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Special Issue
WWD Denim In Depth issue 11/06/2008

No segment of the apparel industry is escaping the widening sphere of pain being caused by the global economic downturn, but denim may represent the safest harbor from the storm.

This story first appeared in the November 6, 2008 issue of WWD.  Subscribe Today.

Consumers began reining in spending over the summer as housing markets started to crumble and the price of a gallon of gas skyrocketed above the $4 mark. Consumers kept their faith in denim, however, apparently recognizing the value of an apparel item with a long life span that can be worn for a range of occasions. Economic conditions have obviously worsened considerably since the summer months. Still, those in the denim industry and those who follow it believe the segment continues to hold an advantage over other fashion categories, and could stand to reap the greatest benefit when economies begin to rebound.

“Denim continues to outperform the rest of the market,” said Marshal Cohen, chief industry analyst for market research firm The NPD Group. “We’ve got to remember that denim has been on a six-year roll, so this is just a little blip.”

Cohen noted that the bulk of denim sales are based on “absolute need and pure replenishment.” Consumers who wear jeans to work on a daily basis still need them and, as a result, spending has continued. The slowdown has been most pronounced with the aspirational female shopper — the woman who was constantly on what Cohen describes as the “quest for the perfect pair.” That consumer naturally gravitated toward the higher end of the denim price spectrum and has seen economic realities force a slowdown in her campaign.

“Clearly the most vulnerable segment is the luxury and premium side of the business,” said Cohen.

The overall strength of denim is seen in NPD’s survey of the market. For the three months from June through August, women’s U.S. denim sales slid 1.2 percent to $1.76 billion from $1.79 billion during the same period a year ago. The average price paid for a pair of jeans fell 5.2 percent to $22.23 from $23.46. Consumers have clearly fled down the price ladder as well. Sales at national chain stores spiked an eye-popping 17 percent between June and August, reaching $255.2 million. Average prices fell 4.9 percent to $18.46 from $19.42.

Results across Europe have been similar. According to research from TNS Worldpanel Fashion, a U.K.-based market research company, the total expenditure on denim jeans in the U.K. has declined by 5 percent in the year ending Sept. 14 to 1.76 billion pounds, or $2.87 billion, compared with the same period last year. Of that, men’s jeans saw the most marked decline, down 10 percent in the year to 672 million pounds, or $1.04 billion, while expenditure on women’s jeans fell 4 percent to 867.9 million pounds, or $1.3 billion.

“Children’s jeans are the only market in growth as the volume demand remains,” said Elaine Giles, research manager at TNS Worldpanel. “Whereas adults are cutting back on clothes they buy for themselves, they continue to spend on their children’s clothes. Brands are a lot less important in this market and the majority of jeans are sold through clothing multiples.” The children’s jeans market rose 3 percent in the U.K. in 2008 to 222.2 million pounds, or $346.6 million.

Katrin Magnussen, senior fashion analyst at Mintel in London, agreed that the value denim market is “particularly vibrant” for children. In terms of the U.K. denim market as a whole, she said denim consumers’ reactions would be split in the face of a recession.

“In the downturn, consumers will most likely continue to polarize,” said Magnussen. “There will always be a market for more luxurious designer jeans for those that believe in quality over quantity. However, the bottom rung of the jeans ladder will also flourish as many midmarket buyers will trade down to value jeans.”

Giles at TNS said she expected the denim market in the U.K. to continue to decline into 2009.

People are a bit short on cash and denim is a longer-lasting product, so they are less likely to replace it.”

In France, while sales of jeans by quantity rose 6 percent from January to August, the women’s category inched up just 2 percent in that period, according to the Institut Français de la Mode.

“We are seeing a stabilization in the women’s market. Sales of children’s jeans are driving overall growth,” said Hélène Fourneau, head of surveys and panels at IFM. After some 63 percent growth in denim sales in France from 2001 to 2007, growth has slowed, Fourneau said.

And with overall clothing spending set to slow, denim could be further hit. Trimming their clothes budget is one of the top recessionary tactics for global consumers, according to a Nielsen study carried out in 52 countries during September and October, that found 49 percent of consumers worldwide will be spending less on clothes during the economic downturn. In Germany, France and Italy, reducing apparel spending is the number-one move in a recession — with consumers reining in clothing purchases first before making any other cutbacks, such as entertainment. In Germany, 67 percent of consumers said they’ll spend less on clothing, followed by France, where 62 percent said they will. In Italy, 60 percent of consumers will spend less, while in Great Britain, that fi gure was 58 percent.

The Nielsen study showed just how quickly consumers’ spending power has diminished. In May, 17 percent, or one in six, French consumers said they had “no spare cash left after paying basic living expenses.” That number has jumped significantly in only five months to one in four French consumers.

“The French are clearly very, very squeezed by the credit crunch,” said a Nielsen spokeswoman.

Unfortunately, things are likely to get worse before they get better, and most industry observers have all but written off the upcoming holiday season.

“I think we have not seen the worst of it yet, the worst will probably happen in the fourth quarter this year and the fi rst quarter next year,” said Andreas Kurz, former head of Diesel USA and Seven For All Mankind and now president and owner of fashion consultancy Akari Enterprises. “There will be a lot of demands from department store buyers for returns, order cancellations for spring or flat-out markdown assistance. It’s a very tough retail environment and [retailers] have to respond and they try and go back to the vendors to make up for the losses that they have incurred or will incur.”

Andrew Olah, chief executive officer of Olah Inc., a U.S. agent for foreign contract manufacturers and textile and hardware vendors targeting denim designers, is also bracing for the holiday season.

“I think the stores are going to do terrible,” said Olah. “I’m hoping that the bottom occurs at Christmas.” Olah added that he sees the current situation as a market correction that will accelerate the weeding out of an oversaturated denim market. “There’s not exactly enough demand for all the suppliers,” he said.

George Wallace, ceo of consultancy MHE Retail, said while “no one will really grow” from the downturn, premium denim brands and value denim brands have a level of insulation.

“For labels such as Seven and J Brand, [they appeal to] a relatively small niche customer who’s going to carry on shopping. I don’t see them being hit in a big way,” said Wallace. “And the younger-focused Diesel, Miss Sixty and Fornarina [have customers] with disposable income who are not worrying so much about paying the mortgage.”

Wallace said instead, the middle of the market is likely to feel the squeeze.

“[A customer] who might have bought 30, 40 or 50 pounds jeans from Gap might think, ‘should I buy George at ASDA?’ There will be more migration toward owned brands and the Levi’s and Wrangler type of brand will suffer more. They’re not the sort of brands that the affluent fashionista goes for. They’re bought by those who will be affected [by the economy] and will want to save money to pay their gas bill.”

Michael Press, president of Earnest Sewn, believes there is more fear about the health of the market than is necessary. That said, he did acknowledge that on a recent trip to Los Angeles, Robertson Boulevard was more like “a morgue” than its usual hotbed of activity.

“Manufacturers have to recognize you can’t sit across from a retailer in this economy and act as if everything is great and not try and partner with them,” said Press.

Earnest Sewn is benefiting from a push to expand its distribution and is concentrating on its core five-pocket program. Press believes the hardest part of spring planning will be determining how much to invest in more fashion-forward items outside of basics.

“If people see [comparable-store sales] balancing out for spring, I think people will be pretty happy,” said Press.

Cohen believes denim sales will be a barometer for the broader health of the apparel industry. He also expects the holidays to be a trying time, but is looking for signs of a rebound by spring.

“By late spring, we’re going to look at the denim numbers and say things are pretty good,” he said.

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