JEANSWEAR MAKERS MULL DENIM PRICE HIKE
Byline: Miles Socha
NEW YORK — With the denim business on the cusp of an upswing, the days of bargain-basement prices on piece goods probably are numbered.
American denim mills, having recently declared an end to a year-long oversupply of fabric that has depressed prices more than 10 percent and hampered returns, now project modest increases in the first quarter of 1998.
Market sources peg the increases in the range of 3 to 4 percent.
“I don’t think there will be any tremendous increase in pricing, but we do see a much better balance between supply and demand,” said Watts Carr, president of Cone Denim, one of several major mills to declare an end to the denim glut in recent weeks. “Prices have definitely firmed up in the last 90 days. Our bookings for the fourth quarter are strong.”
“We’re not getting paid what we should for denim,” agreed Dutch Leonard, president of Burlington Global Denim. “We’re going to try to raise prices. I think the industry needs that. We would be looking for whatever the market will bear.”
Jeanswear manufacturers have not yet negotiated denim prices for the first quarter of 1998, and probably won’t until later next month. The mill executives said no maker seems anxious to start the process.
A spot check of manufacturers revealed many jeanswear executives believe it’s still a buyers’ market. They said they expect prices of denim piece goods to remain advantageous for at least the next six months as Mexican mills increase capacity and European and Far East suppliers compete for makers’ business.
“I think the issue is additional supply,” said Eric Rothfeld, chairman, president and chief executive officer of Sun Apparel, which makes Polo Jeans Co., Todd Oldham and other branded and private label jeanswear. “I just think there’s more and more supply.”
“I don’t know if the oversupply has ended,” agreed John Schamberger, vice president of VF Corp. and chairman of its Jeanswear Coalition. “In Mexico, those mills are continuing to add capacity. I don’t see a denim shortage right now. We can get denim when we want it, at the price we want to pay.”
Not too long ago, VF Corp. relied almost entirely on U.S. denim mills, Schamberger said. Today, it also shops mills in Mexico, Europe and the Far East in search of the best possible value. “We don’t expect prices to go up for at least the next six months,” Schamberger said.
The denim glut has been a boon to manufacturers, which have been able to pick up excess fabrics at depressed or discount prices. According to market sources, the average per-yard price on 60-inch basic denim fabric has fallen to about $2.90 from a peak price of about $3.20 two years ago. Some have cited prices on heavyweight basics as low as $2.65.
Manufacturers hope the bargains will continue. “I don’t think anybody’s ready for a [price] hit,” said Eileen Small, director of textile research and development for the LizWear division of Liz Claiborne Inc. “The mills do not expect prices to bounce right back to what it was 2 1/2 years ago. It’ll come back gradually.”
Some manufacturers warned that any significant price increase at retail could be damaging to overall jeanswear business, which has been gaining some much-needed momentum lately, thanks to fashion silhouettes and fabrics.
As reported, top denim executives recently told a Jeanswear Communications panel discussion that fashion and technical innovations are sparking sales of denim apparel and should propel the category to growth of 5 to 6 percent for the balance of the decade.
Ebbing demand for basic five-pocket jeans, especially women’s, had been cited as a major factor behind the recent oversupply. Jeanswear executives cited only modest improvements in that business.
Robert Luehrs, president of Chic/HIS, said mills may have exaggerated the retail improvement in their rush to declare an end to the glut. “The denim business has improved, but it’s not like it’s back and we’re rolling,” he said. “We had a good back-to-school after a lousy last year.”
Unit sales for Chic were about 12 percent ahead in August and September, compared with a year ago. The biggest improvements came with two new silhouettes, particularly boot-cut flares and wide-legs.
Other executives agreed that new fashion finishes and silhouettes are helping pull denim out of the doldrums that led to the oversupply in the first place.
Schamberger said VF’s fashion products now represent a larger percentage of sales. “Our business at Lee is excellent,” he said. “It’s definitely more fashion than basic, but we still sell a lot of basic goods, stonewashed five-pockets, to men and women.”
He asserted that fashion looks even may be spurring sales of basic jeans, since “the consumer wants a full assortment of product.”
Manufacturers and mills agreed that any forthcoming price increases would apply mostly to basic denim fabric, where there has been more dramatic price erosion than in “value-added” or fashion denim fabrics. These include stretch denim, lightweight denim, dark-dip denim and ring-spun denim.
Steve Schwartzbach, vice president of fabric purchasing at Levi Strauss & Co., which buys denim almost exclusively from domestic mills, said he does not expect any dramatic change in the prices of value-added fabrics because they did not drop appreciably during the glut.
Rothfeld agreed the oversupply was mainly in heavyweight denim of 13 ounces or more. “There has been some difficulty in sourcing lightweight value-added cloth,” he said. “Mexican mills are not as able to produce value-added product. They do not have the flexibility of American mills.”
But jeanswear manufacturers were virtually unanimous in predicting increased denim capacity from Mexico as duties continue to fall under the North American Free Trade Agreement. The duty rate, currently 5.9 percent, will tumble to 2.9 percent in 1998 and then drop to zero in 1999. Cone Mills already produces denim fabrics in Mexico, and Burlington Industries is gearing up to add denim capacity in Mexico next year.
“If the glut is over, the growth in the Mexican denim industry is the only thing that will neutralize the American denim prices,” said Dick Gilbert, president of the Mudd junior line and the Zena mass market brand. “I’d like prices to stay right where they are for the next six months.”
But the mills countered that Mexico’s burgeoning production capacity may be exaggerated as a check on domestic denim prices. “If the new production in Mexico equates to maybe 5 percent growth capacity, that would be in line with expected demand growth,” Carr said. “We think that as some of this Mexican production is coming in, it’s replacing fabric from the Far East, Europe and Asia.”
U.S. mills assert that they offer technical assistance, follow-up and product development capabilities that command a premium price.
Carr said prices of foreign denim are often “held over our heads by garment manufacturers,” but they don’t reflect ancillary costs like duty and inland freight.
These issues doubtless will be hashed out during price negotiations. But the mills and manufacturers acknowledge that modest fabric price increases are ultimately a good sign.
Levi’s Schwartzbach said it would be better for the industry if denim prices remained relatively stable, rather than fluctuated wildly. “It’s good news for the industry if the denim mills are doing well,” he said. “We value our suppliers.”
Chic’s Luehrs added, “The jeans business is always better at retail when denim piece goods are going up, not when it’s going down.”
Mill executives concurred.
“I see nothing but double-digit increases at jeanswear manufacturers, and fiber people are showing good results,” Leonard said. “The supply side has got to be strong, too. The last 60 days, our business has gotten a lot better and more consistent. We see a pretty good picture now of improvement.”