the pants to prevent them ripping apart… “just in case”.
I silently wondered what I would have done with the commercial if we had actual needed the cable. That still remains an unanswered question.
When we viewed the “rushes”, as raw footage is called, we knew it was Oscar quality cinematography and would yield superbly to the editor’s touch.
But the best actor Oscar would have to go to victor of this Herculean struggle, the unyielding Levi’s 501’s themselves, the true hero’s of the day!
Chapter 11
Europe Beckons (Secretly for a While)
“The Challenge of Change” involved more than just show biz, and the three days were filled with training sessions, business plan reviews by all domestic groups, plus a presentation, planned to be delivered by Ed Combs, detailing Levi’s impressive international growth and diversification. Ed’s wife Hueugette was unable to accompany him to Miami’s FontaiNbleau Hotel, being on call from the stork. The uncooperative bird landed in San Francisco just a few hours after Ed did in in Florida, So he quickly flew back home to meet his new baby girl, Leslie Combs, (named after my own 11 year old daughter…Leslie Robinson)
His part of the meeting was ably handled by his staff that impressed everyone with the rapid and profitable progress Ed had made in exotic foreign markets, especially in Western Europe.
The recent broadening of my involvement in sales and retailing had whetted my appetite to expand beyond advertising, and several weeks before the Miami event, I had boldly asked Wally to consider another job for me at Levi’s that would add to my future worth to the company. I had built an excellent staff, particularly one very bright account executive named Frank Brann, whom I had hired as Assistant Advertising Manager, from one of P&G’s New York agencies. I had carefully groomed Frank to replace me, and Wally agreed that he was probably ready for the challenge. So he promised to think about it and see what might be made available to me.
Soon, Wally had found two strong possibilities. One was as Regional Sales Manager for the Midwest, based in Chicago. Levi’s five regional sales managers earned almost as much as Wally made, due to their good salaries, plus commission overrides on all Levi’s sales in their region. Many of the best Levi’s territory salesmen actually made more than Wally because there was no limit on their straight commission income (other than cutting the size of their territory, which was done frequently). The only way Levi’s could get their top salesmen to accept “promotion” to a regional manager’s job was to include a commission override.
I didn’t relish the move or losing the daily contact with top management that I had as Advertising Manager in my beloved San Francisco…but the money was very tempting!
The second job that Wally proposed was for me to replace the current General Manager of Europe and report directly to my best friend, Ed Combs. The incumbent European manager was a former US salesman who had handled export sales while based in San Francisco. He had been moved to Brussels to broaden bulk sales to distributors and to set up an import and re-shipping warehouse in Antwerp after the advent of The Common Market. He had done a good job, but Ed felt he wasn’t capable of planning and carrying out the major changes Ed wanted to make in Europe.
So, my friend Ed Combs, the President of Levi’s International, had saved me from becoming a wealthy Regional Sales Manager in Chicago with a chance to move to Europe and become far more than a mere Advertising manager. My wife Wanda and I agreed that we had to grab that brass ring.
We rationalized that our lust for the expatriate world was really for our daughter’s benefit. After all, she would go to private school at company expense in Brussels, plus, since I was to be the boss, we could show her all the wonders of Europe, by setting all my business meetings on Fridays or Mondays in Paris, Rome, London, etc.
Yes, it was decided! We sadly declined the beauties of Chicago, to suffer the drab rigors of living in, and traveling all over Europe, for Leslie’s sake.
There was only one caveat. The decision was made in April 1969 to replace the incumbent with me, but he was a loyal veteran of cowboy days, and Wally insisted that he be told face to face in July during Wally’s upcoming summer grand tour of Europe.
Thus our lips were sealed. Not just sealed, but zipped shut with copper!! Nobody, including parents, siblings, friends, and neighbors, NOBODY was to know until Wally delivered the coup de grace in person.
At that year’s sales convention in Miami, Wally had not yet disclosed anything about my imminent departure for Europe, but he was due to be there soon to complete his personal dismissal of the incumbent General Manager in Brussels, and free me from my vow of silence.
Meanwhile, Ed and I spent long hours discussing his vision for the future of Levi’s business in Europe.
CHAPTER 12
Background of Ed’s European Vision
in 1948, shortly after WWII, a small family of Jewish survivors from France, named Frenkel, showed up unannounced at Levi Strauss headquarters, with a request that they be named Levi’s first European distributor, and they were armed with a suitcase full of cash. Laying the impressive stack of money on the table, they told their story and described their qualifications:
Before the fall of Paris to the Nazi’s, the Frenkels had built a successful dry goods wholesale business, similar to the one Levi Strauss had in San Francisco by 1873, when he opened his first jeans factory. As the Nazi armies neared the gates of Paris, the Frenkel family finally fled to Switzerland, taking only the small cache of assets they had managed to hide.
Surviving there until VE day (Victory in Europe), they returned to France with a remaining hoarded $10,000 to restart their business in Paris.
The first opportunity they seized upon was an auction being held by the hastily departing US Army Quartermaster Corps of surplus, sealed railroad cars marked “Miscellaneous Textiles” With no content manifests available, and a “sight unseen” condition of sale, they gambled half of their entire fortune and bid $5,000 for one car’s contents. Praying that they would find something of value to sell from what they assumed was probably rags, they were astounded to find that they were high bidders for a railroad car full of brand new 100% wool Army blankets, made in the USA! Imagine just how valuable these were in a country ravaged by war, hunger, and no fuel for heat in winter! Overjoyed at their good fortune, the Frenkels, quickly bid on another “textile” car with their last $5,000 and were totally overwhelmed when its contents proved to be several thousand pairs of new US Army wool trousers!!
The blankets went fast, and they were able to get top francs for the much needed and admired US wool pants. These sturdy uniform pants earned far more for the Frenkels than the blankets, so they soon became an early pants wholesaler as Europe’s apparel companies gradually returned to production. Then the Frenkels wisely decided to try to obtain another durable US pant to sell in France, namely Levi’s 501’s.
The Haas family had great empathy for Holocaust survivors and not only sold the Frenkels as many still-scarce Levi’s as their cash would buy, but granted them the exclusive rights to import Levi’s to France as wholesale distributors. Soon thereafter, fellow survivors, and prewar friends of the Frenkels, were appointed distributors in Austria, Germany, Holland, and England, and six others were selected for the remaining major Western European countries (Levi’s hired many other holocaust survivors who had immigrated to the US).
Levi’s continued to be made only in the USA and individually exported to these distributors, who in order to have a profitable business, wholesaled them with gross margins similar to other local wholesalers. Since this gross margin had to be based on the distributors’ total cost, they necessarily had to add to the US export price, the freight costs and the import duties levied by each country. This resulted in much higher Levi’s prices to the ultimate consumer than Americans paid at home.
For example, if a pair of Levi’s 501’s in the US cost Levi’s $1.50 to make, they sold it to Macy’s for $3.00, a gross margin of 50% of their sales price (erroneously called a 50% markup by retail apparel people). Macy’s then marked it up to $6.00 for the consumer. But in Europe, the distributor’s $3.00 purchase became $4.00 after the freight and duty were paid, and the distributor wholesaled it to his retail customers for $6.00 (taking only a 33% gross profit). After the stores added their markup, their customers paid $12.00…DOUBLE the US retail price But, In spite of this huge price disparity, and Europeans’ much lower postwar income, Levi’s sales boomed in Europe. So, as Europeans achieved a post war recovery, spurred by The Marshall Plan, and their own Common Market integration, Levi’s enjoyed rapid growth. It should be recalled that this was largely due to the very high esteem everything American enjoyed, the US being almost revered as their liberator and savior. The US rode this popularity horse for many years in Western Europe, and the eventual collapse of the Berlin Wall and, later, the dreaded USSR itself, only served to increase the appeal of virtually anything perceived to be authentic “Yankee”. In fact, long after Levi’s abandoned the cowboy image in America, “Le Cowboy” was still a strong masculine image promoted in Europe as typically “Yankee”.
Each distributor’s contract enjoined them from becoming retailers themselves, and also required them to spend a minimum percentage of their sales volume on advertising Levi’s products to their country’s consumers. This advertising had to comply with strict US guidelines, and get prior approval from Ed’s US staff.
Meanwhile, the process of European commercial integration, first launched in 1950 when France officially proposed it, was accelerating. This initiative, known as the European Economic Union (EEU) was formalized in 1957 with six countries, Belgium, France, Italy, Luxemborg,The Netherlands, and Germany in the beginning.In 1960 seven other countries, Denmark, Sweden, Norway, Portugal, Austria, Switzerland, and the United Kingdom, started a competitive market group named the European Free Trade Association (EFTA). European Economic Union (EEU
In 1973 The Common Market incorporated the largest members of EFTA, added Greece in 1981, Spain and Portugal in 1986, and Austria, Finland and Sweden in 1995. Following the addition of Romania and Bulgaria in 2007, the EU’s membership stood at twenty-seven. Negotiations were also under way with a number of other states.
