Lee case

This case was written with the support of Lee Italia. The authors wish to express their gratitude
to Maurizio De Ponti and Alberto Miniero for the availability and the support received in drafting
the case.

Source: S. Castaldo, M. Grosso, G. Miniero, Lee case, SDA Bocconi School of Management,
2008. Adapted version for the BBA course Channerl & Retail Marketing by M. Grosso,
Professor of Marketing at emlyon Business School.
Directions

This case has 5 file attachments that you can find on the i-campus-Lee case folder:
- 1_Video_Lee word
- 2_Presentation_make history campaign
- 3_Video_focus group on make history
- 4_Presentation_communication
- 5_Presentation_products

Have a look at them, they will help you better understanding Lee world.
You can also have a look to the make history website (www.makehistory.eu) to understand it
more in detail.
Please do not look for further infos on Lee on the web, as the time lag between the case
described here and the updated data on the company you’ll find on the web may mislead you.
You will have the opportunity to see what the firm did in these years the last session of the
course during the case debrief.

While teamworking on the Lee case you will be asked to take some decisions Lee’s
management had to take to manage the intriguing situation described in the case.

The database mentioned in the case is available on i-campus. The variables in the database
are described in the file “Lee_retailerDB_description” available on i-campus as well.

To solve the case, follow the directions provided in class and summarized in the attachment
“”Lee case directions”.

Good work!

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…In March 2006 it was announced that Eric Weiseman had been appointed as the new president and
CEO of VF Corporation. VF Corporation is a North American multinational corporation manufacturing
and commercializing clothing and outfits since 1899. From the first meetings with his collaborators
across the world, Mr. Wiseman perceived that it was necessary to make some changes in the group
strategy…

…Mr. Wiseman's new guidelines influenced also Lee's activities - being it one of the most important
firms of VF Corporation…

…Lee Italia's management was among the first ones to respond positively to the changes requested
by the parent company...

History

Lee's and VF Corporation's histories move on parallel tracks since 1899, year in which both
companies were independently founded, to 1969, year in which they merged.
In 1899 Henry David Lee founded the H.D. Lee Mercantile Company by opening the first
factory in Salina, Kansas. The company manufactured overalls trousers and jackets above all.
In 1913 the first totally denim overall was produced, thus becoming the official workers' uniform
during World War I. In the 20s, Lee Mercantile Company launched Buddy Lee, a doll
completely dressed in Lee clothes. The doll was at first used for promotional purposes but it
soon became very popular also as a toy for children. Lee Mercantile Company built its success
in those years and introduced many innovations to the production of jeans and denim fabric.
The most famous invention is certainly the zipper.

At the same time (October 1899), John Barbey and some investors founded the Glove and
Mitten Manufacturing Company in Pennsylvania, a firm producing clothing.
In 1919, the Glove and Mitten Manufacturing Company changed its name and became the
Vanity Fair Silk Mills (VF). From that moment on, the firm grew rapidly and in 1947 the Wrangler
Westernwear division was created and designers were asked to be inspired by real cowboys
and rodeos for jeans designing.
In 1951, continuing the positive trend, VF decides to be quoted on the Stock Exchange market.

In 1969, the roads of Vanity Fair Silk Mills and H.D. Lee Mercantile Company met. VF buys
the latter and changes its name again – it is now VF Corporation and, according to Forbes (a
well known magazine), it is among the top 500 American corporations.
In the 70s, VF Corp. opened its first outlet aiming at providing customers with the possibility of
buying at reduced price all the surplus production.
In 1986, the corporation doubles its size - acquiring Blue Bell Inc. it is the largest public
undertaking in the world incorporating brands such as Wrangler and Rustler for jeans, JanSport
for backpacks and bags and Red Kap for overalls. At that point VF holds 25% of the jeans
market, worth 6 billion dollars, thus becoming the second jeans manufacturer in the world.
In 1992 VF enters the European underwear market by making a number of acquisitions.
In 2000 the company continues its acquisitions adding to its portfolio the brands: Chic, Gitano
Jeans and H.I.S. – leader in Germany. It also acquires brands such as Eastpak and NorthFace.

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Then, VF decides to strengthen its organizational structure grouping all the brands into 3 large
divisions called coalitions: Jeanswear, Imagewear and Outdoor. The latter coalition will
subsequently include also brands like Napapijri, Kipling and Vans.
In 2003 a new coalition was added: Sportwear –coming from the acquisition of Nautica and
John Varvatos and, subsequently in 2005, also the surfer brand Reef. Finally the
Contemporary coalition was created when the two luxury denim brands Lucy and 7 For all
Mankind were added.
VF Corporation is today the largest clothing manufacturer in the world. The main headquarter
is in North Carolina, US. The firm is quoted in the New York Stock Exchange. The European
headquarters is located in Brussels, Belgium.
At this moment VF is present across the world, and it reproduces the same governance pattern
with the 5 coalitions its brands belong to (see Table 1). Each coalition has a CEO and a
marketing & sales director presiding over the marketing and sales functions.

