NEW YORK — They don’t quite have the blues, but jeans executives are starting to sound a little nervous about their prospects in 2003.
This story first appeared in the December 5, 2002 issue of WWD. Subscribe Today.
The jeans market has been on a strong growth track for three years, with the low-rise trend, the rise of superpremium jeans and new washes heightening consumer interest and lifting sales for the sector. But the first rule of the fashion business is that no trend lasts forever and jeans vendors quietly admit that the consumers’ ardor for the category is starting to wane.
To prepare for an eventual ebb tide of demand, many executives said they’re beefing up their 2003 lines with other fabrics, including corduroy and standard cotton twill, though in many cases they’re using them in standard five-pocket styles.
However, denim makers aren’t in a state of panic. While a few years in the fashion spotlight may have the category starting to look a little faded to consumers, denim has remained a staple of the American wardrobe for more than a century and executives don’t see that changing anytime soon.
The category also continued to grow this year. According to Port Washington, N.Y.-based NPDFashionworld consumer poll data, women’s jeans sales for the first nine months of the year rose 6.7 percent from last year’s levels to $3.4 billion. That’s a strong showing, particularly given that overall women’s apparel sales slipped 4.8 percent over that period.
On a unit basis, sales of women’s jeans were up 5.4 percent to 153 million pairs. Sales growth in dollars outpacing sales gains in units means the jeans sector is bucking the industrywide trend of price deflation.
Observers attributed that phenomenon to the growth of the high-end jeans market. Brands such as Diesel, Seven and Earl Jean in recent years have popularized $100-and-up styles and in some cases convinced consumers to shell out more than $200 for a pair of denims.
Andreas Kurz, chief executive officer of New York-based Diesel USA Inc., said he believes the superpremium denim segment has established itself sufficiently to ride out economic swings.
“There has been a movement toward the upper and lower end of the market,” he said. “We have benefited from the surge in demand for higher-end denim retailing for over $100 and we’ve been able to extend up to $195 and $225. In good times, anybody can afford it, but at other times, [only] the wealthy ones can. I don’t see a danger for that segment.”
He suggested that if demand for jeans softens next year, a good strategy for vendors would be to make up the lost revenue by encouraging shoppers to trade up to higher-priced products.
“I don’t see a big increase in the quantity of jeans being sold next year,” he said. “I don’t think there will be a large increase. However, people are not afraid to spend $10 or $15 or $20 more.”
He said Diesel’s U.S. sales have risen 21.7 percent this year to $112 million, partly as a result of the overall plan to open nine new stores, raising the company’s store count to 24 by the year’s end. Next year, five more stores are planned and he’s expecting a 25 percent increase in sales.
Overall, executives said the strong denim cycle has lasted longer than they expected.
“I’ve been pleasantly surprised,” said Rosella Giuliani, general merchandise manager for women’s at Los Angeles-based Guess Inc. “I thought that the demand would start going down because we’ve been in the jeans trend for quite a while now — everyone is starting to go into this business. But there is still a lot of opportunity out there if you have the right product.”
Still, after years of growth, Giuliani said she expects demand for jeans to “stabilize” next year. It’s a commonly held view.
“We’re coming off of a strong denim cycle,” said Assad Jebara, president of Zana-di Jeans, the New York-based company that produces that label, as well as licensed Jill Stuart Jeans and private label products. “Business is not good, but it’s not bad.”
But, given the number of new entrants into the jeans business during the past few years, Jebara said he believes that next year will bring consolidation to the category.
“This is going to be a tough year and the small guys will suffer,” he continued. “In tough times, it’s the toughest who survive.”
Demand for denim eased during the critical months of August and September, though some executives contended that it picked up again in October and November.
“The back-to-school fall selling period was a little bit softer than what the marketplace had generally projected for jeans,” said Gordon Harton, president of Lee Co., the Merriam, Kan.-based VF Corp. brand. “But we have seen a pretty strong recovery since late September and early October. Selling since then has been as good as or better than what we projected.”
In the year ahead, Harton projected that the jeans business “will probably outperform the overall apparel market.” While he acknowledged that “the growth has slowed some this year,” he said he didn’t expect the market to cool further in 2003.
“We see our overall growth rate being the same as this year,” he said. “I don’t see a reason why it should be any slower than that.”
But Michael Silver, president of Western Glove Works, the Winnipeg-based maker of Silver Jeans, said he believes the business is starting to level off.
“In terms of raw numbers, we’ll be somewhat even to where we were the year before,” he said of this year’s business. “But it’s a much more difficult marketplace out there. I was just happy to achieve slightly better than flat.”
Next year, he’s expecting his North American sales to be flat with this year’s, with growth prospects in Europe and Japan.
“There’s quite a cautiousness in the denim world out there right now,” he continued. “When you’re asking what people want for spring, they don’t really know because they’re waiting for the success that might not happen from this quarter.”
What the next big trend is in the denim market — and more to the point if there is a next big trend in the denim market — has become a common worry among jeans executives. Designers have run through a variety of techniques to update jeans in recent years: lower rises, pushing the limits on washes and adding embellishments of all kinds.
Looking toward spring and fall 2003, denim merchandisers said they think jeans will be more toned down than they have been in recent seasons, which raises the question of whether the fashion message will be clear enough and compelling enough to continue to drive the category. (See related story on page 8.)