Postwar Europe, especially France, was quickly regaining its pre-war fashion leadership reputation, and local competitors were starting to copy and update the Levi’s look with fashion colors and fabrics. These upstarts didn’t suffer from custom duties, long lead times and supply lines. They had easy access to forward looking European textile mills, and our distributors were urging Levi’s to begin manufacturing new products to compete with these new local competitors.
With this background, Ed felt the time was ripe for Levi Strauss to reclaim the distributors’ rights to sell Levi’s to the European retailers. He planned to establish Levi’s wholly-owned subsidiary companies in both the Common Market and EFTA, by buying the distributors’ companies if feasible, or starting from scratch where necessary. Simultaneously, Ed foresaw our beginning to manufacture Levi’s in local European factories run by a Levi Strauss Europe headquarters staffed with a product merchandising group and fed by European textile mills.
Ed had carefully set the stage for acquisition of the best distributors by numerous “private” discussions with them about the inevitability of it all, and he had planted the seeds with Wally, who agreed in theory. The main obstacle was their mutual feeling that the job was too big for the incumbent. So when I put my oar in the water for a promotion, they had agreed that sending me to Europe would be a conceivable solution. A classic example of the old English proverb: “Better the devil you know than the devil you don’t know”.
Even though I had never run anything as complex as an entire company, and my 1959 Xavier University MBA financial skills were pretty rusty after 10 years, they agreed to offer it to me! Ed’s plans were very grandiose but well thought out and exciting to contemplate. He outlined crash refresher courses in finance and accounting that I should take and a very attractive compensation and expatriate benefit package that covered the 5-year commitment he demanded of me.
Chapter 13
The Cat Escapes the Blue Denim Bag
Three months is not too long to keep a secret, is it? Of course not! And we told no one, that is, not until the day before the realtor’s sign was due to appear in our front yard.
Wally was only days from Brussels, when, that night at dinner with our best Marin County friends and neighbors (who would see our home’s new “for sale” sign the next day), I swore him and his wife to keep our fabulous secret, and spilled the beans. They were thrilled for us and, being an executive with Southern Pacific, he understood the need for silence. So too, we thought, did his wife.
What she did seemed innocent enough, and was intended simply to help Wanda adjust to living abroad as an American executive’s wife. Unbeknownst to us, she called her best girlfriend in Malmo, Sweden and asked her to send Wanda any adjustment tips she had learned being herself an expatriate American wife of an executive in Sweden.
This prompted her friend to immediately relay the request to her American sister in Brussels who was married to the Director of the Benelux Bank of America. This sister was also President of the Brussels American Club. Who better to welcome a new American executive’s wife to Belgium? As an aside, Bank of America was our lead bank in Europe and Wally was on their board.
You guessed it! The wife of the soon-to-be deposed Levi’s General Manager, (herself the past president of the same American club) got an instant call asking why the hell she hadn’t told her best friend that her husband was being replaced with some Advertising guy from San Francisco… Plunk! The next day, before I had time to warn Wally of this pre-Internet instant messaging, he arrived in Brussels and heard it from his intended victim!
From that day to this, I always correct everyone who claims to know a secret with “There is no such thing!”
Meanwhile during that ‘secret’ summer, Ed had me enroll in several American Management Association executive training courses. One was designed to sharpen my rusty Management Accounting skills.
Another was devoted to a making a quick transition to living and working abroad. A third was a detailed review of the newly formed Common Market and European Free Common Market Trade Association (EFTA)
Wanda and I also had private tutors attempt to teach us French, which is spoken by roughly half the Belgians. The other half speaks Flemish, a Dutch dialect that is almost impossible for an American to articulate. We read books, had garage sales, postponed all unnecessary major purchases and generally did our best to keep a low profile.
Every day at work, when Ed was not traveling, he and I spent as much time as we could without raising suspicions. There were also lots of evening sessions at our respective homes and restaurants. Ed’s wife was Belgian by birth, but had been a Swiss resident when they met, so she was very helpful to Wanda’s understanding of what NOT to do as an American wife in Brussels.
After my appointment was announced, I took a quick solo trip to Brussels to meet the small HQ staff, and arrange a transition period with the former manager, who had decided not to return to the US. I rented a house in Sept Fontaines, an affluent Brussels neighborhood far from the Gringo Gulch that Ed had advised us to eschew, and even got a cat to replace the one Leslie and Leslie had reluctantly agreed to leave behind.
When the final week arrived for our move in late August, I accepted an invitation to appear at the gala opening of Don Fisher’s very first Gap Store. It was on the 1969 Labor day weekend, the night before Wanda, Leslie, Tony and I were leaving for Europe on the new QE2…a fitting farewell to my Advertising career.
Chapter 14
Culture Shock
Although Ed was impatient for me to get started in Europe, he agreed to my request to go via the new QE2 cruise ship, since I could take Tony, our French Poodle, and substantially more baggage than the Airlines would allow. For me it was an effort to soften the shock of entering a totally new culture after only 12 hours on an airplane.
The Queen Elizabeth 2, the flagship of the Cunard Line, made her maiden voyage in 1967 and this was only her 9th crossing. The liner became the longest-serving ship in Cunard’s 168-year history. She crossed the Atlantic more than 800 times and carried more than 2.5 million passengers before she was sold in 2007 to a Dubai Investment company that planned to use her as a floating hotel for the 2010 World cup.
We were scheduled to make landfall at Le Havre, France in just 5 days, and I had reserved the largest station wagon that Avis had in it European fleet for the four hour drive to our new home in Brussels.
After a crowded bon voyage party in our stateroom and the adjoining passageway, we finally said goodbye at 4 pm to the many friends who had journeyed to see us off, and prepared for the standard confetti farewell as we steamed away. But, after all our streamers were spent, the loudspeaker announced that the electrical system had failed and we would remain dockside until further notice. A cold buffet was available by candlelight in the darkened dining rooms, but we elected to sleep off the effects of the excess champagne in our stateroom. Waking after dark to the silent movement of the ship, we hurriedly arrived on deck just as we passed the magnificently illuminated Statue of Liberty and headed into the inky darkness of the open sea.
All three of us were choked-up with emotion at the combination of beauty and the same fear of the unknown that Columbus must have felt as he sailed from Spain.
By the time we landed in France early on a Friday morning, we were confirmed sailors destined to become lifelong vacationers via cruise ships. Our poodle, Tony, agreed, since his kennel was on the top deck and he had feasted daily on the choices from the doggy menu of steaks and chops.
But then it began….Avis had no large vehicles available in Le Havre, and we had to settle for a 4-door Fiat with a roof rack, and a trunk too small for more than one of our many large suitcases. But Yankee ingenuity prevailed and I was able to tie everything else onto the roof leaving only our dog’s bulky kennel behind. Even the sudden shower was not to defeat me, as I had bought a large plastic sheet from the same small hardware store that had provided the yards of rope used to secure the entire rooftop load.
So after two hours on land, our small family and French poodle started off in the late afternoon on the most frightening drive I had ever made. I was totally unprepared for the bravado of the French drivers or for the three lane roads that allowed priority to the first car to enter the center lane. A constant game of “Chicken” kept us on the edge of our crowded seats, as our overloaded Fiat labored to pass numerous large “Lorries” grinding up the incessant hills, barely avoiding crashing head-on with oncoming Porsches traveling down the hills at the speed of light, and frantically flashing their high beams.
Seven hours later, we arrived at Brussels’ southwestern city limits, totally exhausted and promptly got lost in the dark. We also immediately encountered the famous Belgian “Prioritie a Droit” which simply means that any car approaching from your right will not slow or stop, but will ignore you completely as it seizes its right-of-way. After many near catastrophes, we arrived via a wrong turn into a one-way street at the center of Brussels’ famous “Grande Place” just at the height of a huge parade that quickly engulfed us. We sat for over an hour, unable to move or even disembark the car as a sea of masked revelers pushed past us, shouting and leering in at the frightened passengers. Our poodle was apoplectic, but we soon relaxed and “went with the flow”. As the crowd finally thinned, I managed to snare an English speaking reveler who gave me directions to the street of Levis Company flat and we crept off watching constantly for a death car from the right.
Leslie was suffering from a bad cold which was quickly turning into the flu, so George Steyt, the assistant to the Merchandising Manger, who was still waiting for us at the company flat, was sent to fetch a doctor for her. The doctor arrived quickly and announced in French that Leslie indeed had La Grippe, gave her a penicillin shot and left us a supply of quinine pills. We later learned that the Belgians’ decades of fighting malaria in The Congo had caused them to prefer quinine to aspirin for any form of high fever.
After she was asleep, I went across the street to a small, but elegant bistro and managed to order takeout of 2 typical four course French meals. While I waited for the gourmet feast, I was shocked to see that almost every well-dressed patron had a dog lying under his table, and eating from a china dinner plate!
My food was handed to me in several stainless steel containers that they trusted me to return, sans deposit, and I hurried home to tell Wanda of the doggy diners. She was equally amazed and proclaimed that Tony would go with us the very next evening.