Table 1. The brand portfolio of VFCorporation

Jeanswear Imagewear Outdoor Sportswear Contemporary
Wrangler Red Kap The NorthFace Nautica Lucy
Lee Bulwark Jansport John Varvatos 7 for all Mankind
Riders The Force Eastpak
Rustlers Lee Sport Napapijri
Brittania CSA Kipling
Timber Creek by Chase Authentics Vans
Wrangler
Chic NFL Red Reef
Gitano NFL White Eagle Creek
20X Majestic Athletic
Hero by Wrangler Sentinel
Maverick First Call
Old Axe Chef Design
Source: www.vfcorporation.com

Today VF Corporation is the leader in clothing manufacturing, with $9 billion in annual

revenues and over 52,000 associates working in locations across the globe.
The company brands are sold in more than 150 countries through 47,000 retailers in all
channels of distribution, from mass to department to specialty retailers. In addition, the
corporation owns and operate more than 1,000 retail stores and many of its brands also sell
products directly to consumers over the Internet.
Sourcing and manufacturing are managed through the Global Supply Chain organization,
which oversees the production of 500 million items annually at more than 1,400 owned or
sourced facilities in locations around the world.
VF business is organized across four key global regions (Fig. 1).

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Figure 1. VF’s key global regions.

Source: www.vfcorporation.com

Lee

Lee is among the major brands of VF Corporation. It is featured as the brand that aims at
innovative style, fashion and fitting.
Lee Division in Italy is central in Europe. In fact, it represents 35% of the total brand sales and
it ranks at the top compared to divisions in other European countries. Italy is a hub in southern
Europe also in terms of product distribution - its storehouses feed both the Spanish and Greek
markets.
VF Italia, which includes Lee Italia, is a mandatory agency. All products belong to the Belgian
company and the Italian branch invoices only the profits drawn from sales. The finished product
as well as communication campaigns come from Belgium.

The Lee strategy up to now has been aiming at volume size and has been working to have its
jeans constantly on the market.

The values of Lee brand

Lee brand is offered to consumers as a leader in the creation of a fashionable denim style.
Relying on the 100-year experience in the sector and a careful eye on the current trends of
young fashion and culture, Lee aims at playing a major role in its consumer's lifestyle. All this
is best expressed in the corporate mission that follows (Fig. 2).

Figure 2. Lee's Mission

Source: Lee European Sales Meeting 2007

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These guidelines - daily inspiration for the brand - are conveyed to consumers not only through
a product that fully reflects such features and tries to keep updated, but also through the
innovative communication campaigns.
In particular, Lee has detected a new way of communicating with the consumer by means of
its “Make History” campaign (www.makehistory.eu). This is based on the principle that
traditional media are no longer capable of attracting and inspiring consumers. It is, therefore,
necessary to involve them directly. Lee, in fact, aims at reducing its presence on traditional
media and privileging, instead, a direct communication and interaction with consumers. The
idea consists in experimenting a new language and, at the same time, conveying a clear-cut,
well-identifiable image. Lee's interlocutors are both metropolitan young people as well as
opinion leaders and trend setters. These are the goals of Make History. It is a strategy based
on real people – consumers – creating their own stories. They meet in a virtual community
created on the website where a competition is organized. Consumers, in fact, meet, tell their
own story, images, life experiences and ideas which they share with all the others. The best
pictures and the most interesting stories are selected by Lee for its press campaigns. They
are, thus, produced, made famous and spread across the world. Furthermore, the best picture
wins a 25,000€ prize. This is, a very innovative, long-term campaign, aiming at disseminating
the brand's values and shifting the attention from one single product, thus representing a
breakthrough in traditional communication patterns (see Fig. 3).
Lee's goal is that of being an aggregating element for young metropolitans, creating a meeting
place and providing them with a means of expression. Lee, therefore, opens a communication
channel directly with those consumers that represent the company's core target.

Figure 3. “Berlin Bus” - a communication example in the “Make History” campaign

Source: www.makehistory.eu – See more of them on the campaign website

Lee, does, however, remain totally bound to music and rock values that have characterized
the brand at all times. These values represent the brand to consumers and are the expression
of a deep, unchangeable spirit of the brand. Lee is, in fact, sponsor of the Italian singer Ligabue

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and, in 2007, it followed him in its Italian tour. The popular Italian singer best represents the
rock-music lover “Lee guy”.

Lee's product lines

In January 2008, Lee's offer in Italy is composed of 2 main product lines, i.e. adults and
children. Children represent 15% of the total Italian turnover and it is catered to through three
lines, namely:
• baby from 0 to 24 months;
• kids from 2 to 8 years;
• teens from 8 to 16 years.

Product lines details for adults are shown in figure 4.

Figure 4. Lee's adult product lines

Source: Lee Europe Sales Meeting 2007

The pyramid represents the relative weight and spread of the product lines. The relative
importance of each product line and their contribution to the total turnover drops from bottom
to top, as the price and design research progressively increase.

