THE STATE OF STATUS JEANS

Byline: Scott Malone

NEW YORK — After dominating the apparel business for a decade, status brands are no longer the only game in town.
For a number of reasons, retailers have been taking a step back from the handful of names that until recently drove their sales across many categories. After suffering through some fashion misses that they blame in part on an overreliance on a handful of resources, they’re becoming more open to trying new brands.
Further, with consumer spending starting to slow, stores are also relying more on house brands, which can be more competitive from a price standpoint, and more profitable.
In recent months, a lot of the action has been coming in the jeans category, which has been on an uptick at a time when many other areas of apparel are cooling off. Department stores have been looking for ways to take advantage of strong demand for jeans and, not surprisingly, many new vendors are trying to get their share of the big-store pie.
Since designer names have been such a big part of the jeans world since the Seventies, the sector can be viewed as a reflection of the trend toward easing the megabrand hold on the sportswear universe.
One company that sees opportunity in department stores’ desire to broaden their denim assortments is Jordache Enterprises Ltd., which is launching its Jordache Originals brand for spring, targeting department stores.
“Right now, the stores are testing,” said Jay Gorman, vice president of sales. “There is a tremendous opportunity in the $40-to-$50 jeans business, and that is one reason we relaunched Jordache when we did.”
At that price point, Jordache is coming in a little under the status-price tier, a position that other brands are eyeing, in light of the current slowdown in consumer spending, which has also caused retailers to rely more heavily on price promotions and private-label offerings to keep traffic flowing.
However, realizing the dangers that department store markdowns pose to their margins, a number of status brands have put a focus on improving their full-price sales, which means keeping their brands out of department-store promotions in many cases.
It’s meant sacrificing sales to preserve profitability, avoiding what consultant Andy Jassin called “the free-for-all of markdowns.”
Several observers said it was a wise move for the status makers. Since they see no clear candidates on the horizon to take their place in the retail world, they don’t think status brands are risking much by pulling back from promotions.
Many jeans firms ponder how the category will evolve, how their role could change and who stands to benefit.
Some executives and observers suggested that rather than having a handful of brands dominate multiple categories, the industry may be entering a period of fragmentation, where smaller companies with a focus on jeans will find themselves in a better competitive position.
As evidence, they pointed to recent moves by department stores to pare back the hard concept shops that had taken over much of their floor space and in some cases made it harder for them to quickly adjust space allotments.
Others contended that as the economy slows, consumers will prove less willing to pay the extra money for status jeans, instead gravitating toward value-priced brands.
One advocate of the specialization route is Michael Silver, whose Winnipeg-based Silver Jeans brand is making inroads with U.S. department stores.
“When times get tough, it turns to product. The sizzle is not what sells, it’s the steak that sells,” he said. “If there are less dollars to go around the retail market, then I think in those times the product rules. Therefore, the emphasis is not necessarily on brand, the emphasis is on value.”
Silver’s approach has been to avoid advertising and instead focus on strong design, local production and word-of-mouth recommendations to build the brand’s reputation.
But as Silver’s volume has increased, he’s also had to tweak his formula. The company, which traditionally had manufactured all its jeans in Canada, last year had to begin importing product from Asia to keep up with demand.
Over the past year, he said, he’s found U.S. chains more interested in his brand, as they look to broaden their product offerings.
“I’m enthusiastic to hear that I can talk about being a jeans company, without being pigeon-holed as a moderate company or a junior company or whatever, but also without having to be a brand in its traditional sense, those who rest on massive distribution and commodities,” he said.
“There’s a cooling-off of that whole megabrand formula, to just roll [the name] out bigger and bigger across every product range and age group. The bloom is off the rose, in terms of that stereotypical formula of a megabrand. Perhaps that’s leaving more room for a product orientation.”
Meanwhile, the status brands are refining their product focus, as well.
Nautica Jeans Co., which last fall brought the Nautica name back into the women’s business, said it’s been pleased with the initial success of the jeans component of the new line. However, the knits and tops category, which represents well over half its assortment, has underperformed company expectations. So it’s putting a sharper focus on those categories.
Similarly, in recent months Tommy Jeans has started to whittle down the breadth of its line, to focus on a narrower number of more wearable fashion items rather than what executives referred to as “costumey” fashion.
Guess, too, has revamped its basic jeans styles for spring, and pulled back from some of the other fashion bottoms that had grown to represent a large portion of the line.
The current concerns about a downturn in the U.S. economy have many retailers rethinking their assortments and vendors looking to make inroads.
Gorman of New York-based Jordache said he sees a lot of opportunity at a time when department stores are ready to test new brands.