Since the next day was Saturday, I took Wanda and Leslie, who was over her fever, to see the new house and cat, and put Tony in a nearby dog groomer for ”the works”. It was getting cold when we arrived at the new brick house in our lovely suburb named Sept Fontaines (after the nearby lakes and seven fountains that they contained). The heat in the house, imbedded in the marble floors and fed by an oil-fired boiler, was turned off. I checked the fuel gauge and saw that it was at a mere 700 liters, nearly empty, but the boiler fired up with no problem. I noted that the capacity of the underground fuel tank was 5000 liters and made a note to have my new secretary order a fill-up on Monday, my first day at the office.
Our furniture was due on Monday also, as it had been preceded us by a few days, so we spent the rest of the day buying a full set of new appliances, knowing that our US brands which we had sold, would not work on the standard 220 volts in Belgium. These too were to arrive on Monday… a busy, but productive day.
Under the table for two?
That evening we dressed for a formal dinner and with Tony, newly groomed and brushed, we walked across the street with the borrowed dinner containers from the night before and ordered a table for three with a plate for Tony beneath. To our very relieved surprise, Tony quickly sized up the situation and went quietly under our table forgoing his usual friendly nose-up-the-rear greeting to any other fellow dog diner. Nary a growl or whimper escaped his muzzle as he shared our Rack of Lamb and Crème Brule, in regal silence. Apparently his QE2 table manners were still with him, and he was smart enough to know a good thing when he smelled it (besides he WAS French eh?).
Later that week, after my secretary had ordered the oil fill up for our furnace, I was called from a meeting by a frantic message from Wanda to return home at once because something was terribly wrong with the furnace. A sudden cold front was spreading an early winter blast from the North Sea and Brussels was getting a dusting of snow as I roared up our driveway to be greeted my Wanda in a fur coat and Leslie bundled up holding a shivering Tony on his leash. The smell of fuel oil hung heavy in the air as Wanda frantically related the story. The oil truck had arrived just after I left for the office, the driver hooked up his hose to the outside tank input, set the flow to our tank’s capacity of 5000 liters and crawled back into his warn truck cab to escape the blizzard (whoops!… didn’t we have almost 700 liters left?),
Apparently he dozed off before the tank overflowed into the air vent and began to flood the basement with the excess fuel. As we stood there in the snow, the driver was in the basement brushing the remnants into a basement drain grill that took it away from the house, probably to the nearby lakes and their beautiful swans and ducks. We had heralded our arrival to this exclusive Brussels neighborhood by creating a harbinger of the Exxon Valdez!
So ended the first week of what proved to be a near constant state of culture shock, eased only by our frequent trips to London and nearly familiar surroundings.
Chapter 15
Getting a Very Quick Start
My first task in Brussels was the design and implementation of a 3 year Management Plan which included a complete Profit and Loss projection and an organization plan capable of managing a totally new autonomous Marketing and Manufacturing business. Major effort was planned in sourcing European fabrics that would meet our US standards of quality and timely deliveries, particularly in the hard to duplicate US Indigo Denim. We had the complete cooperation of our US Operations staff and when I presented this ambitious program in January 1970, it was enthusiastically approved on all counts.
During an initial whirlwind tour of Europe I had visited all the Levi’s exclusive distributors in England, Germany, Italy, Norway, Sweden, Denmark, Switzerland, Portugal, Spain, Belgium, The Netherlands, and France. And I formally advised each of them that Levi’s was planning to immediately form an autonomous manufacturing and Marketing Corporation headquartered in Brussels with Sales Subsidiaries in each country. None of them was surprised at this, since Ed had done a good job of warning them of the certainty of this happening soon after my arrival.
After I had my plan approved, I asked each distributor to prepare a list of leases, assets, employees, and customers on which we would base our offer to buy them, and to be prepared to negotiate the terms of a sale to us within the next 30 days. I alerted Arthur Anderson, our European auditors and Baker McKenzie, our International Attorneys to get ready to start the process in company with us and each distributor’s financial and legal counterparts.
Over the next 5 months I held multiple meetings with each distributor to negotiate and sign the terms of our purchase of their assets; primarily people, inventories, and goodwill such as customer lists and records. Each owner was assured of becoming employed by us as the General Manager, as were all their key staff and salesmen. One by one we completed the acquisitions until all but France were in the fold. The French employee laws were particularly onerous for us to navigate and it took 3 years for my successor to finally bring France into the fold.
Meanwhile, I went on a hiring binge to allow us to organize a top group of HQ managers in Brussels, including as many qualified Europeans as we could find, and they in turn were expected to build their own cadre.
Of course, I eagerly attacked the problem of each distributor having had its own local advertising agency, and the Brand Image dissonance that had been created over the years. Plus they had been heavily influenced by the concept of Le Cowboy, as the French called it, and I wanted to talk directly to the rebellious youth in a way similar to what we were doing in the US.
I was determined to have one major agency which could create a modern youth message for Levi’s that would transcend the language and cultural differences of so many ancient cultures and work all over Europe (and hopefully elsewhere outside the US also). After several detailed meetings and numerous presentations, I settled on Young and Rubicam Europe, headquartered in London with sufficient branches in Europe to handle all the local nuances we needed to run a centralized campaign.
In all these meeting I had used early VW Beetle ads as prime examples of Visual Messaging with little or NO copy that eliminating the need for using multiple languages.
And Y&R captured what I was looking for with a series of 4 color ads that were also perfect for making into posters, a teenage room decorating craze that was just starting to boom everywhere.
They offered us an extraordinary concept which used instantly recognizable art icons wearing or proffering actual Levi’s jeans products, such as
- Michelangelo’s David wearing a pair of cut-off Levis
- God Handing Adam a pair of Levi’s instead of the Spark of Life shown on the Sistine Chapel ceiling.
- William Tell shooting the Apple off his son’s head (son dressed in Levi’s)
- Cranach The Elder’s Eve handing Adam a pair of Levi’s cords instead of the apple.
The only copy in the ads was the red Levi’s logo and it worked with every language group. We ran these ads all over Europe in Teen magazines and gave away thousands of posters in store promotions. The campaign was so popular that it attracted a Ban from the Royal Academy of Fine Arts in Sweden for breaking a Swedish law about defiling works of art. We cancelled the program for Sweden, but the wire services picked the story up and the international awareness caused the popular poster program to virtually double everywhere else, and of course become a hot black market item in Sweden.
Within 3 years we were supplying our 7 new European factories with Indigo denim and corduroy in 20+ colors that met all our specifications. We also established 2 new warehouses, one each for both the Common Market and EFTA countries, and 2 IBM computer centers. And our European staff grew to over 3000, virtually all natives of their respective countries.
This frenetic activity was accompanied by 25% annual sales and profit increases and which obscured growing cracks in the safety of the corporate structure.
Following is a Fortune Magazine article excerpt describing the corporate reasoning and approval for this 3 year frenzy of activity:
Chapter 16
Why Belgium and Brussels?
Belgium, a Monarchy headed by King Albert II, is precisely divided into 2 regions, Flemish speaking Flanders in the north and French speaking Wallonia in the South. But Brussels, the capital, is physically completely within Flanders while its official language is French! Here is what US President Franklin D. Roosevelt, prophetically said to the British War Cabinet in 1942:
“In Belgium there are two communities. One people are called Walloons and they speak French, the others are called Flemings and they speak Flemish, a kind of low Dutch. They can’t live together. After the war, we should make two states, one known as Wallonia and one as Flemania, and we should amalgamate Luxembourg with Flemania. What do you say to that?”
Since the end of the Second World War, Brussels has been a main centre for international politics. Its hosting of principal EU institutions as well as the headquarters of the North Atlantic Treaty Organization (NATO) has made the city a polyglot home of numerous international organizations, politicians, diplomats and civil servants. Although historically Dutch-speaking, Brussels became increasingly French-speaking over the 19th and 20th centuries.
Today a majority of inhabitants are native French-speakers, although both languages have official status. Fueling the tensions is a change of economic fortune and a long grudge match between the Flemish and the French. Belgium, a relatively new country, declared its independence in 1830. At first, the country’s aristocracies spoke French and the country’s French-speaking regions, rich from iron and coal manufacturing, were often contemptuous of the largely agricultural north. During World War I, most Belgian officers were French-speaking and made little effort to translate for Flemish soldiers (The country was so devastated during WW I, that when Hitler started attacking it on May 10, 1940, and the Germans rushed to the shore isolating Allied forces in Belgium from France, Belgium surrendered in eighteen days and avoided a second major bloodbath).
These days, however, the French part of Belgium, population about four million, is poorer, while Flanders, population about six million, has grown wealthy with a diverse economy. Many Flemish voters resent their taxes’ flowing south, where in some parts of Wallonia the unemployment rate is close to 20 percent. Nonetheless, the Walloons can refuse a job if it is more than 15 miles from their homes and collect unemployment. In the north, there are jobs that could be filled, and that really annoys a lot of the Flemish.
Linguistic tensions remain, and the language laws of the municipalities surrounding Brussels are an issue of much controversy in Belgium (on our first Sunday tour of Brussels, we were surprised to note that virtually every street sign had been defaced with graffiti which obliterated both the Flemish and the French names, making it impossible for us to know where we were going.)
In 2009 Belgium was the 12th largest trading nation in the world, actively importing and exporting due to its long history of reliance on trade and lack of natural resources.
