In its second-largest acquisition, Amazon buys the company for $970 million.
With brands so brawny that it needed a pair of Internet stores for selling them, Levi Strauss & Co. looked every bit like a New Economy upstart a year ago. Not only did the jeans maker seem to “get” e-commerce, but it was willing to step on the toes of retailers already selling its products to prove the point. In a controversial move, Levi made its sites the sole source for buying its denim and Dockers online. A year later, the company’s decision to shut down its cyber cash registers is as much an example of shuffling corporate priorities as what the Internet cannot do-yet-for a company’s fortunes.
Faced with declining revenue, shrinking market share, plant closings and layoffs, Levi says it could not justify the hefty, ongoing investments needed to upgrade its Web operations and keep them competitive. So its sites will only concentrate on marketing and special promotions.
Though a Levi spokesman insists that Internet sales were meeting expectations, he says the company must focus on strengthening relationships with bricks-and-mortar retailers. The new direction supports that goal, while the old one contradicted it. In fact, Levi accompanied its e-commerce reversal with news that department store giants, Macy’s and JCPenney would be selling its products online in time for the Christmas shopping season last year.
Yet some observers look no further than the company’s Web site, saying Levi bungled its prospects for success by launching a site long on gimmicks, but short on simplicity. Without disputing the company’s financial constraints, observers say Levi ignored a retailing basic: Make buying easy.
A shopper wanting to order a pair of jeans, for example, had to click four levels into the site just to begin scrolling through a wide selection of styles, with little help sorting out their differences. And access to shopping carts was nearly hidden. “It was absolutely awful,” says
Harly Manning, an analyst at Forrester Research, Cambridge, Mass. “I’ve got to believe Levi would be much more encouraged about selling online it it had seen better sales results.”
The Levi story illustrates the difficult transition that manufacturers face in selling direct to consumers online. Along with world-class site design and navigation, Web stores need a crackerjack back office that can handle order processing, fulfillment and customer service in a highly personalized fashion.
It’s a business orientation so different that many decide to stick with traditional retailers, says Tom Reynolds, national director of Ernst & Young’s retail and consumer products practice. “Manufacturers simply aren’t equipped to do direct sales.”
Many apparently recognize this because only 5 to 10% of manu-facturers sell direct on the Web. But manufacturers can’t afford to ignore the Internet, either. “When companies have a strong brand, they have to be online for brand support,” says Harry Wolhandler, vice president of research at ActivMedia, an online consulting firm in Peterborough, N.H. “That doesn’t mean they have to sell products.”
High risks all around
Manufacturers brave enough to stake a claim in e-commerce soon realize that they risk alienating the retailers already carrying their goods or tarnishing their brands with poor fulfillment or clunky Web sites that don’t perform.
What’s more, executives in charge of e-commerce initiatives at most manufacturing companies often must work hard to win wide-ranging support for Web stores and teach their colleagues to think in terms of one-to-one sales.
Getting that buy-in from senior management wasn’t easy at VF Corp., the maker of Wrangler, Lee, Healthtex and other clothing brands. Amy Robinson, electronic commerce manager for VF Services Inc. says she spent months talking with senior management about the opportunity and trying to sell it.
Robinson backed her sales pitch with research touting the success clothing retailers were having online and the numbers of consumers streaming into Internet shopping sites. VF executives started to listen. “We had to overcome the risk factor of going direct against our retailers. And that’s still a major concern,” Robinson says. “But e-commerce is too big an opportunity for us not to participate in.”
VF recently launched its first Web store, www.healthtex.com, which features children’s clothing. Even though the site has met or exceeded goals for sales and traffic-drawing more than 4,000 unique visitors a day-Robinson and her team have struggled to make the effort work internally. “It’s been a challenge working with management to make decisions about how to allocate resources, production and inventory,” she says. “Using resources for consumer sales runs counter to our normal business.”
Robinson already has seen merchandise set aside for the Web store shipped out of the warehouse because a retailer requested it. “It’s easier to sell $15,000 worth of merchandise to a retailer than to let it sit in the warehouse so that we have a complete line to sell on the Web site,” she concedes. “The loyalties lie in serving our retailer customers.”
Because most manufacturers are closely familiar with their merchandise, most are good at creating product descriptions but their site designs are often clunky, says Charles Gerlach, director of e-strategy for the technology industries practice at Mainspring, in Cambridge, Mass. “They just haven’t made the investment.”
Fulfillment troubles are even more common, Gerlach says. Some of the first customers to visit bugleboy.com encountered some snags. As a result of disjointed computer systems, customers were allowed to put out-of-stock items into their shopping carts, which delayed many orders, says Brian McCarthy, director of online commerce at Bugle Boy Industries, Simi Valley, Calif.
A fix became a priority when Internet sales continued to get the attention of the company’s executives. Since then, Bugle Boy has integrated its checkout and fulfillment systems, which prohibits Web shoppers from purchasing merchandise that is not in the warehouse.