Lee Jeans: this is the most widespread line that accounts for the highest amount of sales. It is
characterized by typically traditional elements that make up a basic and conventional product
for any customer together with some attitude elements that aim at being traditional but with an
eye to fashion trends.
X Line: this line is strongly characterized by skinny fit, mainly denim, products, almost dark and
expressing the rock soul of the brand.
Lee Words of Denim (LWD): the traditional “work” line created for daily use, in line with the
country soul of the brand.
Gold Label: is the line offering absolutely sophisticated products. Japanese fabrics utilized aim
at an experienced niche market careful to the latest trends.

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As to product lines goals, Gold Label, X line and LWD help create the brand image and
positioning. By the same token, Lee Jeans line contributes to turnover achievements.

… As occurred in the headquarters, also Lee Italia was affected by a change in the management...

… The new marketing director asked his team to make a research on the perceptions of Lee in its
target market (young metropolitans)…

… Surprisingly from this research emerged that the target did not perceive Lee as young and fashion
as the firm was trying to communicate. Furthermore the top buyers of Lee jeans were not young
people…

… The firm started therefore an in-depth analysis of its market to identify the cause of this problem…

The jeanswear market in Italy

Consumption
Everyone believes that jeans are an “evergreen” garment that will never die. Denim market
data seem to confirm this opinion (Fig. 5). In 2007 in Italy, sales volumes have accounted for
approximately 40 million pieces sold. The trend in sales has been constantly increasing with a
1.5% drop in 2007. This drop in sales volumes was offset by an average prices increase of
more than 5% (thus confirming previous years’ positive trend) which reached € 40 in 2007 (Fig.
7). Prices increase was translated into a 3.5% value market growth. In 2007 the denim market
reported a turnover of approximately 1.6 billion Euros.

Figure 5. The jeans market trend (.000)

Source: GfK, 2007

Let’s analyze the jeans market breakdown between men and women customers. Women
purchases account for 53% of sales volumes, thus representing 49% of the value generated.
The overall value of sales (Fig. 6) is moving up for both customer categories (+ 4.6% for women
and 2.5% for men).

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Figure 6. Trend of value sales in the jeans market (.000)

Source: GfK, 2007

The change in value sales compared to volumes sold in the two categories is due to the
differences in the average price of sale which is higher in men’s (approximately € 44) compared
to women’s (approximately € 38). In both categories prices show a positive growing trend (Fig.
7).
Consumption in terms of volume of the different age groups is basically stable in men, whereas
in women there has been an increase in jeans sales among over 50 customers and a drop
among young women (Fig. 8). No changes, instead, for the breakdown of age groups of the
clientele, except for the over 50 men’s group, which dropped if compared to 2006, in line with
previous years (Fig. 9).
Finally, as to the average sales price, it goes down as the age of clientele increases, especially
for men’s garments (Fig. 10). A countertrend has been experienced in age groups in which a
slight drop in the average price was recorded, especially with regard to women between 40
and 49 years of age.

Figure 7. Average sell-out sales prices trend in the jeans market

Source: GfK, 2007

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Figure 8. Trend of volume sales of jeans according to age groups (%)

Source: GfK, 2007

Figure 9. Trend of value sales of jeans according to age groups (%)

Source: GfK, 2007

Figure 10. Distribution of the average sales price according to age groups

Source: GfK, 2007

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The low price classes cover more than 50% of total volumes sold (Fig. 11). In the past year,
incidence on the low-price class over the total of sell-out volumes increased by 4% on women’s
wear market and dropped, instead, in the men’s segment which experienced an increase in
the higher prices classes.

Figure 11. Jeans market price structure (%)

Source: GfK, 2007

The major competitors

The major competitors on the jeanswear market are listed in Table 2.
The four major brands in terms of market share are Levi’s, Carrera, Lee and Diesel. The first
two competitors are very unbalanced in the men’s segment where they have a considerably
higher market share than in women’s. The share on the two segments for Lee and Diesel is
more balanced.
Worth mentioning is the primacy of private labels (PLs) compared to more famous brands, with
a market share of more than 10%. PLs are positioned in the lower price range and serve mainly
the women’s segment (14%) against a 7.6% share in the men’s wear segment. The Private
Label category includes the following brands: Benetton, Città Mercato, Conbipel, Coop,
Euromercato, H&M, La Rinascente, Metro, Oviesse, Piazza Italia, Postal Market, Sisley,
Scaringi, Terranova, Upim, Vestebene, Zara, Mango, Motivi, Oltre, Promod, Reds, Stefanel,
Extyn, Sach, Luisa Spagnoli e Pinkie.