When the Common Market was formed in 1957 by six countries, Belgium, Germany, France, Italy, Luxembourg and the Netherlands, Belgium seized upon its excellent network of distributors and a well-developed transportation system of railroads, highways and ports and aggressively sought imports that had formerly gone separately to each other member’s customs ports for collection of duties.
A major incentive offered was very low cost government backed inventory loans, which resulted in Belgium collecting all the customs duties that formerly went to the other member countries. Belgium eventually became one of the highest per capita exporters in the world, with imports and exports each equivalent to approximately 70 percent of GDP, and today over 70% percent of Belgium’s foreign trade is with other EU countries, demonstrating the pivotal role Belgium plays as a commercial center in Western Europe.
Foreign investment contributed significantly to Belgian economic growth in the 1960s. In particular, U.S. firms played a leading role in the expansion of light industrial industries in the 1960s and 1970s, and are the largest foreign investor in Belgium, with over 1500 US companies making this country their European home.
The Belgium government continues to uphold an encouraging and open trading climate conducive to foreign investment
But on June 17, 2010 a major election shift has clouded their economic future as reported by The UK Guardian:
“A rightwing separatist party that wants independence for the Dutch-speaking region of northern has won a shock victory in the country’s general election.
The New Flemish Alliance (NVA) is on course to become the largest party in parliament, the first time in Belgium’s 180-year history that a Flemish nationalist party has gained more seats than the traditional federalist parties.
Belgium is also preparing to take over the presidency of the European Union in July. Divisions between the 6.5 million Dutch speakers in Flanders and the 4 million French speakers in Wallonia in the poorer south of the country have caused decades of disputes which permeate every aspect of Belgian society. There are separate language sections of almost every organization from Scouts and charities, such as the Red Cross, to national political parties.
The election outcome was seen as a warning to French-speaking politicians to negotiate seriously about granting Dutch and French-speakers more self-rule, or Dutch-speaking Flanders would seek independence.
The Francophone daily Le Soir said: “Flanders has chosen a new king”, referring to Bart de Wever, 39, the NVA leader and a potential new Belgian prime minister, who urged “Francophobes to make (a country) that works”.
De Wever seeks an orderly breakup of Belgium. His party accuses French-speaking Wallonia of poor governance that has raised the unemployment rate to double that of Flanders.
The divide goes beyond language. Flanders is conservative and free-trade minded. Wallonia’s long-dominant Socialists have a record of corruption and poor governance. Flanders has half the unemployment of Wallonia and a 25% higher per-capita income, and its politicians say they are tired of subsidizing their French-speaking neighbors.
As governments worldwide tried to tame a financial crisis and recession, the four parties that led Belgium since 2007 struggled with linguistic spats, most notably over a bilingual voting district comprising the capital, Brussels, and 35 Flemish towns bordering it. The high court ruled it illegal in 2003 because Dutch is the only official language in Flanders. Over the years, Francophobes from Brussels have moved in large numbers to the city’
‘Get ready for the break-up of Belgium’s leafy Flemish suburbs, where they are accused of refusing to learn Dutch and integrate.”
Sunday, September 5th, 2010 — 2:55 pm
BRUSSELS — A top Belgian politician warned the country’s citizens on Sunday to “get ready for the break-up of Belgium,” as King Albert II seeks to re-launch knife-edge coalition talks. Leading francophone Socialist Laurette Onkelinx considered a potential successor to party chief Elio Di Rupo, who gave up on negotiations with separatist Flemish leaders on Friday, gave her prognosis in a newspaper interview “Let’s hope it doesn’t come to that because if we split, it will be the weakest who will pay the heaviest price,” she told La Derniere Heure. “On the other hand, we can no longer ignore that among a large part of the Flemish population, it’s their wish.”So yes, we have to get ready for the break-up of Belgium. Otherwise we’re cooked.”When I look at the letters I receive, loads of people think it’s possible. (Our) politicians have to be prepared,” underlined the current caretaker federal minister for health and social affairs.
(ed note) Belgium continues as one nation as of June 2018
EPILOG
In 1964, when I joined Levi Strauss in San Francisco as Director of Advertising, the company had finally reached $50 million in sales after more than 100 years by using the “Marlboro Man” image as a major rodeo sponsor. By 1974 sales had mushroomed to over $1 billion after they dropped the cowboy market and aggressively courted the rebellious youth of the world
By thev1990’s Levi’s had truly reached worldwide Icon status as the uniform of an entire generation.
(By the mid 1990’s Levi’s annual sales topped out at an impressive $4.5 billion, but has stagnated there for almost three decades where it remains to the date of this edit in June 2018)
Skeletons in the Blue Denim Closet
Suddenly in April 2003, a denim-seeking missile, in the form of a lawsuit, landed on the steps of Levi Strauss & Company’s Battery Street headquarters in San Francisco, and the blast was heralded on the front pages of the world’s financial press.
Levi Strauss & Company had been sued for wrongful termination jointly by two of its former top financial officers, Chief Tax Attorney, Robert Schmidt, and former Chief Tax Accountant, Thomas Walsh, both Directors of Levi’s Global Tax department. The lawsuit contended that they were both fired because they had uncovered, and refused to conceal, massive fraudulent tax schemes.
The duo stated that these multiple instances of US tax evasion and fraud were the reason they were fired, and they said they had company documents to substantiate these allegations.
Five months earlier, on December 10, 2002, Levi’s had summarily fired the pair just five days before Levi’s new auditors, KPMG, (hired to replace the hastily fired Arthur Andersen firm (AA), arrived at Battery Street to conduct a comprehensive audit of the company.
These former executives alleged that Levi’s willfully concealed information from the IRS and retaliated by firing them when they tried to produce documents for the IRS. They also claim that Levi’s was creating a false illusion to the investing public that it was successfully turning around its business, by issuing false reports to the Security and Exchange Commission (Although Levi’s is a privately owned company, it files similar reports of financial results as do public companies, mainly because of massive amounts of so-called “Junk Bonds” being held by the investing public).
The allegedly fraudulent tax schemes and actions, which served to lower the company’s US tax rate and pump up reported income, were claimed to be:
- A Brazilian tax shelter designed to use favorable exchange rates to lower US tax.
- A Belgian branch used as a conduit financing scheme to avoid U.S. tax.
- Fraudulent inter-company bad debt and worthless stock transactions.
- Failure to report taxable gains to the IRS from foreign transactions.
- Filing false and misleading reports to the Securities and Exchange Commission (SEC) that grossly misrepresented its financial position to the public.
They also allege that, had Levi’s complied with the law, it would have reported a loss of $336 million, for fiscal year 2002, rather than the $49.5 million of net income that it did report to the SEC And, to add insult to injury that year, Levi’s Chief Executive Officer, Phil Marineau, lately from Pepsi Cola, had received a bonus of approximately $23million, under the terms of a profit incentive program, half of the total net income reported by the entire company in 2002.
Similarly, Financial Vice President Vince Fong also got a $950,000 incentive bonus. Neither executive would have earned any bonus at all that year if the deficit financial results that are alleged by Schmidt and Walsh were reported.
Schmidt and Walsh also said they were instructed to withhold material documents from the IRS and to limit tax information given to Levi’s new external auditor, KPMG, who was hired to replace Levi’s former long time auditor, Arthur Anderson, disgraced and forced to disband as a result of their complicity in the Enron scandal.
Until May 2002, Levi’s had a 40+ year working relationship with Arthur Andersen & Co (AA), the top-ranked member of the elite “Big 8” independent Accounting Firms. Additionally, AA had sold separate consulting services for several recent years to Levi’s US management, for an annual fee of approximately $ 2,000,000, according to the plaintiffs.
In addition to these lucrative consulting arrangements, AA also continued to perform the annual audits of Levi Strauss’ financial reports to the SEC. Then Levi’s fired them just weeks before Andersen was convicted of obstruction of justice in a federal trial that had lasted almost 2 months.
This cozy combination of selling business advice to companies whose books they also audited has been consistently frowned upon by other, more ethical accounting firms, but was gaining acceptance by some, by calling their consulting arm, “Independent”.
Here’s what the disclaimer on all of KPMG’s current literature says about their newly renamed consulting practice:
“Bearing Point, Inc., formerly KPMG Consulting, Inc., is an independent consulting firm and is not affiliated with KPMG International or any KPMG member firm”
And here’s the spin-off of Andersen’s consulting arm:
“In January 2001, we changed our name to Accenture and launched a new brand and image in the marketplace, after Anderson Consulting was granted complete independence from financial obligations or future relationships with Arthur Andersen and Andersen Worldwide”
Granted independence, indeed! Another horse gets out of an open barn door.
Even before Arthur Andersen was hired by Levi’s in the US in the 1960’s, I had been using them to prepare audits of all of Levi Strauss International’s subsidiary corporations, taking over from local auditors as soon as we acquired each foreign company, or started one from scratch. I never conducted any foreign acquisition meeting without the presence of a local AA senior partner (plus an interpreter and a lawyer form our worldwide attorneys, Baker & McKinsey). Naturally, being in on the early stages of all new Levi’s company formations, AA felt uniquely qualified to sell us their general business consulting services. Every new “Blue Back” as they called their narrative summaries that accompanied each audit, extolled their consulting capabilities. And, just as often as they solicited it, I steadfastly rejected their offers to do management consulting for any of the 25 separate foreign entities under my control.
