LEVI'S GETS THE BLUES

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By the time half a million hippies danced button fly to button fly at Woodstock 28 years ago, the miners' blue jeans first made by Levi Strauss in 1873 had been adopted as the uniform for class rebellion. But the enduring, red-tagged faded blues have recently earned another reputation. "My mom wears Levi's," says Hannah Gasner, 15, a Manhattan high school sophomore, uttering the words that youth marketers dread. "I think about them as the first jeans invented. Levi's are reliable."

In the cutting-edge world of blue jeans, reliable just doesn't cut it. While Levi's has remained a wardrobe fixture, its market share has shrunk to an uncomfortable fit and sales have slipped. The San Francisco-based company's pocket has been picked by a passel of fashion-conscious, private-label designer jeans and edgy upstarts in the $10.6 billion industry. The new entrants have hit the shelves with stylish cuts attractive to both teens and folks north of 20. "It's not about the brand of the jeans but the shape," explains Gasner. "Jeans are always in style, but the style changes, and it's the fashion that counts."

Levi's, which has stayed true-blue to its denim, has been slow to move on fashion trends like the currently favored wide-leg pants. "It's a fair assessment to say we were behind in fashion," says Gordon Shank, president of Levi Strauss, the Americas. "Levi's strength is that it is never the most fashionable but the most relevant." But that has cost the company. Levi Strauss's U.S. sales last year hit $4.3 billion, but fierce competition and a leveling off of demand forced it to announce last week a round of belt-tightening measures. The company will close 11 factories in four states and lay off 34% of its North American workforce. Levi's, which has nurtured a culture of progressive corporate responsibility, cushioned the bad news with a $200 million severance package, including extended benefits.

Like Levi's, denim's other big brands, VF Corp. (maker of Lee and Wrangler) and Guess?, have got a kick in the pants of late. "The story here is the competition," says Isaac Lagnado, president of Tactical Retail Solutions. In the world of blue jeans, denim pluralism was until recently considered blasphemy. That is, until Gap Inc. successfully introduced a complete store-brand jeans line in 1991. According to Lagnado, market share for private-label brands has grown from 8% in 1990 to 18% last year. Levi's has fallen from 31% to 19%.

Once considered hopelessly unhip, J.C. Penney and Sears made their affordable house jeans cool. Penney's introduced Arizona six years ago; it's now a $1 billion business. Sears launched Canyon River Blues two years ago and just last year sales topped $200 million. By washing away the stores' image from that of the jeans, the once stodgy retailers have attracted the most discriminating jeans buyers: teens. In a recent poll of favored brands of jeans, conducted by Teenage Research Unlimited, Arizona ranked second. "The very retailers we sell to have cracked the code on how to create and sell their own brand," acknowledges Levi's Shank.