The denim industry's heady days of double-digit growth have faded, but confidence among those who make and sell it hasn't waned.
The explosive growth of the premium denim market had been the rising tide that lifted all boats for five years. Hundreds of brands flooded the market and retailers down the price ladder followed suit, adapting relatively quickly to offer their customers similar styles and washes at more palatable prices. The first rumblings of a slowdown in the premium segment started appearing last year and it's clear that the shakeout in that arena is in full swing. But for the broader denim market, the changes haven't been nearly as dynamic.
According to market research firm The NPD Group, women's U.S. jeans sales fell 4.9 percent to $7.41 billion for the 12 months through March, compared with sales of $7.79 billion for the same period a year ago. The explanation for the decline may be simple — consumers' closets are already overflowing with denim.
According to surveys conducted by Cotton Incorporated, U.S. consumers own more denim garments than anyone else in the world. U.S. consumers own on average nine pairs of jeans.
Eric Beder, senior vice president and analyst at Brean Murray, Carret & Co., which covers several premium denim players, said in addition to consumers sitting on their own denim cachet, the industry is also faltering in its mission to deliver new and excitement-generating styles. Then again, there's been an exhaustive progression in styles from low-rise to boot-cut, to torn, to heavily washed or embroidered. Last year, the shift went to dark washes and skinny or straight legs, which Beder believes might have given consumers cause to shift their attention elsewhere.
"The whole straight-leg, dark-denim campaign was exclusionary because a lot of people can't wear that," said Beder. "The dark denim trend also lasted too long. We don't really have a next. It's more of what we had before."
NPD's figures speak to this trend among several key demographics. Women's jeans sales among 25- to 34-year-olds fell a sizeable 15.3 percent to $1.09 billion for the 12 months through March. Sales for women between the ages of 18 and 24 also fell 6.3 percent to $1.47 billion. The most significant growth is coming in the 55- to 64-year-old age group, with sales rising 15.2 percent to $592.5 million.The combination of an overabundance of brands and a lack of new fashions has made justifying prices a more difficult task, as well. According to NPD, sales of jeans priced at more than $60 plunged 19.2 percent to $711 million in 2007 from $880.2 million. It's important to note that this price segment represents one of the smaller segments of the market.
The average jeans price remains well below the $100 premium threshold. For 2007, the average price paid for women's jeans was $22.91, a decline of 2.1 percent from the $23.39 reported last year. The $20 to $29.99 price point remains the largest denim segment, with sales of $2.21 billion in 2007. But even this largest segment saw sales fall 11.7 percent from the $2.51 billion reported last year.
Beder and those in the industry still believe denim can be a top performer across the retail landscape, but they also agree that, at the moment, there's a need for a new fuel to spark the fire.
"Denim is never going to go away as a signature item, but the key is it's got to be new and exciting, which we haven't seen in a while," said Beder.
Regardless of the price point their brands target, denim designers and manufacturers have spent the last year dealing with increasingly skittish retailers. For denim veterans, it's regarded as part of a natural cycle of ups and downs in the industry, not anything near a crisis.
"It's a scary year for retailers. They're uncertain what to do for denim," said Michael Silver, who gets two reads on the denim industry with his 1921 premium label and his Silver Jeans line, which is priced around $70. "They're certainly not risking their dollars on new and unproven brands. Silver has 16 years of denim experience and, in times of caution, that's really played well."
Silver has seen department stores and boutiques put renewed emphasis on a brand's ability to provide a consistent fit and to manufacture and deliver product on time.
Retailers also seem to be more aware of their inventory levels than in years past, noted Silver. Instead of being asked what celebrities have been seen wearing the product, retailers are now first asking whether or not a brand can assure prompt delivery."It's a refreshing thing," said Silver.
He's also seeing boutiques that had only stocked premium brands in other years start taking another look at Silver.
"They spent three or four years buying every premium brand imaginable," said Silver. "Now they know this is a great product and their consumer is not so oriented to the premium."
It helps explain why 2007 is shaping up to be one of his best years for the Silver label, priced at what he jokingly refers to as "the middle of nowhere."
Silver has also seen the pullback in premium.
"There's one thing for sure, a lot of the premium retailers are not happy with their inventory levels," he said, adding that retailers are finding the markdowns necessary to move premium product particularly painful.
The 1921 label, said Silver, is coming off a year with 100 percent increases, a feat he doesn't expect or necessarily want to repeat this year.
"Nobody is unhappy about slow growth at 1921," he said. "It's a security in the market and I don't want to be known for offering the one big trend or next thing. I want to be known as a secure great commodity that retailers can count on."
Ultimately, Silver believes denim makers should be satisfied if they can hold their ground for 2007 and maybe into 2008.
Angelo LaGrega, president of VF Corp.'s jeanswear coalition in the Americas, said at the midtier and mass channel levels the real challenge has been getting the right balance of fashion and basics onto the shelves. LaGrega said VF, which manufacturers the Lee and Wrangler brands, has seen retailers falling into two categories, having gone with too much fashion product for their client or too little. In either case, the consumers didn't respond. He expects retailers in the mass and midtier channels to concentrate on adjusting their assortments rather than looking to greatly reduce their exposure in denim.