“How in hell” I asked, “can AA pretend to be independent external auditors of our financial reports, if you are also getting paid to give us business advice?”
But, I noticed that they were increasingly adding operations comments to the financial results that they sent to Levi’s corporate accounting for consolidation. Every time I saw these, I angrily told AA to stop using these financial reports to drum-up International consulting assignments from Levi’s corporate, but they continued to claim that these observations were valid financial “footnotes”, so I tried to restrain my displeasure. Later I saw what this clear conflict of interest could come to when the Enron scandal erupted, and when the Big 8 all rushed to disassociate themselves from so-called “Consulting”. The Sarbanes-Oxley Act of 2002 was a direct result of the AA scandal and it now makes this type of auditors’ dual service to corporations illegal.
On June 16, 2002, after a six-week trial and 10 days of deliberations, a federal jury convicted Andersen of obstructing justice when it destroyed Enron Corp. documents while they were on notice of a federal investigation.
The once grand 89 year old Arthur Andersen was discredited and soon disbanded.
Multinational Monitor named Arthur Anderson the #1worst business of 2002:
“Heading the list is Arthur Andersen, for a massive scheme to destroy documents related to the Enron meltdown.”Tons of papers relating to the Enron audit were promptly shredded as part of the orchestrated document destruction,” a federal indictment against Andersen alleged. “The shredder at the Andersen office at the Enron building was being used virtually constantly and, to handle the overload, dozens of large trunks filled with Enron documents were sent to Andersen’s main Houston office to be shredded.” Andersen was convicted for illegal document destruction, effectively putting the company out of business”.
Arthur Anderson’s Baptist Church Fiasco
In 2002, after Houston energy giant Enron collapsed, and Arthur Anderson was on trial for its complicity as their auditors, the Attorney General of Arizona implicated Arthur Anderson in the largest bankruptcy of a non-profit charity in US history by formally asking the Federal government to investigate Andersen to see if this accounting giant was guilty of a pattern of deceptive auditing.. This was in regard to the 1999 alleged swindling of $600 million from investors in the Baptist Foundation of Arizona (BFA), an Andersen client at the time. Two former executives with the Baptist Foundation of Arizona were sentenced to prison and ordered to repay millions for defrauding thousands of investors in a botched financial scheme that bankrupted the non-profit organization.
Former foundation president William Crotts, 61, was sentenced to eight years in prison, and former general counsel Thomas Grabinski, 46, was sentenced to six years on fraud and racketeering charges.
Both men also were ordered to pay $159 million to make up for money investors lost when the foundation collapsed in 1999.
In both the Enron and Baptist foundation cases, the auditing firm gave clients clean bills of financial health, despite the fact that huge losses were hidden from investors in a maze of subsidiaries.
In June, 2002 Andersen agreed to a settlement in the amount of $236,000,000 to resolve a class action suit against them in connection with professional services they had rendered in the past to this branch of the Baptist Church.
Enron’s collapse was the largest bankruptcy of a publicly traded company in United States’ history and the Baptist Foundation of Arizona’s collapse was the largest bankruptcy of a non-profit charity.
Then on June 20, 2003, a second missile landed, this one in the form of IRS summonses directed at Schmidt and Walsh, demanding any documents they possessed in support of the ex-employees’ claims related to Levi’s alleged tax-shelter abuse and illegal accounting practices.
Fenwick & West, one of the nation’s top corporate law firms, representing Levi’s, launched a legal bid to block the IRS from obtaining the documents claiming they are privileged Levi’s documents, a bold move, since in recent high-profile cases, the IRS had gone after lawyers and accountants who try to shield their own questionable work with claims of professional privilege. The plaintiff’s attorneys claimed that two Fenwick partners were “deeply entwined and enmeshed” in the tax issue, and are likely to become material witnesses in the suit Mr. Schmidt and Mr. Walsh have filed.”
Of course, Levi’s has denied all allegations of wrongdoing and has maintained its financial statements and tax positions were legal and accurate. The company filed a countersuit against Schmidt and Walsh accusing them of making “false, misleading and defamatory statements” about the company and illegally disclosing internal financial information after they left the company. Levi’s also said that the employees were fired for just causes, not at all related to their lawsuit claims, including repeatedly failing to perform their jobs adequately.
The IRS does not comment on issues related to specific taxpayers and thus declined to discuss the civil summonses issued to Walsh and Schmidt. Levi’s had unresolved tax audit issues going back as far as 1986, resulting in part from their complicated initial 1985 leveraged buyout. The IRS has a long memory, but Levis had good attorneys and deep pockets.
So 5 years after the insiders’ whistle was blown, and while Levi’s sales continued to stagnate at $4 billion, the following San Francisco Chronicle article closed this unhappy chapter:
LEVI’S EX-MANAGERS SETTLE LAWSUIT
San Francisco Chronicle, Tuesday, Nov. 4, 2008
“Levi Strauss & Co. settled a lawsuit with two former managers who claimed the San Francisco-based company cheated on its taxes and fired them for refusing to help hide the wrongdoing.
The lawsuit filed by Thomas Walsh, former manager of Levi’s global taxation department, and Robert Schmidt, an attorney in the department, was resolved at a settlement conference Monday, according to court records. Mark Fredkin, an attorney for the men, confirmed without providing details that a settlement was reached.
The men, in a 2004 (sic) complaint filed in federal court, claimed Levi’s created a fraudulent Brazilian tax shelter to deduct $149 million in taxes from 1986 to 1994. The company avoided paying $70 million in federal taxes from 1997 to 1999 and cheated in other ways so executives could reap bonuses tied to the tax rate on operating revenue, they said.
Important Publicity of My Era
ENTIRE FORTUNE MAGAZINE ARTICLE April 1974
(my exit… stage left)
NEWSWEEK ARTICLE 08/27/1953
The San Francisco Chronicle 1973
ED COMBS’ TRAGIC (& IRONIC) DEATH (caused by a rodeo!)
An Evening with Charlie… More Fire than Ice
When the April 1974 issue of Fortune magazine arrived at Levi’s, we were more than chagrined at the headline: “When Levi Strauss Burst its Britches”, having, we thought, carefully guided the reporters down our primrose PR path.
All the same, the contents were accurate enough and presented a good basis for a Harvard Business School case study, which it soon spawned.
For me, the chief architect of this corporate “mooning”, it was an outstanding resume (“Like a rhinestone cowboy… Gettin‘ cards and letters from people I don’t even know…and offers comin’ over the phone”)
The most intriguing offer came from Scottsdale’s posh Camelback Inn, where an Executive Vice President of Revlon was golfing at the Company retreat. “Could I fly over and talk” he enticed. Even in the best of times, I had a rule of never refusing to hear what adventures might lay ahead in greener pastures. So, I arrived in Phoenix on the next morning and spent the day hearing how Charles Revson, the founder of Revlon had read the piece in Fortune and I might fit in somewhere with Revlon’s growing business. Charles’ dictatorial reputation preceded him by at least a mile, but I was in just the mood to be flattered by such a world famous Icon. I grabbed the bait and a meeting with Charles was arranged for the following week in NYC.
On the day I arrived at Revlon’s top floor offices in the GM building, Charles’ beloved nephew, world champion Grand Prix driver Peter Revson, was laid to rest at a lavish memorial at New York’s St Patrick’s Cathedral. He had lost his life on March 22, 1974, due to suspension failure while testing the hot new Fl Shadow at Kalama circuit in South Africa. At 6pm, Charles’ secretary seated me in his inner sanctum on a leather couch adorned by a needlepoint cushion, which proclaimed “Nobody Loves a Smart-ass”, a very appropriate gift from his wife Lynn, I later learned.
“Mr. Revson will be returning shortly from the funeral” she assured. An hour later, Charles bustled in, followed by the EVP I had met and an entourage of three other executives, all in identical black Saville Row mourning suits and carrying stacks of late edition NY newspapers. After shaking hands all around, I said “Charles, I will certainly understand if you want to postpone this meeting, knowing how close you were with Peter”
“Fuck him.., he’s dead and I have a business to run!” he proclaimed. And, so, the most bizarre evening of my young career began.
The next few minutes were spend in a thorough search of the newspapers, pages flying, obituaries sorted, and Charles finally shouting, “Those Times bastards have a close-ups of that cunt (Miss World), Peter’s girlfriend du jour), and all they have of me is the back of my head! Cancel our advertising in the rag!” With that, he announced that we were off to his suite at the Waldorf where he wanted to take a nap.
As his extra-long limo shuttled our entourage the few blocks to the hotel, Charles sized me up. “For God’s sake don’t smoke in my car”… (Snuff, Snuff!)… “And throw that damn thing out the window”… (Toss, Toss!)