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Table 2. Price positioning of main competitors (2007)
Upper segment Middle segment Lower segment
(> 80 Euro) (50-80 Euro) (< 50 Euro)
Diesel Levi’s Private Labels
Guess Lee Carrera
Trussardi Wrangler Wampum
D&G Calvin Klein Prodotti Cinesi
Energie Meltin’ Pot RE&X
Replay Malboro Holiday
Roy rogers Phard Rifle
Armani Angel & Devil Bernardi
Guru X-Cape Navigare
Rica Lewis
Source: adapted from GfK data

Retail channels
The main channels of the jeanswear market are the following.

Jeans shops
These are specialized points of sale with a limited assortment - i.e. only one product category
- yet very diversified.
At times these are single brand stores or single franchise dealerships, used as communication
tools or showcases of their collections. In the latter case the offer is characterized by an even
smaller range and a greater diversity of the firm's products.
Prices are positioned in the medium-upper segment (Fig. 12). This channel sells brands such
as Carrera, Diesel, Guess, JDC, Lee, Levi’s, Replay, Energie e Miss Sixty.
Cloting chains
These are chains of points of sale owned by a firm or developed by means of franchising and
are more or less specialized in some clothing segment, i.e. clothing generally speaking, young
fashion, sportswear, etc.
This category includes distributors with a diversified range in terms of offer and positioning.
The level of breadth and depth of assortments and positioning in terms of price will therefore
vary according to the chain to be taken into account (although the price level is medium-low).
Examples of chains are: Sorelle Raimonda, Athletes World and Scarpe&Scarpe.
Independents
Retail points of sale run by independent entrepreneurs. The size of stores may vary, the offer
in terms of breadth and depth of assortments and the positioning in terms of sell-out prices.
Department Stores
Retail stores operating in the non-food sector with a surface of over 400 square meters and at
least 5 different departments, usually organized by means of assisted sales, each of which
aims at selling different categories of mostly large consumption products.
They are characterized by a greater range compared to channels described above and also
by a good level of depth, since each department is usually run as a point of sale specialized in
the product category offered. In this case too the price positioning may vary depending on the
strategy of each individual label.

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Hyper/Supermarkets
These are hypermarkets or supermarkets, i.e. free-flow points of sale with a surface greater
than 2,500 sq.m. including the foods department and between 400 and 2,499 sq.m. Clothing
is included in these stores to increase the overall breadth of the assortment and, consequently,
this product category is characterized by a reduced depth. The level of prices is usually
medium-low.
Cash&Carry
Cash & carry are featured as a free-flowing wholesale store. These are, in fact, stores that are
not accessible to private individuals but only to shop owners and dealers. Usually they are very
large and developed as independent buildings with a large parking area. Cash is usually
requested for payment and an invoice will immediately be given out; customers have to provide
their own transportation to take the goods to their shops.
Market Stall
They are street vendors selling in markets. Breath and variety of the assortment are usually
low and prices medium-low.
Mail Order
This channel works by mail and the offer is made by means of a catalogue. In this case, too,
positioning in terms of breadth and depth of assortments and price will vary depending on the
business, although usually breadth/depth and price level are not too high.
Others
This category includes outlets, i.e. factory stores and on-line sales.

Figure 12. Positioning in terms of (average) prices of the different retail channels in the jeanswear market
(2007)

Source: GfK, 2007

Data referring to the market share in terms of volume of distribution channels (Fig. 13 and 14)
point out the major role played by the Independent points of sale, having a share of more than
46%. These are followed by market stalls with a 17.5% share, which is dropping if compared

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to the past two years, and, finally, chain stores with an increasing share of more than 13%.
Figure 15 illustrates the profile in terms of customers' age groups in retail channels.

Figure 13. Weight of volumes of the different retail channels in the jeanswear market

Source: GfK, 2007

Figure 14. Weight of volumes of the different retail channels in the jeanswear market (%)
6,7 6 7,6
Others
17,5 12,8
Market Stall 21,7
8,8
Cash&Carry 6 3,6 0,1
0,3 0,4
7,5 7,5 7,6
Hyper/Super.

Mail Order

Department stores 46,4 44,3 48,7

Independents

Chains
13,3 14,8 11,6
Jeans shops 1,9 1,6 2,2
Adults Women Men
Source: GfK, 2007

Figure 15. Customer profile of each retail channel according to age groups (2007 - % of volume
purchased)

Source: GfK, 2007

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The mass-market channel (drawn from union of hyper/supermarkets and cash&carry) plays a
marginal role in the Jeanswear market (fig. 16) both in terms of volume and, above all, in terms
of value generated. This is particularly true in the women’s segment (fig. 17). The two best-
selling brands in this channel are Carrera and Levi’s.

