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Denim Report: Anticipating Slow Fall, Retailers Shift Away From Premium

The back-to-school season is shaping up to be disappointing for the denim industry.

The back-to-school season is shaping up to be disappointing for the denim industry.

As retailers begin stocking shelves with initial fall merchandise at the end of the month, they are keenly aware that momentum isn’t on their side entering b-t-s. Evidence of slowing sales in the U.S. began appearing at the beginning of the year. VF Corp. saw sales in its jeanswear segment — the company’s oldest and largest business and home to the Wrangler and Lee brands — fall in the first quarter. Jeanswear revenues slid 6.4 percent to $712.2 million during the first three months of the year.

“The first quarter is not representative of what we expect from our jeanswear business for the rest of the year,” Eric Wiseman, president and chief executive officer, said in a conference call with analysts.

However, rising energy, gas and food prices have persisted and consumer spending has continued to contract. VF will report second-quarter earnings on July 15.

On Tuesday, Levi Strauss & Co. reported that revenues for the Americas plunged 19.3 percent to $477 million during its second quarter, compared with $591 million in the same period a year ago. The bulk of the decline was attributed to problems encountered in implementing a new management system that resulted in shipments being halted for a week. While the core Levi’s brand had only small declines during the quarter, retailers’ responses to the delay was telling.

“Issues continued with respect to fulfilling customer orders in a timely manner and this did result in some customer cancellations,” said Robert Hanson, president of the North American region.

Hanson acknowledged that some retailers struggling to make sales may have taken advantage of the company’s delays to cancel orders. Industry sources said retailers are looking to minimize their denim exposure and shift assortments toward lower price points.

“Women’s denim is generally down at retail,” said a source working on the supply side of the denim business that works with several of the industry’s largest retail chains.

The source said a major specialty store retailer had called this week asking that fall denim deliveries be delayed by two months.

“Nobody knows what to do,” said the source. “I don’t think anybody can strategically plan, and what’s even worse is there’s really no new product out there.”

Michael Silver, founder of the moderate-price Silver Jeans and premium 1921 label, said a fall slowdown was anticipated.

“Any smart person in the industry has been bracing for this for about eight months now,” he said.

Retailers and vendors have been waiting to get through the late winter and spring months to get a clear picture of consumer behaviors, one not colored by variables like weather, Silver said. Now well into summer, the issue is apparent.

“Traffic is down,” Silver said, and as a result, more brands are entering the market at lower price points. “Value is no longer a dirty word in the denim business. Value is good.”

Ron Gelfuso, president of the Fresh Ink denim label, said boutique and small chain-store owners have told him they increasingly feel the need to stock lower-priced labels.

“How are you going to move your business? Premium is the hard way to move forward,” Gelfuso said. “Some owners are getting that and getting around it. I see and hear more people wanting to move lower.”

Gelfuso believes store owners are moving as quickly as they can to lower-priced models, but expects that most will stick with the top two or three premium brands in order to fit the needs of older customers. Younger customers, however, seem to be less interested in spending upward of $200 on jeans. As a result, Gelfuso also anticipates a surge of brands entering the market at sub-$150 prices.

“You’ll see a lot of imposters show up with cheap stuff,” he said. “I think that will just be part of the process.”

Wall Street analysts are still upbeat on premium players such as Seven For All Mankind, True Religion and Joe’s Jeans.

Eric Beder, retail analyst at Brean Murray, Carret & Co., said in a research report that True Religion can achieve double-digit growth for the year in its wholesale business with premium denim alone.

“We note the company literally offers hundreds of denim styles compared to a handful at their key department store partners,” Beder said in a research note in June.