One positive sign for the market that suppliers agreed on is that inventories of jeans at retail are pretty tight. This year started with a surge in demand for many jeans companies, after stores came to the end of 2001 and realized that their storerooms were emptier than they had intended them to be.
While that brought a surge in business, it also raised fears about whether retailers would follow the fashion industry variant of Newton’s second law — that every action produces a larger and opposite overreaction —?and overbuy on jeans. Vendor executives said they don’t believe that has happened.
“I don’t think there’s been an overcorrection in general,” Lee’s Harton said. “Most retailers are still playing on the conservative side from an inventory standpoint and that probably is the right thing to do.”
Another key question in the jeans market is whether 2003 will be the year that Levi Strauss & Co. manages to break its streak of sales declines. The San Francisco-based company has not yet released financial results for its fiscal year ended in November, but is expected to rack up its sixth year of sales declines, despite a positive sales showing in the third quarter.
But Levi’s officials last month said they expect to break that streak next year and project sales to be up 2 to 5 percent, which would represent a range of $80 million to $200 million if fourth-quarter 2002 results are in line with expectations.
They have two major new ventures hitting stores next year that will play a key role in determining whether the turnaround is successful. First — and most closely watched —the company in July plans to roll out a new brand, Levi Strauss Signature, at Wal-Mart Stores.
Phil Marineau, Levi’s president and ceo, insisted the company’s entry into the mass market is “just an element of our strategy. It isn’t the essence of the plan [to turn Levi’s around].”
He said Levi’s believes it could sell several hundred-million dollars worth of Levi Strauss Signature merchandise, though industry observers suggested that Wal-Mart could easily make the line a billion-dollar business. The Bentonville, Ark.-based retail giant is said to sell $3 billion of Faded Glory jeanswear and related merchandise a year.
The question in the minds of industry watchers and Levi’s competitors is whether the unveiling of Levi’s priced $23 to $26 will eat into the company’s sales to its core customers — the national chains and department stores, which sell Levi’s for $30 to $50. While the high-end retailers who carry Levi’s premium and superpremium products have taken the news of the mass launch in stride, buyers at lower-tier stores have remained mum. But industry sources said department store and chain buyers are concerned that the Signature line could take sales away from their Levi’s Red Tab business.
Marineau acknowledged there are concerns, but said he doesn’t believe the Levi Strauss Signature line, which is styled differently from Red Tab, carries a different rear patch and lacks the distinctive hip-pocket-arcuate stitching and the tab itself, will affect the mainline business.
“What we have to get them to believe,” he said of retailers, “is we really can distribute the product and that this launch of Levi Strauss Signature isn’t going to cannibalize their business, but will be incremental. People worry about cannibalization. I think, with hundreds of different jeanswear competitors, people are not going to change their shopping habits just because all of a sudden, we’re selling Levi Strauss Signature in Wal-Mart.”
Marineau contended that a bigger factor for Levi’s will be the rollout of its Type One dark-denim jeans with exaggerated details at department stores and specialty retailers this spring. It will mark the first test of Levi’s new “customer segmentation” strategy, in which the company offers new product ideas in its high-end Levi’s Vintage Clothing and Levi’s Red collections, which retail for $200 and up, and quickly extends the successful products step by step down to its Levi’s Red label.
“As we go into the spring season for 2003, for the first time in the history of the Levi Strauss company, around the world we will have a women’s jeans line that is equal to or better than the men’s product,” Marineau contended.
Levi’s is not the only big name executives are wondering about heading into 2003. In October, Jones Apparel Group Inc. pulled the plug on its Todd Oldham Jeans line, as reported. The company said the line’s small volume prompted the decision, though sources contended that the appearance of the Oldham name on home fashions products at Target also played into the decision.
Jones owns the rights to the Todd Oldham name in apparel, accessories, footwear and cosmetics, so the question becomes, what will it do next with the brand? Jones executives said they’re open to all options, from relaunching the line to selling the name back to Oldham or to another investor. Oldham has declined to comment on whether he’d like to buy his name back.
However, Jones management has indicated that it’s looking for a way to sell into the mass channel and sources said it has already unsuccessfully pitched a mass-priced version of the Oldham line to Target. If the Oldham home products line takes off at Target, market sources said they believe Jones might offer the line to the retailer again.
While the competition remains intense across most sectors of the jeans business, vendors said there remain areas with clear growth opportunities.
Stephen Barraza, ceo of Tianello, a Los Angeles-based firm targeting the misses’ category, said his firm has enjoyed strong growth targeting fashionable stretch jeans at fortysomething shoppers who’ve been neglected by vendors that focus on the junior and contemporary markets.
His strategy has been to sell jeans targeted at an under-$50 price point, significantly undercutting the premium market.
“We’re much lower in price and there is really not that much competition,” he said. “Customers don’t even flinch at a $48 price point. There are others selling basic jeans for $60 and $70.”
While the overall expectation is that 2003 will be a leaner year for the jeans business, many denim specialists said they’re ready for tough times.
“I’d like to see it get tougher and the denim craziness quell itself,” said Silver of Silver Jeans. “We’ve been doing this many years now. I’ve seen the peaks and valleys and I find the true denim makers operate more efficiently in the valley than the peak.”