Red Flags for a Blue Market

Slowing denim sales indicate the category could use some fashion twists to help perk it up again.

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Americans have more denim in their closets than they know what to do with. As a result, their attention has turned elsewhere and retailers are seeing a slowdown in the once-booming category this year. That said, consumers and retailers alike are far from giving up on denim.

This story first appeared in the June 28, 2007 issue of WWD.  Subscribe Today.

Research conducted by Cotton Incorporated offers statistical proof of the voracious appetite Americans have for denim. It also revealed just how dramatic an impact the premium denim craze has had in spurring denim sales throughout the price spectrum over the last six or seven years. According to a Cotton Inc. survey, American consumers now own an average of nine pairs of jeans, making the U.S. the global leader in jeans ownership. Consumers in Colombia and the U.K. owned an average of eight pairs of jeans, while Germany, Brazil, Italy and China all reported an average ownership of seven pairs.

Women increasingly are devoting their paychecks to dresses, footwear and handbags, and industry analysts believe retailers already have begun to shift their assortments accordingly. Market research firm The NPD Group found that sales of women’s jeans were down 1.8 percent in dollar volume and 2.3 percent in units in 2006, the first declines reported in five years. The average price U.S. women paid for jeans last year came in at $22.91.

Marshal Cohen, NPD’s chief industry analyst, believes the women’s denim market provides an early barometer for what’s to come for the wider denim industry.

“As goes the women’s business, so goes the denim market,” said Cohen in an interview when NPD released its study of the market in May. “The women’s market is a clear indicator of what is likely to happen in other segments.”

Cohen said he expected retailers that had “deemphasized” their denim offerings would fare best heading into the summer. That in itself isn’t too surprising, considering that the summer season is traditionally a slow period when it comes to denim sales, but Cohen said a larger shift is occurring. Many retailers who didn’t traditionally carry denim jumped on the bandwagon in recent years to bring in sales. Those retailers are now in the process of backing out of the category — some entirely, said Cohen.

Industry analysts also note there hasn’t been a wealth of new styles entering the market to help denim retain its must-have status. Washes went dark, and rips, abrasions and over-the-top embroidery have given way to clean styles. Consumers subsequently have been faced with a sea of similar product. The popularity of skinny-leg styles wasn’t easily translated to the mass market and the more recent trend toward trouser-cut jeans has failed to generate widespread excitement.

Still, denim remains a bedrock product for retailers. U.S. sales rose 3.4 percent last year, according to NPD. WWD’s survey found that 71 percent of respondents had purchased jeans within the last year, down from 74 percent in last year’s survey and from 76 percent in 2005.

The pullback also is reflective of a broader change in the retail environment.

“We believe, after a May selling month of weak results almost across the board from retailers, that there can be no further denying that the American consumer is in a spending slowdown,” said Eric Beder, retail analyst at Brean Murray, Carret & Co., in a June 11 report. Beder is holding out hope for a strong holiday season, particularly in the premium denim segment.

“We note that the holiday seasons have been mediocre for the last three years in the apparel segment,” said Beder. “While still early to call, we believe there will be a number of key trends, including the return of excitement in premium denim and a continued explosion of fall and winter colors to drive fashion business.”

Consumers have faith in the department store channel when it comes to purchasing jeans, with 37 percent of respondents naming that channel as the place where they most often bought jeans. The number was even higher for teenagers, 42 percent of whom said department stores were the places they most often shopped for jeans. Kohl’s was the top department store for denim. The 25 percent response rate for the chain bested the 24 percent J.C. Penney received, and far outpaced Macy’s, which met only 14 percent of the denim needs of those surveyed.

Specialty stores fared poorly in this year’s survey. Old Navy and Gap, the two most popular specialty stores, saw declines of 6 percent each. Gap scored low among teens, as well, with only 16 percent saying they regularly shopped there for jeans.

Wal-Mart remained the top mass channel retailer and was the store that consumers most often went to when shopping for jeans. However, Wal-Mart did lose some ground. Consumers asked to list five stores where they regularly shopped for jeans ranked Wal-Mart second behind Kohl’s. While 24 percent of respondents said they regularly shopped at Wal-Mart, this represented a 6 percent decline from last year. Wal-Mart’s chief competitor, Target, meanwhile, saw an increase of 6 percent.

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