Figure 16. The weight of the mass market in the jeanswear market (2007)

Source: GfK, 2007

Figure 17. The weight of the mass market volume and value in the men’s and women’s segments (2007)

Source: GfK, 2007

Lee’s distribution strategy

In Italy Lee distributes its products through almost all the above mentioned channels.
Lee has 3 jeans stores (Lee Store – Fig. 18), 2 of which in franchising (situated in Catania e
Messina) and one company-owned that is located in Milan; there are also 9 factory outlets.
The Lee Stores represent the showcases for the new Lee collections, having the greatest
assortment depth. Actually in such stores it is possible to find almost all the references in the
single variants of the 4 product lines. Positioning in terms of prices is medium-high in these
points of sale. The atmosphere in Lee Stores is in line with Lee style, recalling also the brand’s
values and its main features. This is true also for every single product line. In fact, such stores
have a large surface area and enable the localization and, consequently, the management of
retailing mixes; the single lines are kept separate and are best enhanced in a different location

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within the point of sale. The sales staff plays a fundamental role in promoting Lee products,
lines and brands, being constantly updated by the firm.
Outlets have the purpose of giving out garments with some faults and end-of-series articles.

Figure 18. Example of Lee store: the point of sale in Amsterdam

Source: Lee

Besides the points of sale controlled by the Company, Lee sells its products through a network
of 1.384 points of sale (detailed in the attached database) which make up the most important
part of Lee’s distribution and belong to the Independents, Chains and Department Stores
channels. Almost all these points of sale are specialized in garments, although not always
marked by a clear position in one of the segments.
These stores are followed up by 16 multi-firm agencies in charge of selling the products to their
customers; hence, the company does not have a direct contact with its intermediate clients.
An important feature of agencies supporting Lee is the fact that, albeit being multi-firm, by
contract they cannot sell any product in competition with Lee’s, but only products belonging to
categories other than those of apparel and relevant accessories.
Intermediate clients served by agencies are located in the northern, central and southern
regions of Italy; the region with the highest number of points of sale is Lombardia (Milan’s one).
A considerable number of these points of sale is located in cities having more than 25,000
inhabitants – almost all of which are not tourist resorts. The location of points of sale in cities
may vary, although there are many in the historic town centers, as well as in semi-central or
suburban areas. There is a considerable number of intermediate clients in shopping malls.

Lee traditionally segmented its trade customers in three main groups:

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 - bronze customers (approximately 800) who turn to products from the lower part of the
pyramid;
- silver customers (approximately 300) who prioritize intermediate lines
- gold customers (approximately 200) who buy above all X line, LWD and Gold Label
products.

As to the distribution of product lines, Lee has selected an extensive distribution strategy
aiming at increasing volumes for Lee Jeans. The strategy becomes selective and aims at
raising value as it moves up on the pyramid (Fig. 19) and liens become more sophisticated.

Figure 19. Distribution strategy for adults line

Source: Authors adaptation of a figure drawn from Lee Europe Sales Meeting 2007

The distribution of Lee is therefore characterized by the presence of different channels having
diverse features. Also the stores have diverse characteristics as to the breadth and depth of
assortments, quality and style of products, positioning in terms of prices, image perceived by
customers, professionalization level of staff, surface area, atmosphere in the point of sale, etc.

… The management at Lee understands it is time to change. The brand needs some new blood, as
Mr. Wiseman, the new VF President and CEO, had been asking since he was first appointed…

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 Mr. Wiseman, who previously held the position of the corporation’s Chief Operating Officer, indeed
immediately realized that the big apparel powerhouse was in need of a change to keep on shining on
the international catwalks, as it had been customary up until then.

The drivers of the change

Intermediate customers – a new segmentation

As soon as he took office, Mr. Wiseman decided to commission a research on the
segmentation of the distribution of the corporation’s brands. In particular he requested special
attention to be paid to the denim coalition - the corporation’s crown jewel. Indeed, the coalition
has played a fundamental role in securing the growth of VF, so much that thanks to its
exceptional results, the company recently was able to acquire dynamic and growing
companies such as Napapijri, Lucy Activewear Inc and 7 for all Mankind, further boosting its
own brand portfolio.
The research was based on a consumers’ survey which main goal was to identify the points of
sale segmentation used by denim consumers and compare it with the in-house one (Gold,
Silver and Bronze customers).
As to the denim coalition in particular, the survey singled out 6 channels which the denim
consumer perceived as “ different” when looking to purchase a pair of jeans (Fig. 20):
- appareal discount distribution: usually it entails large-size points of sale selling medium-
quality, reasonably priced products;
- traditional mainstream casual distribution: mostly catering to families;
- young mainstream casual distribution: points of sale primarily focused on the young
fashion-savvy customer;
- quality casual distribution: providing special and high-quality products;
- contemporary: offering trendy products addressed to a medium-adult target;
- luxury: totally dominated by the top designer brands, where fashion and style are a
priority.

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Figure 20. Distribution segmentation- some brand/retailer examples for the different segments.

