In a recession that has rattled the foundations of the apparel and retail industries, the case for denim has never been stronger.
At this time a year ago, brands and retailers were seeing threats to consumer spending on a number of fronts. As the presidential election entered the homestretch, foreclosure rates continued to rise and the national average for a gallon of gas was speeding toward $4. Consumer spending was already being constrained, but no one foresaw the string of global economic collapse, rising unemployment and retail bankruptcies to follow. Despite this, consumers have kept spending on denim. The value proposition for those who follow and work in the industry is simple: jeans can be worn in a variety of social situations and have one of the longest life spans of any apparel item.
Data from market research firm The NPD Group shows that the women’s denim industry achieved what few other apparel segments could over the last year — it grew. U.S. women’s jeans sales in the channels tracked by NPD totaled $8.03 billion for the 12 months through March 31, a 4.6 percent increase over the $7.68 billion reported in the same period a year ago. The number of jeans sold also increased, rising 6.4 percent to $342.6 million from $322.1 million. In comparison, sales of women’s sportswear fell 3.1 percent to $72.51 billion from $74.81 billion.
“I think what we’re beginning to see is that denim has a life of its own,” said Marshal Cohen, NPD’s chief industry analyst. “I don’t want to say recession-proof, but it was able to maintain whatever growth it had.”
The industry wasn’t impervious to the withering economy, showing notable shifts in where consumers shopped and how much they were willing to spend. According to NPD, the average price women paid for jeans declined 1.6 percent to $23.44 from $23.83 last year. The largest price segment of the market was represented at $20 to $29.99, where sales rose 6.9 percent to $2.34 billion from $2.06 billion. Although still the smallest price segment, jeans retailing under $10 posted the biggest gains, spiking 36.4 percent to $278.4 million from $204.1 million.
Specialty stores remain the channel of choice among consumers by a wide margin. However, consumers were on the hunt for bargains. Outlet sales vaulted nearly 50 percent to $101.3 million from $69 million. Consumers also likely took advantage of heavy discounting at department stores, which saw an almost 10 percent gain in sales to $1.3 billion.
EMBRACING THE NEW REALITY
While the industry has proven its ability to weather the worst of storms, there is little expectation of a quick return to the boom times of 2001 to 2006, which brought a rise for names like Seven For All Mankind and True Religion. The U.S. economy, in particular, has taken a pounding from which it will take years to recover. According to the U.S. Department of Labor, the nation’s unemployment rate rose to 8.9 percent in April. Since the recession started in December 2007, more than 5.7 million jobs have been lost and the number of unemployed Americans has reached 13.7 million.
The nation’s retailers responded to the crisis first by slashing orders and then culling their own workforces. Department stores employed 1.5 million people as of April, a decline of 58,000, or 3.7 percent, from April 2008. Specialty stores had 1.4 million people on the payroll in April, having cut 61,000 jobs, or 4.1 percent, from a year ago. An untold number of independent boutiques have shuttered. Those that have managed to stay open are having significant difficulty obtaining credit.
Making progress in this environment will require brands to exceed consumers’ expectations on price and perceived value. They’ll also have to adjust their own measures as to what qualifies as success.
“Our outlook is that this is the new reality and that we have to be successful within this environment, which means providing value and good product,” said Andrew Olah, chief executive officer of Olah Inc., a U.S. agent for foreign contract manufacturers and textile and hardware vendors targeting denim designers.
Olah believes brands and retailers must provide customers with a reason to buy, more so than ever before. Doing so will require being able to clearly communicate what the enhanced value of the product is. Those that can’t craft that message and deliver it simply won’t make it.
“There’s a lot of opportunity because there’s a lot of jeans being sold,” said Olah. “The issue is why would someone buy them from you. You really have to think about that.”
“If you’re not used to it being bad right now, well it’s not going to be good for a long time,” said Lawrence Scott, owner of Pittsburgh Jeans Co. Scott said great sales days this year would have been considered normal days a year or two ago. He’s found his denim business has settled solidly in the $160 to $198 range. Anything with a retail price point approaching $300 he won’t even consider anymore. That said, Scott said he’s also had little luck with brands that retail below $100.
Boutiques like Scott’s have been the beneficiaries of brands recognizing the need to go the extra mile in today’s environment. Over the last several months, brand reps from labels like Paige Premium Denim, William Rast and Genetic have made the trip to Pittsburgh to host special events at Pittsburgh Jeans Co.
“[The brands] are more willing to do it now,” said Scott. “And, you know, I never asked before. I really have not had anyone turn me down.”
Andreas Kurz, former head of Diesel USA and Seven For All Mankind and now president and owner of fashion consultancy Akari Enterprises LLC, anticipates it will take more than one or two seasons to see a significant surge in denim.
“If they grow single digits, they will be happy and they should be happy,” he said.
Kurz doesn’t see great resistance to high prices. However, consumers that may have purchased two higher-cost jeans are now more likely to only buy one.
NPD’s Cohen also believes denim will have a difficult time regaining its momentum. He anticipates there being more pent-up demand in other product categories like footwear and handbags.
“I expect to see a slight increase in the lower end of the denim market, a slight increase in the upper end and gradual growth in the middle,” said Cohen.
The economic downturn may have been most sharply felt in the premium arena. According to a report put out by NPD in April, sales of women’s jeans priced more than $100 were up 16 percent in 2008 compared with 2007. It’s one of those eye-popping numbers that has spurred hundreds of new brands to flood the market (For more on the latest entrants, see page 14). Still, those numbers miss much of the pain experienced over the last six months.
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