Companies looking to boost their sales of jeans in the U.S. market are apparently going to have to do it without a sudden resurgence in demand.

This story first appeared in the October 23, 2014 issue of WWD. Subscribe Today.

Women’s jeans consumption continues to fall, with retailers working down their inventory positions contributing to a decline in sales, whether measured in units or dollars.

The drop-off continues to be most severe in the area that had been the primary source of growth for more than a decade and which showed the earliest signs of erosion — premium denim. The affluent women who brought about the upswing in upscale jeans have in a sense become overinventoried themselves, with closets and drawers full of earlier denim purchases and their eyes now focused on yoga pants and active-oriented bottoms.

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They’re coming upon some new expressions of denim — fresh versions of distressed looks, athletic interpretations of denim fabrics and silhouettes, prints and yarn-dyed designs — but those aren’t making up for the nearly automatic sales registered by retailers just two years ago.

According to figures compiled by The NPD Group Inc., dollar sales of women’s jeans in the U.S. fell 8 percent in the 12 months ended in August to $8.1 billion from $8.8 billion in the comparable prior-year period, while units dropped 5 percent to 324.2 million from 342.2 million. With high-end jeans struggling, fast-fashion retailers pushing lower-priced alternatives and many retailers turning to denim as a promotional weapon during a back-to-school season marked by poor traffic, the average price of a pair of women’s jeans dropped 3 percent to $25.02 from $25.86.

By contrast, overall sales of women’s jeans were still trending upward in the year ended in August 2013 — up 8 percent to $8.9 billion with units ahead 12 percent to 348.8 million. However, during the earlier period, sales of jeans at retail prices between $25 and $75 were still growing at a near double-digit pace and those below $25 moved ahead 16.1 percent.

But the premium segment had already begun its contraction, with sales of jeans priced $75 and up down 19 percent, falling below the $1 billion mark and landing at $818,000, reducing their share of sales to 9.2 percent from 12.3 percent earlier.

NPD no longer discloses sales by price point, but Marshal Cohen, the company’s chief industry analyst, confirmed what many had expected: “The higher you go on price, the bigger the drop-off.”

Although a smaller business and one less affected by fashion preferences and more by replacement, men’s jeans sales traveled a similar, if slightly less dramatic, trajectory. Dollar sales declined 5 percent in the 12 months through August to $5.4 billion and units pulled back 4 percent to 207 million.

Cohen noted that the denim business — at least since the Sixties when it crossed over from workwear to a symbol of youthful freedom — has always been cyclical, prone to rise with the arrival of a hot idea such as designer jeans, acid washes, high and low rises and various leg openings, and then slump when the hot item cools off.

“The numbers have been soft in denim for long enough that we’ll see some improvement as they get ‘anniversaried,’ but the industry has the opportunity to make the recovery happen before the cycle gets us there,” Cohen said. “The denim industry as a whole has gotten into replenishment mode and that is not going to build the business. The resources are trying, and I realize that they’re dealing with retailers who in many cases are very resistant to giving new ideas a chance in a soft market, but there just hasn’t been enough in the way of real innovation in fabric and silhouette and washes. Basically, what the customer sees when she gets to the store is, ‘Here’s more of what you already have, but we’re going to give it to you for a little less.’ But if there’s no room in the closet and they’ve already seen it, you could give it away and it wouldn’t matter.”

Mills and makers have been pumping the innovation lever heavily and there are products now in the pipeline offering temperature and moisture control, antimicrobial properties, shape retention, greater sustainability and other attributes not previously available. While these offer promise for future seasons, they’ve yet to have a significant impact on retail sales.

The premium denim business has been through a significant transformation in the past two years, with private equity players making significant acquisitions of brands such as True Religion, Lucky Brand, NYDJ and Paige; companies combining, such as Joe’s Jeans’ purchase of Hudson Jeans, and larger firms picking up brands, as Fast Retailing did with J Brand. PVH Corp.’s acquisition of Warnaco Group allowed it to consolidate the jeans and underwear operations of Calvin Klein previously under Warnaco into PVH and undertake a relaunch of the jeans business this fall.

New owners have tended to make transformations of these businesses a necessity rather than simply an option. Nearly all the acquired companies, and many remaining under present ownership, have taken steps to fine-tune or build their retail businesses and expand their assortments in pursuit of the mass necessary to be considered a brand, rather than simply a label, and compete on the worldwide stage.