Source: Lee-Distribution analysis 2007

Rationalizing the brand portfolio

The results of the survey’s analysis have confirmed to the VF management that through its
many brands, the corporation has the potential to reach out to many of the distribution
segments identified in the survey thus increasing its brand differentiation.
VF must now confront a new challenge, that of positioning each of its brands in the channels
best suited to them by leveraging on their features with the aim of consolidating the company’s
predominance in the market. Achieving a portfolio rationalization is most important especially
for the denim coalition so to curb the ongoing intra-company cannibalization while at the same
time consolidating VF leadership in the denim market. If we take all of the denim coalition
brands – 12 altogether – at the aggregate level, the corporation has no rivals in terms of volume
sales and the jeans market.
VF top management was determined to have each brand of the denim coalition meet the
requirements of the distribution channels where customers use to go. This represents a new
opportunity for the coalition itself and above all it is conducive to the repositioning of Lee as a
whole. This is the goal that the Lee management, in general, and the European division in
particular, have been asked to fulfill. Therefore it became evident that a new approach to the
brand was needed, as well as the strengthening of its positioning in the channels that best fit
its features.

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New faces at the helm of the denim coalition
The radical change engineered by the parent company, reverberated on Europe as well
favouring the arrival of a well-known and respected manager with a large body of experience
in this field - Giorgio Presca, former Renzo Rosso’s Deputy at Diesel.
When the Italian manager was named as President of International Jeanswear for the EU, Asia
and the Middle East, it was crystal-clear to the company’s management that it was about to
face up to a very stimulating challenge. Presca can be regarded as the prime mover of several
substantial changes at different levels and namely:
- product;
- price;
- collections;
- sales.

The ultimate goal of these changes is the differentiation of the various denim brands the
coalition manages. As regards the most appealing segments the coalition aims at meeting the
Luxury and Contemporary segments requests with brands that it has in its portfolio already
such as 7 for all Mankind. Lee and Wrangler instead could cover the Quality and Young
segments. As a result it is critically important to differentiate Lee from Wrangler to avoid
overlapping in the eye of the customer. To be more specific, while Wrangler enjoys a “heritage
and vintage” target of a more adult age-group, Lee is recognized for a more innovative look
addressed to a young, rock-loving target.
Consequently Lee must undertake a host of organizational and strategic changes which are
bound to involve the company at different levels. The purpose is to achieve the repositioning
of the brand towards the upper segments. To fulfill this goal the company’s management has
several tools it can use.
In such a change-vibrant scenario, alive with stimulating strategic ideas for the brand, Lee Italy
is a direct player and takes the lead on the basis of the strong position the brand enjoys in this
Country but also because of the attention that Italy has paid always to fashion, style and
innovation.

… While so many changes were underway, the management of Lee Italy had its hands full…

… The company’s strategy had to be thought out anew so to be consistent with the new guidelines
issued by Belgium HQ and herewith illustrated…

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The new Lee
The company’s new strategy aims at securing Lee up-marketing of the brand within the new
identified distribution segments. This goes hand in hand with Lee’s history and innovative
image. The brand’s extensive distribution which in the past was primarily concentrated in the
medium-price segment with up-market peaks and lower market segments alike, was no longer
a viable option. The ever-growing price-based competition in the low-price segment, triggered
by the entry on the market of transversal companies, such as Zara and H&M, which clashed
against this segment’s consolidated brands, e.g. Carrera, have made this a non-profitable
segment for brands such as Lee, deeply associated with an image of quality and innovation
rather than volumes. It is also true to say that staying in different segments – though in a very
limited fashion in the low price-range – could tarnish Lee image.
This is why the denim corporation’s top management launched some critical changes to re-
qualify the Lee brand at different levels and namely:
- product: positioning on the market with a strong and winning product, featuring more
sophisticated designs and more selected fabrics. The Denim Coalition’s President hired
an army of designers and creative to do precisely this and keep the change on the right
track;
- price: following the product revamping, the price list had to be increased by 15-20%;
- collections: Lee’s 2+2 yearly collections were representative of an obsolete product
concept; to keep the pace with the consumer fast-changing needs, 6 collections per year
are a must;
- communication: communication needs to be consistent and capable of effectively
conveying changes to target customers.

At the European level, these choices represent the guidelines that Lee Italy must bear in mind
when consistently renovating its sales strategy. Let’s have a close look to the main changes
the top management is envisaging at the European level.

The product
Lee’s new positioning rests on a new product strategy which must change the way consumers
perceive the brand. Moreover it demands that the very image of Lee be changed. It is evident
that the success of Lee’s new strategy is associated with the product’s major changes.
Lee wants the consumer to understand how ingrained innovation and research are in the
brand’s nature. Its new designers are working in this direction, emphasizing once more both
innovation and research in specific product lines.
This is translated into new fitting proposals for the consumer, sporting a contemporary and
different feel. The core idea is product research, which has always kept Lee at the forefront in
the history of denim. Suffice it is to mention a few milestones: the invention of the zipper, the
overalls and in 1921 the Loco Jacket, custom-made for the railways workers. A commitment
to the consumer to manufacture a unique product by means of an unusual mix of proportions
and shapes, granting the consumer the freedom to break away from the traditional shapes and
designs.

