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In the US, the 517 Jeans web site was selling Levi 501's for $49.99Tesco takes on Levi and wins the first round
Tesco, a major UK food supermarket chain, wishes to attract custom by selling luxury and high price brands at a substantial discount. When manufacturers like Levi refused to supply, Tesco imported direct from the USA, in some case buying from retailers in the States. Levi's then threatened to take Tesco's to court where upon Tesco's counter sued the jeans company for "groundless threats" and that Levi were abusing their monopoly. Levi argued that sales staff needed special training to sell their jeans and that a supermarket environment devalues their brand. In May 1999 the UK High Court found in Tesco's favour though in another similar trademark case in the Scottish court the opposite view was taken.
In the UK, Tesco was selling 501's for £30 ($42) compared
to Levi's suggested price of circa £45 ($63).Tesco is an excellent example of the rising power of the retailers. Through their loyalty Clubcard they now have data on half of the UK population, and 50% of the UK population passes through their doors every 12 weeks. Whilst their non food range may be limited it is exactly in-tune with the aspirations of their customers. At Christmas 2001 the author saw customers going through the checkouts with turkeys in one hand and DVD players in the other.
Levi appeals but Tesco wins round 2
With similar cases throughout the EU the European Court of Justice was asked to review the whole trademark and patent situation with regard to imports from outside the EU. In April 2001 it gave a complex interim ruling that appears to support Tesco but Levi begged to differ.
Levi knocks out Tesco in round 3
In November 2001, a full response from the Court upheld Levi's case that the Trademark Directive allows brand owners to restrict access to branded goods and thus set high prices. The UK's Consumers' Association vowed to fight on, calling the current legislation "ridiculous, outdated and fundamentally unfair".
Note: within the EU, excepting a few authorised exceptions, retailers are allowed to import from any EU country and to set their own price.
Levi Responds to the Market
In February 2002, Levi announces that it will be producing and marketing a cheaper range of jeans, a so-called "entry level" range. Apparently, Levi recognises that as it's customer base ages they no longer buy jeans, at least not Levi jeans. Reaching age 30+ invariably means more responsibilities (e.g. home and family) and a change in priorities. Clothes, particularly fashion clothes, are no longer priority.
These Levi entry level jeans will sell at around 60 per cent of the price of its mainstream products such as Red Tab and Engineered. They will be available throughout Europe and will complement Levi's 2 other distribution channels: the established mainstream Levi retailers and the exclusive unbranded stores such as "Cinch", selling fashionable new products and handcrafted jeans for as much as Euro 300 a pair. Later the new jeans will be available in the US. It is currently unclear whether Levi will sell the new jeans through their existing mainstream retailers or through a new distribution channel.
The FT quoted James Hobbs, account director at Taylor Nelson Sofres Fashion Trak as saying "It's a smart move. Currently, sales of jeans at £45-plus account for only 8.5 per cent of the market, whereas £30-plus accounts for 24 per cent. So it triples their potential sales". So, whilst the new entry level jeans will no doubt be attractive to those shoppers that were lured to Tesco, they could also make existing mainstream Levi customers defect.
Thanks to ThePriceMan for much of the above information.
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