Up in the top-floor suite of the Waldorf, as soon as Charles disappeared into one of the three bedrooms, the scotch and forbidden cigarettes immediately appeared, ties were loosened and we began to talk normal business talk. The job Charles had in mind for me was president of Revlon International, based in my beloved London. Hearing that, I had a double scotch and relaxed in the haze of smoke and grandiose visions of my bride and me living in Belgravia and entertaining royalty. When I learned this was not a vision, but exactly what Charles expected me to do, I started to sober up. At around 11:30, Charles emerged in a silk robe and proclaiming his hunger, ordered, “Let’s go to Broadway Joe’s”, Joe Naimath’s new steak joint on Broadway. “But Charles, they close at 11”… ‘Call them for Christ’s sake and tell them it’s me. They’ll open up for us!” He did and they did.
Being the sole occupants of Joe’s, our waiters hovered, and the orders started with Charles handing over a tin of Mediterranean tuna from his pocket.
“I want this on a small plate with no other crap on it; no lettuce, no mayo, nothing! Got it?” Then the four executives all ordered various healthy dishes, while I asked for a rare strip sirloin. “Don’t you know that shit will kill you” Charles snarled? “Maybe”, I said, “but last year all the beaches on the Med were closed due to sewage pollution and I hope your Tuna wasn’t a bottom feeder”.
Then I learned, first-hand, the sound that the proverbial “turd in a punchbowl” makes. My recovery was to order a double scotch and light a Viceroy, not to taunt him so much as to let him know I didn’t want his shitty job anyway.
The dinner progressed with small talk, when suddenly Charles shouted, “Son-of- a-Bitch” and putting his fingers in a mouth full of tuna, pulled out a small wad of masticated mush. He then passed it to the executive on his left and said, “Is that a tooth?” Squinting at the lump under the candlelight, he allowed as how it might be a bone, and passed it on to my friend the EVP, who sadly proclaimed it to be a tooth indeed. “Call my dentist”, Charles ordered. The comment that it was almost 2am was rebuffed by Charles with “I pay that bastard enough money… he’ll kiss my ass in Macy’s window if I tell him to”.
At 2:30 am we pulled up to a doorway on 5th Avenue containing a huddled figure shivering in the March cold. He and Charles disappeared for about 45 minutes and upon his newly capped return, Charles told me he wanted to hire me. He liked my experience and my refusal to kiss his ass; a remark directed more to the others in the limo than to me. There was only one condition to the job offer: I had to be checked over by his personal heart specialist the next morning, and if I passed muster, the job was mine. My weak protest that getting an appointment with such a world-renowned doctor with no notice might be difficult was passed aside by Charles with an epitaph similar to the one his dentist got.
Back in my hotel at 4am, I put in a wakeup call for 8 and when I was startled awake at 7 with a call from a nurse confirming my 10 am doctor’s appointment (yes, it was also on Park Avenue) I couldn’t help but marvel at what money can do.
The doctor was very punctual and pleasant, so the framed Time Magazine cover with his picture on it got only a hurried glance from me. His exam was thorough, and he announced that I was in the pink. I asked about his relationship with Charles and he told of his annual spring/summer trips to the Mediterranean aboard Charles’ 275 foot yacht the Ultima II, known to be the “Largest in New York”.
“Charles would fly over, but insisted that I and other members of his staff crossed on the yacht, since it was going empty otherwise”. (Not hard to understand how I was seen with only a few early morning hours’ notice).
Back at the GM building, the EVP detailed the offer and spelled out the main job responsibilities. Aside from running a $200 million business around the globe, my primary job was to quickly and lavishly befriend “All of the people who mattered in London”. Since London was also Charles’ favorite city, he would often arrive with only a day or two’s notice and would expect to entertain whomever of the glitterati I could round up.
“Sort of a social secretary”, I said, as I politely declined the job offer.
Somewhat stunned, I was offered more money, and time to talk it over with my wife before getting back to him. When I got home and spun this incredible story, my wonderful soul mate said, “Thank God you turned it down! I can’t’ imagine how awful that would be!” Several pot-sweetening phone calls arrived over the next few weeks but were all firmly declined.
In August of the next year, Charles died from pancreatic cancer, just weeks after giving his third wife Lyn — $30,000 in a sealed tin can, along with divorce papers inside, for their tenth anniversary (she wore everything he hated to the funeral, according to Andrew Tobias’ fascinating biography of Charles: ‘Fire and Ice’).
When I heard the news, I realized that he must have known of his condition the night we shared poisonous food at Joe’s, and if he had told me I might have taken the job.
Several sweetening offers were made by the EVP, but with Wanda’s complete support, I declined.
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How Levi’s Trashed a Great American Brand
FORTUNE Magazine April 12, 1999
While Bob Haas pioneered benevolent management, his company came apart at the seams.
By Nina Munk Reporter Associate Jane Hodges
When Robert Haas led the most recent LBO of Levi Strauss & Co. in 1996, he took one of the world’s most successful brands and placed its entire future in the hands of four people: himself, an uncle, and two cousins. Other family shareholders had two choices: Cede all power to this group for 15 years, or cash out. Most stayed in. It seemed a good bet at the time. Haas was the guy who had saved the troubled family company back in 1984. He shut dozens of plants, jettisoned unpromising subsidiaries, expanded overseas, and refocused on Levi’s core product. In 1985 he took Levi Strauss semiprivate in a limited LBO. Levi’s stock climbed more than 100-fold, from $2.53 a share (adjusted for splits) to $265 a share. Haas was a hero.
A Harvard MBA who worked for the Peace Corps and McKinsey before joining Levi Strauss, Haas had been lionized in management circles and business journals (such as the very one you’re reading) for applying his enlightened management practices to an old-line clothing manufacturer. Haas chafed at the idea of merely dressing the world in riveted denim; he was intent on showing that a company driven by social values could outperform a company hostage to profits alone.
While shareholder-driven companies like Coke and Gillette rushed into China, Haas pulled out–to protest human rights abuses. He sent sewing machine workers to off-sites to reprogram them from a mentality of piecework to one of teamwork. And shortly before the latest LBO, he began a massive reengineering project that was supposed to make Levi Strauss the most responsive apparel company in the industry, reducing the time it took to get jeans to stores from three weeks to 72 hours.
If the family shareholders had been paying careful attention to what was really going on at Levi’s well before the ’96 LBO, they might have bet differently. Sometime around 1990, a great brand began coming apart at the seams. Levi’s market share among males ages 14 to 19 has since dropped in half, it hasn’t had a successful new product in years, its advertising campaigns have been failures, its in-store presentations are embarrassing, and its manufacturing costs are bloated. The reengineering–with an $850 million budget–was a disaster. J.C. Penney, Levi’s biggest customer, reports that last fall Levi’s delivered its all-important back-to-school line–get ready–45 days late. Says Levi’s Thomas Kasten, who led the reengineering: “I don’t think we fully accomplished anything, to be honest.”
Since 1997 the company has announced plans to shut 29 factories in North America and Europe and to eliminate 16,310 jobs. A month ago it said 1998 sales had dropped 13%, to just under $6 billion. FORTUNE estimates that since the ’96 LBO–since Bob Haas became unaccountable to anyone but his three relatives–Levi Strauss’ market value has shrunk from $14 billion to about $8 billion. By comparison, cross-town San Francisco rival Gap has grown from $7 billion to over $40 billion during the same period. “Bob is very smart,” says a former Levi’s executive. “But then the question is, ‘What’s he smart at? Is he smart at running an apparel company?’ I think that’s an open question.”
Levi Strauss is a failed utopian management experiment. It’s a story of what can happen when well-intentioned but misguided managers run a private company answering to no one. Above all, it’s an epic tale of opportunity lost, of what might have been. Retailing people often compare Levi Strauss with Gap–not favorably. “Levi’s has always had a lot of very technically oriented people who know how to make good, consistent product,” says Howard Gross, CEO of Miller’s Outpost, a chain of 220 stores that sell Levi’s. “But typically in apparel you have merchants, men like [Gap CEO] Mickey Drexler. I’m not sure Bob Haas has ever been trained to be a merchant. I’m not sure he’s even been in a store, waiting on customers, talking to them so that he could hear them say, ‘Why are the legs on those jeans so tight?'”
The criticism does not appear to bother Haas. “By personality and instinct, I am not the rock star CEO,” says Haas, in an obvious reference to Drexler. “It’s a fantasy to think that somebody in a corner office on the seventh floor in San Francisco can be all-seeing and all-knowing. It’s crazy.”
We’re not writing an obituary for this 150-year-old company. Levi’s is still one of the world’s great brands, better known than Marlboro, Nike, or Microsoft. No one–not Tommy Hilfiger, not Lee, not Gap–comes close to it in jeans sales. And 75% of American men own a pair of Levi’s Dockers khakis. Above all, Levi Strauss is a cash machine. As a privately held company, it does not divulge profits. But FORTUNE managed to get a look at its financials: Last year, on revenues of just under $6 billion, Levi Strauss produced $1.1 billion in cash flow. That’s more than Tommy, Polo Ralph Lauren, Nautica, and Liz Claiborne–combined. More than Nike. More, by a pinch, than Gap.