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In this respect the “pyramid” used to describe Lee’s product lines has to make room for the
vertical orientation of the new lines, flash and seasonally themed and which can best highlight
the coming of a new style in the making of the product (Fig. 21).
The 3 product lines created for the 2008 Fall-Winter Season are the following: VIP, 24/7 and
Rock.
The VIP line is designed for young music lovers who go to discos and prefer a skimmy style
with refined necklines. The palette is mostly in the dark colors matched with very bright
elements such as gold, silver and flash and flou colors.
The 24/7 line is for those who want to wear Lee products at any time during the day and at
night. It has a vintage feel and the palette shifts to warm mostly clear colors.
The Rock line is conceived for the risk-takers, for those who want to conquer the world. It
features vibrant young and strong colors, such as purple.

Beside these lines that will change at any collection according to fashion trends, there are: the
Basic line, that is the line for a more traditional and conservative customer and the Gold Label
line, targeted to please the consumer who likes to experiment with new fabrics and products.
The later still represents an important strong point for Lee. It has a selected distribution and its
customers convey the brand’s attention to product innovation and brand identity.

Figure 2. The change in the product lines.

Source: adapted from material provided by the company

Nowadays it is the style associated with the use of the garment that differentiates the
company’s product lines. The goal of Lee’s new product strategy is to create in the long run an
ever more evident differentiation of the individual product lines by emphasizing the
differentiation at the product level. To do so, small, targeted changes will be brought about
such as the introduction of different color patches, characterizing each line with special

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accessories and identifying elements such as belts, buttons and special cuts. The designers
are now studying the body line and the lower part of the jeans’ leg to propose new ideas for
the very demanding and most refined customers.
Product innovation is matched by the innovation in the materials used. Besides denim and its
many qualities and finishing, other fabrics will be added to the collection such as cachemire,
silk and leather.
The inspiration for the seasonal lines will change more frequently than in the past so to read
trends and needs more promptly. A strong innovation-driven brand identity is Lee’s bet. An
identity that should be capable of aggregating consumers and at the same time offering ever-
new product ideas interpreting the top-of-the day trends.
All of these changes point at one thing, i.e. a slight shift in Lee’s main target: the 15/25-30 age
group becomes the company’s key-target. It is with them in mind that the company is
manufacturing special products, well finished, fashionable and trend-setting.
Lee’s product innovation does not stop at the product itself: 2 collections per year (Fall-Winter
and Spring-Summer) do not hold true anymore for it is a concept that fails to fit the new, since
they have fallen out of pace with the new idea of product which Lee is promoting. Six collections
are now scheduled each year plus some “flash collections”, mini-collections which will
supplement the 6 main ones and catch the consumer’s latest whims and trends. It is a major
change. Though 6 collections a year clearly place Lee out of the ready-to-wear mainstream
strategy, nevertheless it proves the company determination in engaging in meeting the
consumer’s requests and it shows its own idea of fashion and the purchasing of garments.

Marketing and communication activities

Changes in strategy mentioned above in terms of product must go hand in hand with marketing
and communication actions, to be carefully and consistently articulated in order to convey the
brand’s values and best transfer the products’ new concepts Lee is now relying on to reposition
its brand.
It is, therefore, worth reflecting on the current target of the new philosophy of the firm’s
products. Lee consumer, at the moment, aims at is sophisticated, linked to the rock world and
not attracted by traditional communication channels. This represents a further change the
management will have to cope with. Lee, in fact, will have to adapt and try to establish a
dialogue with consumers by means of a consistent and appropriate communication strategy.
This would be among the 15-30 age group in locations they usually hang around and are willing
to communicate. And this is certainly the world of the Internet and its multiple interaction
options.
Hence the decision of embracing the entire world and the true experiences with the “Make
History” campaign and its site. This campaign is perfect to speak to the young with their
habitual language. Lee will therefore support its strategy with ideas and concepts, proposed
with “Make History”, but with the goal of expanding it, as soon as possible, with film contents
from all over the world, video uploaded by users and the possibility of downloading and sharing
musical files. The site aims at becoming a virtual platform created to connect people and
exchange ideas, opinions, life experiences of the young European metropolitans. Lee wants
to prove youngsters that it is an updated brand, ready to pinpoint trends and, above all, to
create them, being ready to exchange interactions and opinions becoming a friend and
counselor for young consumers.

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Consistent with “Make History” activities, the new marketing strategy envisages a
communication frame-work with internet being the critical tool: through blogs, on-line
communities and platforms such as myspace, Itunes. This is how Lee wants to liaise with is
target consumers conveying and emphasizing the brand’s values based on music – indie rock1,
especially- innovation and product research.
The Lee/music link has been characterizing the brand identity since long; it will be further
reinforced in future communication actions. In fact, Lee Rock is an initiative organizing 20
concerts across Europe where the best indie rock bands will perform in exclusive clubs. The
Lee Rock operation will be coordinated through a dedicated internet website and a blog; these
will have the task of announcing concerts in European cities which, in turn, will become another
site to gather together Lee and all the music-loving Lee customers.
By the same token, these activities will be supported by a constant year-round advertising
campaign mainly through the printed media, aiming at editorials and original images taken from
“Make History”.
The idea is that of communicating the new Lee philosophy, rather than aiming at one specific
product which is increasingly seasonal and linked to fads and trends. Consequently,
communication will be focused on the brand and not on the product as it occurred in the past
collections.
Furthermore, there is an opportunity for mono-brand stores to become a true communication
medium. Milan’s Lee Store, in the heart of Porta Ticinese – cult location for Lee users – has
such potentials.

