Asserting Their Status

For much of the past couple of years, the excitement in the jeans business has focused on extremes.

Dozens of companies crowded into the rarefied high end of the market, selling jeans that retailed for $100 and sometimes much more. At the same time, mass and moderate brands stepped up their fashion offerings, showing consumers that they could find fashion-right jeans at bargain prices.

As measured by unit volume, the mass brands clearly dominate the market. According to data from STS Market Research of Cambridge, Mass., half of all women’s jeans bought last year — or 111.3 million pairs — were priced below $20. Only 3 percent of all jeans sold, or 6.8 million pairs, cost $50 or more. The market for $100-and-up jeans is so small that the company, which relies on polling, doesn’t even try to measure it.

Between those two poles, designer-name status jeans brands seemed to be lost. With retail price points averaging in the $49 to $59 range, they didn’t have the low prices sought out by many value-conscious shoppers or teens looking for a bargain, or the distinctive washes and fine fabrics of their premium competitors.

Get ready for that to change. At least two major status names — Polo Jeans Co. and Tommy Jeans — are preparing to unveil in the coming months overhauled product lines for fall retailing, with the aim of drawing more shoppers back into their world. At both brands, officials said their plans include stepping up in price, a move that will allow them to offer better fabrics, more involved finishes and hand detailing.

“The stagnation has been a result of the whole category — not just us — not managing our positioning,” Polo Jeans president Heather Pech said in a recent interview. “The opportunity is there to sell jeans from $49 up to $100.”

High Altitude

Consumers just can’t get enough contemporary denim.

At least that’s what makers of $100-plus jeans hope as more lines launch and existing ones continue to thrive. But whether or not this is just a trend in the denim market or a category that’s here to stay is yet to be determined, as many of these firms have only been in business for an average of two years.Seven For All Mankind has made some major strides in the past couple of years and has grown to annual sales of $120 million, despite the departure of its founding designer, Jerome Dahan, who left to begin Citizens of Humanity, also a consistent top seller this year for high-end stores.

It has evolved into a niche-driven sector, such as Blue Cult’s “butt lift” bottom, Chip & Pepper’s American vintage inspiration, FRX’s less expensive $110 jeans and Miss Sixty’s European approach. But where will these brands be next year?

Chances are, high-end jeans will still be booming. For many consumers, having the hottest new pair of jeans is what the denim business is all about. While these businesses are still considered pretty small versus denim legends like Levi’s and Lee, the high-ticket firms plan to be around for a while. With many growth plans in the works for next year, 2004 is shaping up to be a busy time for these brands.

Blue Cult aims to get its marketing strategies off the ground with the hiring of Tara Narayan as marketing director. Bringing her expertise from Gap to the Los Angeles-based denim maker, Narayan said she plans to keep the cool factor of the brand by not using “in-your-face marketing,” but rather more grassroots techniques, like a new Web site and look-book design.

Evisu, which began its push into the U.S. market two years ago, is now testing a small line of jeans that retail at about $200. Although still a high-ticket price compared with other lines, most Evisu jeans sell for about $325 at retail.

“We hope that once we get our new lower-price-point line off the ground, our women’s business will grow significantly,” said Vince Gonzales, vice president of Evisu. “Ideally we would like the jeans to retail at under $200, but that can be difficult since we don’t want to sacrifice the detailing and expensive fabrics we use.”

Whether these lines will have the staying power of Levi’s and Lee remains to be seen, but the upscale contemporary category has become a dynamic sector in the lucrative but volatile jeans world.

Levi's LamentsForget the past 150 years, the question is what’s ahead in Levi Strauss & Co.’s next 150 days.

The sesquicentenary company has not yet reported results for the fiscal year ended last month, but executives have already warned it’s likely that 2003 will go down as the firm’s seventh straight year of sales declines.

That comes despite the firm’s controversial decision last year to roll out a special line of product, Levi Strauss Signature, at mass merchants including Wal-Mart Stores Inc. Executives at the San Francisco company have not broken out sales for the new venture, but industry officials have estimated that fully stocking Wal-Mart’s 2,800 U.S. locations must require hundreds of millions of dollars worth of merchandise.

The company’s continued inability to stem its sales slump led to this month’s decision to bring in turnaround experts from Alvarez & Marsal to help find ways to improve Levi’s top and bottom lines. That firm’s association with major industry bankruptcies, most prominently Warnaco Group Inc., led to speculation that a Chapter 11 filing might be on the way.

A Levi’s spokesman adamantly denied that speculation, saying, “We refinanced earlier this year and that gives us ample liquidity and financial flexibility to operate.”

Last year, Levi’s earned $25 million on sales of $4.14 billion, well off the 1996 peak of $7.1 billion. Through the first nine months of this year, sales inched up 0.4 percent, but Levi’s took an $11.2 million net loss. When its third quarter ended Aug. 24, Levi’s total debt was $2.37 billion, compared with $1.85 billion as of Nov. 24, 2002, when its last fiscal year ended.

Company officials have said that the mass-market rollout eventually should be a key component of improved sales, and with the line due to hit all of Target stores next year, it’s clear that there’s the potential for more sales.

But according to sources, the introduction of the mass-priced brand has angered executives at the national chain stores where Levi’s sells the bulk of its main Red Tab line.

President and chief executive officer Phil Marineau, in a recent conference call, acknowledged that the mass launch has left Levi’s customers wary and said, “Retailers are certainly managing their Levi’s and Dockers inventories very conservatively in the face of the Levi Strauss Signature launch.”He said Levi’s had done studies of sales at its accounts near select Wal-Mart units and had found no evidence that the mass line was cannibalizing sales of the Levi’s brand.

As the A&M officials settle in at the company’s Battery Street headquarters — Jim Fogarty, an eight-year A&M veteran, stepped in as interim chief financial officer this month — the question among Levi’s watchers is what changes they will make.

There have been persistent rumors in recent months that the descendants of Levi Strauss are considering selling the company. Some financial sources have described that as an unlikely scenario at present, given Levi’s financial troubles and high debt, which would take a significant chunk out of any purchase offer.

Levi’s officials have denied they are shopping the company. But sources have said that it’s clear something will need to change unless Levi’s owners want to see the firm continue indefinitely on its sales slide.

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