"There's been too much basic, too much sameness, too much redundancy and dark blues," said LaGrega. "With the right amount of different washes, a balance in boot-cut to straight legs, we can drive this business much more aggressively. We're already seeing strong results where we've done that."VF's midtier brand, Lee, has been surging, he noted. The Lee business is up between 30 and 40 percent this year, a trend he also attributes to offering consumers new innovations.
"We have jeans that are marketed as instantly slimming and those jeans in both channels are very successful," said LaGrega, although he acknowledged that the mass channel business has been a bit more difficult, with the business currently running flat to last year.
Dick Gilbert, founder of the Mudd Jeans brand, echoed analyst Beder's sentiments regarding the lack of new fashion to drive business.
"The kids have seen it all and bought it all," said Gilbert. "There's gotta be a sea change, somebody has to find a new clean fresh look. If I had the answer, that would be wonderful."
The private label business continues to grab more shelf space in the department store channel, too, said Gilbert. He also believes department stores are having significant difficulties selling at full price.
"See if anyone will tell you that they're selling day in and day out at regular price," he said, although he noted that the responsibility lies with the brands. "Until someone shows [consumers] something that they haven't got, what do they need it for? It's our fault."
Rick Spielberg, vice president of sales for Hudson Jeans, has seen the benefit of the fallout in the premium market.
"I'm seeing tremendous growth and tremendous demand for product, and I'm seeing it from a few of the largest players in the premium denim business," said Spielberg.
He's seen a welcome change in behavior on the part of boutique owners and buyers over the course of the last year.
"They were being emotional and reactive to names and trends, and not thinking about the ramifications of if a line doesn't sell," said Spielberg of his dealings with retailers in years past. "I love the fact that they're being more business minded. I love the business conversations I'm having with retailers now. I think it's terrific."
Jason Verhoeven has run into some difficulties getting Brown Label, which he owns and designs, into even the boutiques that want to bring it in."I do see a lot of hesitation in talking with stores," said Verhoeven. "They love the line and a lot are saying that they're trying to clean up the brands that they do have before they can bring us in."
Verhoeven expects this type of environment to persist for the next two years, but he's confident he can grow his business steadily during that time by taking the vacated space from brands that didn't perform for retailers.
"In our case, they see us in a lot of the right stores, so they want to do it but they're just not ready," he said. "I don't try to push it on them. When they're ready, they'll see us."
KEEPING THE FAITH AT RETAIL
The common refrain among retailers is that they're not necessarily buying less volume, but they're definitely going deeper with the brands they know and trust.
Lawrence Scott, owner of Pittsburgh Jeans Co., said sales at his store, which carries around 60 brands, are still ahead of last year.
"I always tell people jeans have been around for 150 years," said Scott. "It's not like people will stop wearing a garment that's a staple, it's never going to happen."
Still, Scott said he "absolutely" believes there are too many brands in the market and expects it will take another season to discover who will survive and who won't. His tolerance for new brands is admittedly lower than in years past.
"We've just gotten burned too many times with people not knowing what they were doing with fits and washes," said Scott. "I don't go near anyone who doesn't have any experience in denim anymore."
It also takes far less effort to sell easily recognizable brands such as Seven For All Mankind or True Religion, but that hasn't lessened his desire to foster new resources. Scott counted Iron Army and Anlo as newer brands he believes in and said consumers still want the premium product.
"I could rip the labels off a premium jean that sells for $200 and if I put an $80 tag on it, people don't want to buy it," he said.Thomas George, owner of E Street Denim in Chicago, is also optimistic about the denim business.
"I don't find that the jeans business is as doom and gloom as people say," said George. "It's a fixture of the American populace."
Customers are, however, overwhelmed with brands.
"The customer is saying they can't keep up and, much less, they don't want to keep up," said George. "They are not anywhere near as enamored [with denim] as they used to be."
George said he started cutting back on the number of brands he carried more than a year ago, which has freed him up to go deeper on brands he knows perform. He added that it's not only the brands that sell the most that he considers the performers.
"It doesn't have to be a jean that you sell 500 pairs in a month to be a good brand," he said. "I think the difference between now and then was that everybody expected instant results. If it didn't sell 250 pieces the first week, you didn't think it was right. You've got to take a little time."
Ort Varona, who has a chain of Octane premium denim and casual sportswear shops in Dallas, Denver and Austin, Tex., said he has cut the number of vendors he carries by 50 percent.
"We're all sticking with the guys that we know and betting that they'll be able to produce marketable goods," said Varona.
Customers are still buying at his stores, as well.
"For me, the bulk of the business is back to this traditional five-pocket boot-cut," he said.
The trend toward wide-leg and trouser styles has worked, but hasn't been nearly big enough to cause a surge in sales, said Varona.
Denim is still a primary sales driver and Varona is preparing to bring in brands that start at $65 instead of his current entry level pricing of $125.
"We still believe the heart of our business is going to be $165 to $200," he said.
But the improvements in the quality of denim at lower price points has convinced him that consumers will respond."I think the consumer wants to buy it in a boutique setting but just doesn't have the opportunity to," said Varona. "We feel the product has actually caught up."
Denim's place in the retail world isn't likely to change, he noted.
"It's still the most consistent sale in your shop. That's the fact," he said. "When sales are down at all, you know your go-to product is denim."
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