… Lee Italia management is aware of the fact that above mentioned changes will have a considerable
impact on strategic and operational activities on the firm in future years...

…The marketing director and the sales director are considering how to tackle future changes which
will impact in upcoming months…

The impact of changes on Lee Italia activities

The competitive arena

A change in strategies at product level as the one introduced by Lee, inevitably leads to facing
various competitors who differ from the ones of the past. Lee will be in competition with more
innovative and fashion oriented brands, positioned with higher prices on the market and more
selectively distributed.
Some rules of the game in the new competitive arena represent important innovations for Lee
that will have to face leading brands having a great experience in the new segments the
company aims at catering for.
The new competitive scenario represents a particularly critical challenge for Lee Italia’s
management. The Italian market is, in fact, characterized by a very broad and diversified offer

1
The term indie music refers to a set of music genders characterized by a certain independence – real or perceived – from pop
commercial music and the mainstream culture, as well as by a personal approach to music itself. This expression is used to
comprise all those artists that do not subscribe contracts with major.

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of top-range products which are distinctive in terms of quality, innovation and fashion content.
Hence, the company’s capability of differentiating its offer to consumers will be fundamental
for the success of the new strategy.

The distribution
Undoubtedly, rationalizing Lee’s distribution network is one of Lee Italia’s management
priorities in order to confirm the new brand identity vis à vis the end customers. The
management, in fact, is cautions of the risks for the brand image linked to a non-consistent
distribution of the new products’ features and price positioning. The distribution may, moreover,
represent a useful tool for differentiation in a complex competitive context such as the Italian
one.
The development of the proprietary ownership has huge potentials, yet the time required to
develop such strategy is not compatible with a short-term objective. Consequently, the
company’s priority at the moment is that of analyzing its client portfolio and detect, in the
retailers’ list, the best for reaching the immediate future goal. At the same time, the
management will have to include in its client portfolio all the stores not served yet, which might
have potentials of grasping Lee’s changes in terms of offer, image and positioning.
Communicating to current clients of Lee’s product strategy changes will be quite crucial.
Understanding the motivations of such changes and the potentials for the intermediate
clientele is a critical issue in the management of relations between the firm and the distribution.
The management, in fact, will have to cope with the reactions of all the different retailers the
moment these will have to choose which products to buy, starting with a smaller collection
having a considerably higher price.
The risk represented by changing price might curb purchases of Lee products, hence this will
require the firm to make further efforts to communicate repositioning to its customers and
support adequately its distribution.
Furthermore, there will be changes in the interaction with the intermediate clientele as the
higher number of collections will mean a more frequent assortment for distributors, which, in
turn, will mean revising contracts in terms of quantity and terms of payment.
The complexity of the management of relations with the distribution is amplified by the fact that
it is not a direct relation, but it is rather managed by a network of multi-firm agents. Lee’s
management will, therefore, have to communicate changes to its sales network which, in turn,
will have to manage above mentioned criticalities with its clients. A particularly critical phase
will be communicating to the web of agents the innovations introduced by Lee; these agents
will, in turn, have to inform their clients as the company itself would do.
Two factors seem to hinder this process. On the one hand, time. This process has to be almost
simultaneous in terms of company-agent and agent-stores communication, thus limiting the
discussion between the company and the agents which could represent an important
opportunity for the latter to learn more. It is not possible, in fact, to temporarily “block” supplies
to points of sale and if a new product is not understood it might turn out to be an unsold product.
On the other hand, the multi-product portfolio managed by the sales network does help agents
assimilating Lee’s need to change. Vendors manage also other products which, unlike Lee’s
have not undergone huge innovations form the point of view of the offer structure. This change
will therefore require agents to use a different selling strategy for Lee compared to other
products. It will be necessary to convey the innovative content of the product lines in order to

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justify the price increase. Furthermore, not all clients served by agents might be in line with
Lee's new positioning. The sales network might not be allowed of illustrating Lee’s offer to
some clients with the consequent drop in sales and commissions.
All this jeopardizes Lee Italia’s relations with its agents network and, consequently, with its
intermediate clients.

… Lee’s sales director is very much concerned about the new difficulties he will have to tackle…

… Unexpected customers’ perceptions, new guidelines from Belgium, clash with new competitors,
agents management, distribution rationalization…

… The manager is considering how to manage all this without reducing turnover on a short term basis,
as the company’s quotation deserves...

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