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The Top 10 Denim: Reduce and Regroup

A thinned-out market means more opportunities for the survivors.

Appeared In
Special Issue
WWD 100 issue 07/23/2008
1. Levi Strauss
2. Old Navy
3. Gap
4. Lee
5. Wrangler
6. Guess
7. Levi Strauss Signature
8. Arizona
9. Abercrombie & Fitch
10. Gloria Vanderbilt
 
There’s good news and bad news for the denim market.

On the plus side, the shakeout of the overpopulated category picked up momentum last year, giving the brands that survived confi dence that opportunities to claim new market share would increasingly present themselves. Unfortunately, that shakeout has been followed by a mortgage crisis and soaring prices for energy and food — all of which have resulted in consumers tightening their purse strings for discretionary spending.

Denim certainly hasn’t been the only apparel category to feel the pangs of a weakening economy, but industry veterans take comfort in knowing that, even in slow times, denim remains a wardrobe staple. In fact, consumers may be more apt to invest in denim during a downturn than other, more perishable goods. Jeans have a  significantly longer life span than shirts or other bottoms, and can be worn in a range of situations and settings. As refl ected in this year’s 10 most familiar denim brands, customers see the value in labels whose price tags don’t break the bank.

Despite the negative sentiment surrounding retail, statistics from The NPD Group market research fi rm validate industry veterans’ faith in denim. Women’s jeans sales in the channels tracked by NPD totaled $7.77 billion for the 12 months through March, a 4.9 percent increase over the $7.41 billion reported in the same period a year ago. In comparison, women’s casual sportswear sales, which includes tops, bottoms and outerwear, slid 3.7 percent to $65.5 billion from $68 billion.

Premium brands such as True Religion, Seven For All Mankind, Citizens of Humanity and Joe’s Jeans have been able to expand their spheres of influence and solidify their positions as market leaders for jeans retailing north of $150. While those brands generate buzz, a premium label has yet to crack WWD’s top 10 denim list for brand awareness. According to NPD, jeans priced between $10 and $30 account for more than 53 percent of the overall market, and the average price of women’s jeans came in at $24.50, a 7 percent increase from $22.91 the previous year. Of the top 10, Guess is the only label that sells a style for more than $100. For Levi Strauss and its Signature mass brand, Old Navy, Gap, Lee, Wrangler and Arizona, prices tend to fall between $20 and $60.

According to WWD’s “Where America Shops” 2008 consumer survey, 73 percent of women polled said they had bought jeans within the past year. And they still have an ample appetite to buy more denim, according to surveys of female consumers conducted by Cotton Inc. During the fi rst quarter of the year, 45 percent of females in the Cotton Inc. poll said they didn’t need any denim, but that they might purchase one or two items, and 32 percent said they were likely to buy several items. Women’s zest for denim isn’t confi ned to the U.S. According to Cotton Inc. and Cotton Council International, women in the U.K., U.S., Brazil, Germany and Colombia each own more than seven pairs of jeans on average. In China, Japan and Thailand, the average is more than six. The greatest opportunity rests in India, where women own an average of only 0.7 pairs of jeans.

The road has been rocky for Levi Strauss this year, which still managed the top spot. John Anderson, president and chief executive, said during a conference call with analysts this month that the company likely would face continued difficulties for the rest of the year as the economic pressures that have beleaguered the U.S. begin to show in key markets around the world.

“We’re now seeing slowing momentum in key markets in Europe and Asia, driven by higher fuel and food costs,” Anderson said. “We expect the operating environment to remain challenging for the balance of the year.”

Revenues for the Americas plunged 19.3 percent to $477 million during the second quarter, compared with $591 million in the same period a year ago. While the core Levi’s brands has performed well, the seventh-ranked Signature brand has consistently seen dwindling sales. Still, Signature’s exposure with retailers such as Wal-Mart Stores Inc. and Target Corp. make it recognizable among consumers.

Old Navy, meanwhile, landed in the number-two spot, up from fourth place last year. The big-box retailer has sought to infuse more fashion in the line, most notably with the addition of Todd Oldham as its creative director of design last fall.

Its sister company, Gap Inc., has been on a collaboration kick. This year it took part in designer joint-venture projects including (Red) handbags by Mulberry, a shoe collection by Pierre Hardy and a limited edition collection with CFDA designers Phillip Lim, Michael Bastian, Band of Outsiders, Threeasfour and Philip Crangi.

In May, it introduced a limited edition collection of T-shirts designed by contemporary artists such as Jeff Koons, Chuck Close and Marilyn Minter. This fall, the first complete collection designed by Patrick Robinson, Gap’s head designer, will bow, signaling a return to classic, American style. Other initiatives include a babyGap home high-end collection of baby accessories and furniture within the babyGap franchise.

J.C. Penney Co. Inc.’s Arizona brand bumped up two spots this year to eighth place and represents the retailer’s largest in-house label. Currently, Penney’s carries a mix of 45 percent private label, with the balance being national brands.

“In denim, Arizona is our biggest private label business…and [nationally] we have the largest Levi’s brand in the world,” said ceo Myron “Mike” Ullman  rd, after reporting year-end results in February.

Management considers Arizona a pillar of its All-American lifestyle concept,one of four targeted lifestyle groups around which it is building its assortment. All-American is considered to be the lifestyle with the widest appeal and is being driven by denim, fashion knits, fleece and sweaters.

Sixth-ranked Guess has been on fire, consistently reporting rising sales and earnings in an increasingly diffi cult retail environment. Recently, its management revealed plans to open 245 stores this year, including 185 international stores and 60 in the U.S. This follows 184 new stores last year.

“We strongly believe we have developed brand recognition on every continent,” said Paul Marciano, ceo, in March.

Guess’ 2007 results were its best for a full year since it launched 27 years ago. Earnings grew 42.2 percent to $186.5 million, or $1.99 a share, from $131.2 million, or $1.42, last year. Total revenues  swelled 40 percent to $1.66 billion from $1.19 billion. This is a nearly 90 percent increase in revenues from two years ago.

The Lee (fourth) and Wrangler (fifth) brands, both owned by VF Corp., each fell two spots this year. Lee experienced slight declines in 2007 and has faced difficulties in the U.S. this year. During the fi rst quarter of 2008, VF saw revenues in jeanswear — its largest and oldest segment — fall 6.4 percent to $712.2 million from $760.8 million.

Gloria Vanderbilt, in 10th place, accounted for 6 percent of Jones Apparel Group Inc.’s 2007 revenues, or approximately $231 million. Sales could take a hit this year due to the bankruptcy of Goody’s Family Clothing Inc. Abercrombie & Fitch joins this year’s list at number nine, knocking out Jordache from last year. The teen retailer has been winning with a denim assortment priced between $79 and $99.