Junior denim resource Mudd Inc., which in the Nineties helped reinvigorate the moderate jeanswear market by offering branded products at a price that undercut many status-brand rivals, is preparing to enter that higher-priced tier with a new line called Mudd Couture.

It’s part of an effort to offer the company’s department store customers a higher-margin product that won’t need to be as heavily promoted as the company’s main line, according to principals Dick Gilbert and George Fontini.

“The deflation cycle is getting out of control,” Gilbert said during an interview at the company’s office in New York last week. “Stores don’t want to be making money by asking us for markdowns.”

Fontini said the line will begin shipping test orders for holiday and will be rolled out in a bigger way for the 2004 back-to-school season. It will wholesale for $18.50 to $20 for targeted retail prices of $48 to $52. That’s a step up from Mudd’s moderate line, which wholesales jeans for $14.50 to $16.50. Mudd jeans currently carry suggested retail prices as high as $39.99, but in practice typically sell for closer to a marked-down $29.99 and sometimes as low as $24.99, Fontini said.

He said the higher prices will allow Mudd to offer jeans with a wider variety of finishes and treatments. In the current sample line, jeans styles include lightweight 8-oz. denim with hand-sanded details, as well as more heavily abraded styles with worn-through knees that Fontini described as “right out of the Paper mold,” referring to the high-end Paper, Denim & Cloth line that Mudd also owns. The products include details like leather brand-name patches and pocket tags that feature a cartoon representing a wink on one side and a dollar sign on the other.

Fontini said the company could offer treatments inspired by Paper designs at lower prices by producing in larger runs and using lower-cost fabric and production. While Paper jeans are primarily produced in the U.S. from European fabrics, Mudd executives are looking at overseas production for Mudd Couture.

The line is also seen as an opportunity for the company’s department store accounts to offer a different product than what is seen at national chains.“They want to trade up,” Fontini said of department stores. “They need to differentiate themselves.”

He did not say that Mudd would not offer the Mudd Couture line to national chains, but suggested that the higher prices might not appeal to buyers in that channel.

“The general thinking is that they don’t want to be in those price points,” he said. “They want to be in the $29.99 business because it is very successful for them.”

Fontini said he expects the new line to initially represent “a small part” of Mudd’s $455 million wholesale volume, which includes licensed products. He said he believed Mudd Couture had the potential to reach $20 million in sales on an annual basis by “late 2004 or early 2005.”

This move marks Mudd’s second effort this year to offer better-quality product for higher prices. In January, the company began developing jeans under its Mudd label to retail for $34.99, though they failed to catch on with buyers, Gilbert acknowledged. He said he believed Mudd Couture’s higher-fashion offering would justify higher prices.

Fontini asserted that Mudd has not been alone in looking for ways to improve margins in the category.

“We were pushed to think about this by our retailers,” he said, adding that if the move proved successful, he hoped that other moderate branded jeans vendors would try a similar approach.

“It’s very hard to stand on your own,” he said. “The more people that support this, the better opportunity we’ll all have.”

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