It takes a long time to sink a great brand. “A big brand like Levi’s is an aircraft carrier,” remarks Steve Goldstein, who left the company last summer after 20-year tenure, most recently as head of marketing for Levi’s. “You can turn the engines off and the actual speed of the carrier will not slow perceptibly for a long time. With the Levi’s brand we gradually dialed down our propeller speed and the carrier kept moving. People up on the deck said, ‘We’re still moving fast!’ But those down in the engine room said, ‘Whoa! We’re going to be dead in the water!'”
For all his empathy toward the engine room, Haas is a man born to the bridge. Although he dressed casually for FORTUNE’s photo shoot, Haas is not a casual man. Even his language is carefully in place. He speaks in paragraphs of elevated diction; an off-hand conversation can sound like a lecture. He’s known for extraordinary (some say obsessive) attention to detail. Poring over press releases and in-house memos, he corrects split infinitives and misplaced modifiers. His handwriting is tiny and meticulous. He goes to bed at 9:30 P.M.
Haas envisions Levi Strauss as a company where a factory worker’s voice is as likely to be heard as the CEO’s. “He’s not the sort of manager who says, ‘Here’s what you did wrong,'” explains Levi’s former CFO George James. “Instead, he sits down, looks you in the eye, and asks, ‘What do you think you did wrong?'” Because of his obvious sincerity, Levi’s employees are fiercely loyal to him, although they don’t always approve of his management style. “I love Bob to death, but he has a tendency to want to involve everybody in decision-making. He’s compassionate to a fault,” says Peter Thigpen, former president of Levi Strauss USA.
No matter how well-intentioned, group decision-making usually degenerates into endless meetings, task forces, memos, and e-mails. That’s what happened at Levi Strauss. “Everything had to go into a corporate process, so nothing ever got resolved,” says Robert Siegel, who left the company after 29 years to become CEO of Stride Rite in 1993. “Almost half my time was spent in meetings that were absolutely senseless.” Clearly frustrated even now, Siegel adds, “If you asked [Levi’s executives] for the time, they would build you a clock, and still not be able to tell you the time.” In the olden days–when Levi’s was synonymous with jeans–none of that really mattered. But now Levi’s doesn’t just compete with Lee and Gap and Calvin Klein. Now it has hundreds of competitors with names like JNCO, Mudd, Arizona, Fubu, LEI, Kikwear, Badge, Union Bay, Canyon River Blues, Bongo, Stussy, Menace, Faded Glory–names that Levi’s executives may or may not have heard of.
It’s worth noting that Bob Haas has excelled at everything he’s ever done. He was president of his primary school student body, editor of his high-school yearbook, and valedictorian of his 1964 class at UC Berkeley, where he was elected to Phi Beta Kappa. The business world never much interested Haas: He majored in English and considered becoming a Chaucer scholar. Then he joined the Peace Corps, where he spent two years in the Ivory Coast. Still, after returning from Africa, Haas dutifully attended Harvard Business School, like his father before him. When he graduated in 1968, he became a management consultant at McKinsey & Co. (SEE POSTSCRIP BELOW)
Some San Franciscans joke that to understand what’s gone wrong at Levi Strauss, all you need to know is that Bob Haas was in the Peace Corps and worked at McKinsey.
Haas joined Levi’s in 1973 as an inventory management analyst. In 1984, at 42, he became the fifth-generation family member to run the company (his father, Walter A. Haas Jr., was CEO from 1958 to 1976). Bob Haas had big plans. He wanted to create a company with a social mission, a purpose larger than sewing together pieces of 14 1/2-ounce denim. “When I became CEO there was a cry: ‘What are our values? What do we stand for as a company?’ “he explains.”I said, let’s fix the business issues first, but as soon as we have our business back on track we have to attend to our culture, because that’s the glue that unites us, the beacon that guides our actions.”
Levi Strauss has always believed in corporate philanthropy and social responsibility. When the firm went public in 1971, its offering prospectus made corporate history by warning that profits might be affected by a commitment to social programs. But Bob Haas wanted to go further–much further. In 1987 he developed the Levi Strauss Mission and Aspirations Statement, which promoted teamwork, trust, diversity, empowerment, etc., etc. Printed on recycled blue denim, the aspirations statement was hung on office walls, posted in factories, enclosed in Lucite paperweights, and laminated on wooden plaques. For most CEOs, that would have done it: State your mission, act accordingly, and expect your employees to do the same. Haas, however, had something to prove: that a company driven by social values could outperform one driven by profits.
He changed Levi’s compensation plans so that one-third of executives’ bonuses reflected their ability to manage “aspirationally.” He assigned 80 task forces to make the company more “aspirational.” The work-and-family task force sent a 25-page questionnaire to 17,000 employees. The global-sourcing task force spent nine months creating guidelines that would hold Levi’s overseas contractors to the highest possible standards of labor practices. A diversity focus group organized off-site sessions that paired white, male managers with women and minorities to discuss racial and gender stereotypes.
By the early 1990s, Levi’s employees were attending the company’s “core curriculum,” a three-part, ten-day course that covered leadership, diversity, and ethical decision-making. Joined by at least one senior manager, groups of 20 employees discussed their vulnerabilities, shared their deepest fears, and even composed their obituaries. “It was all about personal disclosure and human connections,” says Barry Posner, dean of Santa Clara University’s business school, who helped implement the core curriculum. “It was about asking, ‘How do I find meaning in the workplace?’ It was about seeing that work is noble, that we’re doing more than getting pants out the door.”
Bob Haas had discovered his vocation. At one time he distributed AIDS leaflets outside the company cafeteria. He gave a long interview to the Harvard Business Review called “Values Make the Company.” He delivered a keynote speech on business and ethics to the Conference Board. Levi’s wasn’t just a garment company committed to social responsibility. It was a politically correct organization that happened to be in the garment business. “The problem is some people thought the values were an end in themselves,” says Levi’s President Peter Jacobi, who recently announced his retirement. “You have some people who say, ‘Our objective is to be the most enlightened work environment in the world.’ And then you have others who say, ‘Our objective is to make a lot of money.’ The value-based people look at the commercial folks as heathens; the commercial people look at the values people as wusses getting in the way.”
In hindsight, the wusses did get in the way. For even as Bob Haas pioneered utopian management, the business began to look threadbare. Despite its enlightened benevolence, Levi’s clung to old ways of doing things. It stopped innovating. It ignored, or was oblivious to, the marketplace. The “principled reasoning approach” to decision-making taught in the core curriculum didn’t help. “Unless you could convince everyone to agree with your idea, you didn’t have the authority to make a decision,” says former CFO George James. “That made it very difficult to be responsive.”
Case in point: Dockers, launched by Levi’s in 1986. Dockers’ khakis were an immediate success, hitting the market just as American men began replacing suits with more casual attire. But in 1993, Dockers missed one of the biggest trends in the khaki market: wrinkle-resistant pants. As other manufacturers began selling them, Dockers stayed put. Sales collapsed. That same year, Levi’s reported its first decline in profits since 1988.
The denim market was changing too. Levi’s 501s used to be the hot jeans. “But in ’93, kids started telling us the legs were too narrow,” says Gross of Miller’s Outpost. In response, Miller’s Outpost created its own line of jeans with legs as wide as 23 inches. Then J.C. Penney and Sears got into the act, making jeans with flared legs and boot cuts. Tommy Jeans splashed the Hilfiger logo all over its baggy pants. JNCO introduced jeans with 40-inch-wide legs and 17-inch-deep pockets. Through it all, Levi Strauss kept on pushing its basic jeans, with 16-inch-wide legs and 6-inch pockets. At the same time, kids were spending more and more money at specialty stores like Hot Topic and Pacific Sunwear and Gap, whereas Levi’s sold almost exclusively to now-out-of-favor department stores. It wasn’t that Levi’s management didn’t see the changes. “We told Levi’s about extreme fits,” says Gross. “We showed them our numbers. We told them what kids were asking for. They even attended some of our focus groups. But they didn’t want to believe.”
Or else they were distracted. In 1993, Levi Strauss embarked on something called the Customer Service Supply Chain initiative. Once again, what began as a well-intentioned project morphed into a monster. The stated goal of the initiative was to make Levi’s more responsive to retailers. The company wanted to get new products to market in three months, down from 15 months, and to reduce the time needed to restock a pair of jeans from three weeks to 72 hours. Amazingly, no one seriously considered the possibility that getting a pair of jeans to stores in 72 hours might double or triple Levi’s costs. “There was no cost boundary,” says Tom Kasten, who headed the effort. “I mean, we talked a little about how it shouldn’t cost more, but it really was an afterthought.”
In June 1993, 200 of Levi’s best people began designing a new supply chain. Many were vice presidents of important divisions, divisions that would now be without leaders. Others left work behind, forcing colleagues to do double duty. Joined by at least 100 Andersen consultants, the group took over the third floor of headquarters, soon covering the walls with vast organizational charts and maps. The place resembled a war room. The members of the Third Floor Brigade weren’t just on a mission; they were, in their words, “creating a revolution.” To convince skeptics at Levi’s that this was serious stuff, they collected magazine cover stories on companies like IBM, GM, and Digital that were in turmoil because they had ignored their changing markets. Proselytizing, the Brigade blew up the covers, pasted them to poster boards, and carried them around the organization. “It created huge battle lines,” says Jacobi, Levi’s president. “There were Moonies and there were nonbelievers, and they avoided each other and said bad things about each other. But there was no way to get out of it. It was like quicksand.”
