Published on Friday, September 26, 2003 by the San Francisco Chronicle
Levi's to Close Last U.S. Plants
Much of the work once done in this country has moved instead to cheaper contract factories in Asia and Latin America
by Jenny Strasburg
Struggling denim icon Levi Strauss & Co. said Thursday that it will cut 1,980 more North American jobs within six months when it closes its two remaining U.S. plants in San Antonio as well as three plants in Canada.
The layoffs, combined with 650 planned U.S. and European job cuts announced earlier this month - roughly half of which are expected to come from Levi's San Francisco headquarters -- will trim the company's worldwide workforce by about 21 percent.
By the end of December, Levi's said, it will fire 800 sewing-machine operators, fabric finishers and other plant workers in San Antonio. At that point, the 150-year-old American company will have closed the last of its plants in the country where its brand achieved fame.
A small amount of Levi's and Dockers manufacturing will remain in the United States, through agreements with other firms, according to the company. Much of the work once done in this country has moved instead to cheaper contract factories in Asia and Latin America, reflecting a long-building industrywide shift.
Last year, in a move symbolic of that trend, Levi's closed its landmark Valencia Street plant in San Francisco, which had been open since 1906. About 100 San Francisco workers lost their jobs. Levi's cut 4,200 jobs worldwide last year and closed eight plants, six of them in the United States.
The company hoped that the resulting savings would help it turn around its business and pay down its huge debt, which now tips the $2.3 billion mark. But investors have been left waiting as Levi's credit troubles continue to mount and its optimistic sales projections fail to materialize.
Levi's executives, most notably Chief Executive Officer Philip Marineau, have continued to insist that their plans are on track for increased sales by next year, in large part through the new, lower-priced Levi Strauss Signature brand sold in Wal-Mart Stores Inc.
Calling Thursday a "difficult and poignant day," Levi's Chairman Robert Haas, great-great-grandnephew of company founder Levi Strauss, said in an interview with The Chronicle that the latest cutbacks were inevitable.
"We've resisted all of the pressures that have been upon us to close plants,'' he said. "As you know, we are one of the very last major companies that has any kind of a manufacturing presence in North America any more. ... Belatedly and reluctantly, we're having to follow in the footsteps of other apparel manufacturers" in shifting work to factories elsewhere.
Responding to criticism in recent years that Levi's has cut its manufacturing and personnel costs too little, too late, Haas said, "I'm not going to second-guess (previous) decisions."
Marineau, who came on board four years ago, was unavailable Thursday because he was out of the country, Levi's spokesman Jeff Beckman said.
Haas said that despite persistent snags in Levi's plans to increase its annual sales for the first time since 1996, he remains confident in Marineau's leadership. "Phil and I are very close partners, and I admire the changes he's undertaken, and the way in which he's done it. I recognize that there's been a lot on his plate, and I think he's done it very effectively."
Prior to Marineau, Haas had been CEO of the company since 1984. Levi's is largely controlled by Haas' family; but because some its debt is publicly traded, Levi's files quarterly earnings reports.
Haas on Thursday directed other comments toward the company's history of generosity toward its workers.
Regarding the just-announced layoffs, he said, "I anticipate that these (severance agreements) will be packages that will be similarly generous to what we've provided displaced workers in the past."
Of the layoffs announced Thursday, 1,180 jobs will be eliminated in March 2004 when Levi's closes factories in Edmonton, Alberta; Stoney Creek, Ontario; and Brantford, Ontario.
In San Antonio, where Levi's has had sewing operations for 25 years, workers were dismayed.
"There was shock and anger. A lot of people cried,'' Hope Villanueva, who has worked for Levi's three years, told the San Antonio Express-News.
Company executives last year indicated that they planned to keep the San Antonio factories open to fill unexpected orders quickly.
Workers, many of whom make $11 an hour, said it will be difficult to find other jobs that pay that much. "We were blessed to be here. We're never going to find a place like this,'' Maria Hernandez, 45, told the Express-News. She has spent 26 years with Levi's.
The nearly 2,000 plant workers affected by this year's layoffs will benefit from about $1.4 million in work-transition training and community grants through the nonprofit Levi Strauss Foundation, the company said.
Last year's layoffs and plant closures resulted in $113 million in restructuring charges, according to Levi's. Until severance packages are negotiated with plant worker unions, the company said it can't estimate the costs of the newest closures. Investors and analysts said they expect about $100 million in related charges.
The costs are surfacing as Levi's is seeking a new $1.15 billion financing agreement to replace its existing $850 million arrangement. The company has negotiated a waiver in its existing credit arrangement in order to avoid defaulting on bank terms.
Standard & Poor's earlier this month lowered its non-investment grade rating on Levi's two levels, to B from BB-. The firm reaffirmed that rating this week. On Monday, however, Moody's Investors Service downgraded the company's debt by multiple notches, citing concerns about Levi's credit demands and sluggish sales. "We believe that Moody's actions were overly severe, especially considering our recent improvement in sales and earnings,'' Beckman said.
The lower ratings nevertheless have spurred speculation that Levi's, already highly leveraged, could be edging toward the risk of bankruptcy. But Haas immediately dismissed the possibility, calling the speculation inappropriate and adding, "That's not something that I lose any sleep over."
End of an era
-- Levi Strauss & Co. plans to cut 1,980 jobs in North America and close its two remaining U.S. plants.
-- The company is reducing its worldwide workforce by about 21 percent.
-- Much of the work will be outsourced to cheaper contract factories in Asia and Latin America.
-- Investors and analysts anticipate $100 million in related charges.
©2003 San Francisco Chronicle