“It’s a tough time to have nothing other than denim,” said Carlos Alberini, who joined Lucky as chairman and chief executive officer as it was acquired by Leonard Green & Partners from Fifth & Pacific Cos. in December. “If denim’s a bit slower, we have a pretty substantial business in other categories that can be grown in both men’s and women’s. We’ve made substantial investments in sweaters, jackets, leathers and dresses and there’ll be more to come.”

While the company’s retail unit has been battling negative comparable sales in the denim category for more than a year, growth in other categories in 2014 has allowed it to post positive overall comps.

Alberini, a former president of Guess, had been co-ceo of Restoration Hardware before returning to the world of indigo after a four-and-a-half-year absence. He’s been struck by changes in the market at both the higher and lower ends.

“It’s definitely more competitive and I think price has impacted the business in a pretty significant way with the H&Ms, Zaras and others offering great assortments at very low prices,” he said. “And they’ve been met by the Abercrombie & Fitches and teen retailers offering denim at prices in the range of $25 to $39. That’s pretty dramatic compared to what I was used to during my time at Guess.”

Lucky has a 244-unit retail fleet, with 170 full-price stores, and resources with well-developed retail businesses have generally had a hedge against the difficult market conditions in the U.S., particularly those confronting wholesale.

Levi Strauss & Co. registered a global increase in its women’s jeans business during the third quarter as its own retail fleet and strength outside the U.S. helped it overcome what few resources have been able to successfully combat — weak wholesale figures within the U.S.

Chip Bergh, Levi’s ceo, attributed the improvement to “softer, stretchier denim” that was missing in recent seasons. “The women’s denim category continues to be challenged in the U.S., but we left some money on the table last year by being out of stock on the items that mattered,” he told WWD.

Levi’s third-quarter sales rose 1.1 percent to $1.15 billion, but its direct-to-consumer operations, including e-commerce, were up 11 percent. Sales were down 1.8 percent in the Americas to $697 million, on the weakness at wholesale, but rose 4 percent in Europe to $286 million, and were up 9.6 percent in Asia Pacific to $171 million.

Discussing the Seven For All Mankind business in VF’s Contemporary Brand coalition, Steven Rendle, senior vice president of VF’s Americas region, told analysts during the company’s third-quarter conference call this week, “Though we’re not getting great growth in our wholesale, we are seeing really good results within our [direct-to-consumer] channel and we’re continuing to open stores and seeing comp growth as we really focus on that consumer experience when they’re in our store and [we’re] looking for [units per transaction] and higher conversion rates.”

Addressing challenges confronting Wrangler in the mass channel, Lee in the middle tier and Seven For All Mankind, Eric Wiseman, VF’s chairman, president and ceo, told WWD, “The business isn’t promotional where we have new, innovative products — and these are selling at full price.”

After a day spent checking on specialty stores in the Washington market, Susan Anderson, analyst at FBR Capital Markets, reported, “Where there was a promotion, there was a crowd. Where there wasn’t a promotion, there wasn’t one. Retailers are still pretty heavily exposed in their denim businesses, although I think it’s been less hard on Abercrombie, which planned to be promotional from the outset and appears to be pretty clean in the category.”

She expects third-quarter results from the teen sector to remain soft, although margin comparisons might benefit because “teen retailers had it so tough in the third quarter of last year that there just might be some improvement.”

Andreas Kurz, president of Akari Enterprises LLC, which advises apparel brands on international expansion, pointed out that if U.S. companies are facing difficulties dealing with retailers in their home market, the idea is “terrifying” for overseas companies.

“There’s no market as competitive as the U.S.,” he said. “You have to invest heavily and it takes a long time — longer than a lot of people are willing to spend — to turn the corner. And then, once you do, the department stores want to discount your line.”

That dynamic has made the recent denim downturn more marked than it might be under less-competitive conditions, but Kurz is confident that the market will bounce back, although probably not at the lofty price points that made for a sales and profit bonanza during premium’s heyday.

“Denim will always be there, and we’ll work through a cycle and it will be back,” Kurz said. “The next cigarette [silhouette] or low-rise or boot cut could just be a season away.”

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