The Customer Service Supply Chain initiative was no longer just about improving service to retail customers. It was about improving everything. Whole new categories of jobs were created. The Third Floor Brigade rewrote more than 600 job descriptions; all over the company people had to reapply for their positions. To help employees evaluate their aptitudes and handle the imminent changes, the Brigade put together a 145-page handbook called Individual Readiness for a Changing Environment. “Let yourself feel the loss, then let go and move on,” it advised. “New ways should be viewed as neither right nor wrong, neither better nor worse, than the previous ones.”
Levi’s employees freaked out. Some, who didn’t get the jobs they had applied for, or re-applied for, broke down. Others simply quit. “It pushed me over the edge,” says a former employee. The retailers–the people actually meant to benefit from all this–shook their heads in disbelief. “The reengineering changes had us confused as hell,” says a buyer at one major Levi’s account. “One minute there was no customer service, the next minute they’d overdo it.” By the time Levi’s board of directors put an end to the nonsense in late 1995, the reengineering team’s budget had swollen by 70%, to $850 million. As for restocking basic product, J.C. Penney’s standard is 20 days; Levi’s average last year was 27 days.
How did this go on for so long? Simple. Haas has the power, and most family members seem content with the arrangement–despite the sagging value of their shares (which have declined by about 40% in three years), despite the fact that they get no dividends. “I’ve always looked on it as a long-term investment,” says Robert Friedman, cousin to Bob Haas and a member of the Levi’s board. Rumor has it some family members want out, or at the very least would like a new CEO. They won’t get one. Other than the four men who control the votes, no one has any say in the company until 2011, when the shareholder agreement expires.
One family member who spoke to FORTUNE on the record is Richard Goldman, husband of Bob Haas’ late aunt Rhoda Haas Goldman. In 1946, 4-year-old Bob Haas was the ring bearer at the Goldman’s’ wedding. Half a century later the Goldmans and Bob Haas were no longer speaking. Rhoda Goldman was the only member of the 12-person board who opposed the 1996 LBO. She and her husband didn’t want to hand the company over to four people for the next 15 years. “It didn’t make any sense to her or to me,” Richard Goldman says. “As shareholders, we were surprised anyone would go along with it.”
The disagreement wasn’t just about control; like most squabbles, it was also about money. Levi’s bankers at Morgan Stanley, valuing the shares at $189 each, said the firm was worth $10 billion. Bob Haas offered shareholders $250, a one-third premium. But the Goldmans’ bankers at Robertson Stephens valued the stock at between $315 and $387. In response, Haas increased his offer to $265 a share, valuing the company at $14 billion. After a lengthy battle, the Goldman family decided to accept that offer, cashing out their 12.5% interest for $1.7 billion. They were lucky; if they had held on, their shares would now be worth about $950 million.
“One could argue that we overpaid, in light of subsequent events,” says Bob Haas. “But I would much rather be restructuring and reinvigorating ourselves as a private company than trying to talk, not just to you, but to every security analyst and financial reporter in the world who wants to do yet another tedious story about our problems and offer gratuitous advice as to what went wrong and how to fix it. Those kinds of distractions get in the way of operating effectiveness.”
Last year, Levi’s redefined its utopian mission. The old one, which appeared in the preamble to the mission and aspirations statement, was: “To sustain responsible commercial success.” The new one is simply, and ambiguously: “To be the casual apparel authority.” So, once again, the company is in the midst of major organizational changes. It recently shifted to a brand-management structure long popular with consumer companies like Procter & Gamble and Sara Lee. So, once again, people are moving into new jobs, being given new titles. Because management now recognizes that one of Levi’s problems was inbreeding, an urgent mandate is to fill one-third of all openings with outsiders. Headhunters have been directed to find a new president/COO from the outside. Already, Levi’s has brought in as its new CFO William Chiasson, from Kraft Foods. Its new creative director for the U.S. youth market is Devon Burt, formerly of Nike.
Levi’s finally understands what people in the fashion business have always known: Kids don’t wear the same jeans as their parents. It recognizes that cool retailers won’t be caught dead or alive stocking the same product as J.C. Penney. “The mistake we made was to make one brand for everyone–it ended up being nothing to anyone,” says Robert Holloway, who heads Levi’s U.S. youth market division. The company is now creating a portfolio of brands and sub-brands, each targeted at a different “tribe,” in Levi’s language. Some will be created in-house; others will be acquired from the outside.
Levi’s big customers say they are cautiously optimistic about the new lines. But Levi’s multi-brand strategy is nothing more than what its competitors have done for years. Think of Gap, for example, with its high-end Banana Republic, its middle-of-the-road Gap, and its low-priced Old Navy. To reach the next level, to be a real player, Levi’s has to become cool again. It must figure out how to appeal to a small, but hugely influential group of city dwellers who set fashion trends, a tribe Levi’s call “cultural creatives.”
Late last year, in a bid to be culturally creative, Levi’s furtively launched Red Line jeans, distributing them to just 25 cutting-edge shops, where they sell for $99. To position Red Line as far away from Levi’s as possible, the unit’s headquarters is in Venice, Calif. Nothing on Red Line jeans indicates that they have any relation to Levi’s. The brand isn’t mentioned on Levi’s Website. So determined is Red Line to remain underground (i.e., cool) that its manager, Julia Hansen, refused to talk to FORTUNE, nor would she provide any product publicity shots.
Retailers report that Red Line is selling well. To Levi’s, however, that’s not really the point. It doesn’t expect Red Line to have much impact on its bottom line; the idea is for the jeans to have a “halo effect,” for the hipness associated with Red Line to somehow seep into Levi’s other lines. The Dockers division is pursuing a similar strategy: To make its pants known as something other than the “uncool khaki” or the “fat man’s khaki,” it recently launched a hip line called K-1 Khakis. In Europe, there’s a new Dockers line called Equipment for Legs, made of high-tech fabrics like Gore-Tex and targeted at the yuppie urban warrior.
It will be years before anyone knows if the new initiatives have worked. In the meantime, it seems reasonable to ask two basic questions: Would Levi Strauss be scrambling so desperately if it were a public company? And would Bob Haas still be CEO? Says Haas: “I wouldn’t be CEO, because I wouldn’t want to work in the company. It’s that simple. My passion for this place is about doing the right thing for the enterprise, its people, the communities in which they operate, and making this a winning organization. My passion would be considerably diminished if I had to deal with the kinds of frivolous and nonproductive distractions that many of my peers at public companies have to deal with.”
On Wednesday, June 12, 1996, a crowd of Levi Strauss employees gathered in San Francisco to hear a major announcement. Standing proudly before them, Bob Haas revealed a new incentive plan. With the company now fully in family hands, Haas could not offer employees stock options. Instead, he promised that if Levi’s reached $7.6 billion in cumulative cash flow by 2001 (after three years, it’s just $2.8 billion), every employee in the world, all 37,000 of them–from sewing machine operators in El Paso to salesmen in Barcelona–would receive a bonus worth one year’s salary. Giddy employees cheered. Here was the latest confirmation that they were working for the world’s most enlightened employer. Sincere notes of gratitude poured in to headquarters: “Bob, thanks for this great opportunity. Only 1,895 days to go! Many thanks, Estelle.” And: “Bob, many thanks for your generous & exciting idea. What a great challenge to rise to, Paul T.” And: “Bob, see you in 2001 for the big party! Kel.”
One more thing: The party will be in utopia. |
| (editor’s post script)
Bob was on a fast track to partner at McKinsey and had no interest in working at Levi’s. But Ed and Wally asked me as President of Levi’s International to try to seduce him into coming onboard.
I was hip deep in problems in Europe and wanted to hire a management consultant anyway, so I asked Bob to take a leave of absence from McKinsey and spend 6 months in Europe doing the job as a temporary manager with a handsome salary and all expenses paid…(yet considerably less than McKinsey charges for a consulting assignment).
He jumped at it!
When he presented his plans to Levi’s Board 6 months later they gave us the budget to do it all. My gamble worked and Bob happily came on board ‘The Family Business’, starting at the bottom in Merchandising in 1973. In a little over 10 year Bob became the fifth generation of family members to head LS&Co. |
Back Cover
a 60’s ad man guides levi’s growth to Worldwide youth icon
Bud Robinson was graduated from Duke University in January 1954 and began working for Procter & Gamble in sales, later transferring into their Ohio Advertising Department. He became West Coast Sales Manager for Better Homes & Gardens in San Francisco and was recruited by Honig Cooper & Harrington advertising agency to be Assistant Media Director and Account Executive for Clorox Bleach. Later Bud was recruited to become Account Supervisor on Texize Chemicals, and Miles Laboratories New Products. From there he was asked to join Levi Strauss & Co as Director of Advertising in 1964. In the ensuing 10 years Bud was appointed Director of Levi Strauss Europe, and then President of Levi Strauss International.
This book details the highlights of Bud’s 10 years as the prime Architect of Levi’s transition from a regional Cowboy product to a worldwide youth Icon and ponders their current status.
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