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Getting the Blues

Jeans remain a coveted category - although challenges lie ahead.

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Appeared In
Special Issue
WWD Where America Shops issue 07/15/2008

Americans have an appetite for denim that appears to have been only slightly curbed by the weakening economy.

Rising energy prices, the mortgage crisis, the prolonged war in Iraq and general uneasiness commonly found during presidential election years have been factors contributing to a widespread pullback in consumer spending. Denim, along with the majority of consumer product categories, has faced those same challenges. And while growth has slowed, denim sales are still on the rise. Despite already having more than enough denim in their closets, consumers continue to find the value in buying a garment that will stand up over time and can be worn in a variety of settings.

Statistics from market research firm The NPD Group indicate that women’s jeans sales 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.

Surveys conducted by WWD and other industry watchers indicate that there is a strong willingness to continue buying. WWD’s survey of consumers found 73 percent of respondents had purchased jeans over the past year, a 2 percent improvement over the previous year.

Surveys of female consumers conducted by Cotton Incorporated found that during the first quarter of the year, 45 percent 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.

The results of both surveys are surprising, given the denim industry is in the midst of its slowest sales season — the summer. It’s even more surprising when one considers how much denim women around the world already own. 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 economic environment has played a hand in altering where consumers are shopping for their denim. The two largest players in the category — VF Corp. and Levi Strauss — reported seeing customers trading down early in the year. VF Corp.’s jeanswear business, home to Lee and Wrangler, saw revenues fall 6.4 percent to $712.2 million during the first quarter of 2008.

Eric Wiseman, VF’s president and chief executive officer, attributed the decline to consumers being pushed further down the price spectrum.

“In times like this, some consumers flock to more value price points. That happens in every channel of distribution,” said Wiseman during a conference call with analysts to discuss first-quarter results. “That’s not where our strong brands exist, nor is it where we want them to exist.”

Levi Strauss & Co. saw first-quarter revenues in the Americas fall 2 percent to $580 million compared with a year earlier. The decline was attributed to a decrease in the women’s wholesale business, as well as the continued slump of the Signature by Levi Strauss mass channel brand. VF and Levi’s both expect to face challenges for the remainder of the year, as stores become more conservative in their buying.

WWD’s survey indicates that Kohl’s and Wal-Mart have been two retailers that may have captured those consumers hunting for cheaper alternatives. Kohl’s was the top store where consumers said they “regularly” shop for jeans, posting a 1 percent improvement to 26 percent of respondents. Kohl’s carries brands such as Levi Strauss, Lee and Gloria Vanderbilt.

Department stores are the channel of choice overall, with 38 percent of respondents listing these retailers as the place where they most often shop for jeans. Department stores outpaced specialty stores by a wide margin as well, with the specialty channel ranking third with 20 percent of respondents.

Specialty stores have been particularly hard hit by the reduced spending power of their core teen consumer. Comparable-store sales at Abercrombie & Fitch for the first quarter painted a somewhat dire picture despite the retailer reporting earnings and sales gains. Comps increased 3 percent at Abercrombie & Fitch, fell 7 percent at the abercrombie kids concept, decreased 8 percent at Hollister, and were down 17 percent at Ruehl.

First-quarter sales at Gap Inc. slipped to $3.38 billion, compared with $3.55 billion last year. Comps decreased 11 percent, compared with a decrease of 4 percent in the first quarter of the prior year. Comp sales were down in all divisions, with Gap North America off 7 percent, Banana Republic down 4 percent, Old Navy North America down 18 percent and the International stores at negative 5 percent.

Mark Messura, vice president of Cotton Inc.’s global product supply chain, warned of the weakness among crucial teen consumers during a presentation at a cotton conference held last month in Memphis. Messura pointed to the poor sales results of retailers like the Gap and American Eagle as evidence. In addition, Messura presented NPD data showing 13- to 18-year- olds were spending marginally more on apparel, but buying nearly 5 percent fewer items.

“They’re not driving sales,” said Messura of teens.

Kohl’s was the top pick among teens, with 30 percent of respondents age 13 to 17 saying they shopped for jeans there regularly. American Eagle was the second-most-cited retailer among teens at 26 percent, followed by J.C. Penney and Aéropostale at 23 percent each, Old Navy scoring with 21 percent and Wal-Mart capturing 20 percent of the teen set.

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