This is a tale of two worlds: the old and the new. VF is exiting its final two old-world brands, Lee and Wrangler. They are saying adios to their diminishing old-world Boomer consumers to focus on its new- world brands and their newly dominant (and growing), next-gen consumers. A few years earlier they shed Nautica and Vanity Fair Intimates. Although several other VF brands were born in the old world, VF decided there was still enough of a cool factor left in the likes of Vans, The North Face, Timberland, Smartwool, Icebreaker, Reef, Jansport, Kipling and a few others, to maintain healthy growth into the new world.
For the great strategists, including VF who are running product or retail brands, the message here is that they should “know when to hold ‘em or know when to fold ‘em.” Seriously, it’s about knowing how to manage those old-world brands into maturity if it’s clear that there’s no possibility of repositioning them to a new cool and robust growth. In my opinion, Victoria’s Secret, Levi’s, Gap, Campbell’s Soup, Ralph Lauren, Gillette razor blades, Hilton, McDonald’s, Budweiser and a whole slew of other brands across all consumer-facing industries should be carefully weighing their brands’ ability to engage and retain the now dominant next-gen cohort who are channel and brand agnostic. What I mean by agnostic is the next gen’s pursuit of what they consider as cool. And if they come upon “XYZ” and they consider it “cool,” overnight “XYZ” becomes a hot brand. Think: Supreme, Uber, Stitch Fix, Warby Parker, Rent-The-Runway, Annie’s organic food, Blue Point craft beers, Dollar Shave Club, AirBnb, Shake Shack and thousands of other new brands forming the new world and more to come, faster than we can imagine.
On the other hand, old-world brands like Apple, Lululemon, Starbucks, and many others are still judged to be cool and will continue to thrive as long as they authentically deliver on their brand promise.
The Lee and Wrangler Story
Back in the day, “I was there.” And I don’t mean the quintessential hippie rock concert at Woodstock New York, circa 1969. I was a strategic planning and marketing executive for VF Corp. in the 1980s when Levi’s, Lee and Wrangler were the top three jeans brands in the U.S, in that order. During that period, the first wave of so-called designer jeans was launched. If you are old enough, you might remember Jordache, Gloria Vanderbilt, Calvin Klein and Guess — among some others.
Levi’s hit its pinnacle of about $8 billion in annual sales toward the end of that decade. Today, with sales having wound down to about $5 billion annually, they fight every year to squeak out single-digit growth. Is it a mature brand? Will it die with the last of its Boomer loyalists? Can they reposition to hit the hot spot of the Boomers’ kids? These are tough existential questions I’m sure CEO Chip Bergh is asking.
Apparently, the leadership at VF asked the same questions and decided that with its stable of cooler brands, it was a smart, strategic move to focus on their greater growth potential without the distraction and negative drag Lee and Wrangler would continue to have on the total corporate portfolio.
Unfortunately, Levi Strauss and Co. does not have a similar option with only two major brands: Levi’s Jeans and Dockers. During the mid-80s, Levi’s was hitting annual sales of about $5 billion. Trailing behind was Lee Jeans with about $2.5 billion in revenues. However, during the early 80s, Lee innovated the best fitting women’s jeans in the market, catapulting Lee to the number-one women’s jeans brand in the U.S., surpassing Levi’s. Then in 1986, VF acquired Blue Bell, Inc., parent of several brands with Wrangler as the motherlode with sales of roughly $1.8 billion. So, with Lee and Wrangler combined at about $4.3 billion, VF became a threat to Levi’s #1 spot. Lee was dominant in women’s, while Wrangler owned the authentic “cowboy” space (literally the lead sponsor in the rodeo circuit) and sponsor of auto racing icon, Dale Earnhardt, thus threatening Levi’s male dominance.
Then came the designer brands, which reached their full-on competitive threat for the entire category. Levi’s pinnacle year with Champagne-popping celebrations of $8 billion in sales was then attacked from all sides. Sales went into freefall, crashing by 40 percent over the next eight years.
Wrangler’s solid position in the western cowboy culture and Lee’s in the women’s category, as well as their decision to open the mass distribution channels, allowed them to maintain their strength against the designer and luxury brands. Levi’s took the biggest hit at the time.
The Strategic Takeaway
What is incredibly ironic is the fact that Levi’s revenues today are roughly half of what their pinnacle year brought in at $8 billion. At $4 billion, they are back to where they started their race to the top in the 1980s. Similarly, Lee and Wrangler with about $2.7 billion in combined sales makes less than the roughly $4 billion when they began their race against Levi’s in the 80s.
Yes, the other part of the story that weighed on VF’s decision to spin off the two brands into a separate company is the oversaturated jeans market, which has been flat for the past decade. Plus, the huge shift the next gen is making into the athleisure and performance sports markets will continue to steal major share of wallet at the expense of jeans.
But as I said, the more important takeaway is the tale of two worlds: the old and the new. Old-world brands and retailers attempting to survive successfully in the new world must first assess how their brands appeal to the new consumer. If their cool factor has faded, the brand must then determine if it’s possible to connect by repositioning. If it cannot, the brand should be spun off, as VF is doing. Or they can be managed into maturity, which perhaps Levi and Gap are now doing.
Another viable strategy for old-world brands is to acquire their way into the new world, a lot like Walmart is doing. We aren’t going back to the “good old days” folks. There will be thousands of new brands in the future that will replace thousands of once supreme brands built in the past. Call it survival of the fittest, natural selection or sheer market dynamism, we have to face up to the fact that some brands have a natural lifespan and cannot live forever.