“Obviously, the [status] brands, they penetrated the complete distribution of these stores,” he said. “The new guys are being felt out, they’re getting six, eight, 10 stores.”
Gorman acknowledged that economic turmoil could mean further brand shakeups.
“When there is an economic slowdown+ people will analyze their needs,” he said. “Certainly in clothing, you have staple items that are a need, but this part of the business isn’t. Everybody owns jeans. Do they need a pair right now and do they have to pay $50 for them when they can pay $24? No.”
Brands whose jeans sell for just a few dollars more than $24 have done well in department stores, recently. Three moderate junior brands in particular — Paris Blues, Mudd and LEI — have developed a substantial presence in those stores, as they’ve proven to be serious competition for the status brands.
“At points in time, I’ve felt like a stepchild. But now I find that the retailers are paying a lot of attention to us,” said Lisa Engelman, the New York-based national sales manager for Paris Blues.
Engelman said over the past year, Paris Blues may not have gained real estate in all stores, but it has increased its percentage of the department’s open-to-buy.
She said it’s been clear over the past year that department stores, who once were known to stick closely to a dreaded “matrix” system that limited the brands mix, have become increasingly interested in experimenting with new lines.
“More and more, people in the moderate market are getting chances to get out on the floor now than before,” she said. “There’s more of a range of people testing new vendors.”
Some said that department stores’ increased testing of new brands, moderate-priced and otherwise, is a result of consumers becoming more price-conscious.
“There is only X amount of dollars that consumers have,” said Jassin, a principal at the New York-based Jassin-O’Rourke Group consultancy. “If they can find a substitutable product, that is going to alter the sales of designer products.”
While retailers’ promotional experiments with other brands may be taking a piece of status-brand volume, Jassin suggested that another area is having a much greater effect — department stores’ increasing reliance on private label.
“What’s happening right now, though consumers still like brands, they are finding that because of the plethora of private label products out there right now, a lot of product is substitutable,” he said. “Many trends in designer products don’t have labels on the outside. A black turtleneck or polo shirt is a black turtleneck or polo shirt.”
At a September meeting with investors in New York, Federated Department Stores chief executive officer James Zimmerman said private label apparel represented a “very, very significant portion of our performance in comps over the last 18 months.”
Across all categories, private label accounts for 15 percent of Federated’s $18 billion in annual sales, and in certain women’s and men’s apparel categories, it’s as much as 30 percent of sales, he said.
Slowing consumer spending is likely to continue to boost private label sales at the expense of status brands, Jassin said, adding that with the intense promotional activity at retail over the last six months, and particularly over the last quarter, consumers are looking more at value purchasing than ever before.
He also pointed out that status brands in many cases are trying to pull back from that promotional environment. As department store chains like Macy’s and Lord & Taylor continue to offer more coupons, he said, the list of brands not participating in those sales has grown.
“Those designers don’t want to participate in the free-for-all of markdowns,” Jassin said.
When Tommy Hilfiger released its second-quarter financial results, CEO Joel Horowitz warned that its women’s apparel revenues were likely to decrease over the near term, as the company pulled back from some promotional efforts.
The company planned to “strive for an increase in the proportion of full-price selling,” he said.
Similarly, executives at Polo Ralph Lauren Corp. have said the company is stepping up its focus on its high-end luxury apparel lines, which tend to be less heavily promoted by retailers.
Jassin said sacrificing sales to preserve margins is a logical move for status companies.
“Sometimes, by selling more, companies jeopardize their bottom line,” he said. “People might think there is a direct correlation between a lot of sales and a strong bottom line, but it might be more important to control distribution right now as a modern marketing strategy, in order to not succumb to markdowns and keep the consumer confidence level up.”
Pulling back from certain aspects of their department store business won’t really cost status brands their cachet with consumers, as long as their focus on design — and on celebrity customers — remains sharp, Jassin said.
“They’re still status labels, because you still see Brad Pitt wearing a Ralph Lauren suit and Jennifer Aniston wearing a DKNY item,” he contended. That, he said, has a big effect on consumers’ feelings about a brand.
Many observers said there is an opportunity for someone to take on the weakening megabrands. But even those who might like to succeed them said it’s not clear who, if anyone, is positioned to take on that kind of role.
“There is an opportunity right now for a changing of positions of who the megabrands are,” said Silver. “I don’t think we will see megabrands disappear. I can’t predict if instead of 10 huge megabrands there will be 25 kind-of-big megabrands.”
Similarly, Paris Blues’ Engelman said, “In the status business, I don’t see the next thing happening yet. Usually there is a next brand, a next status. I don’t see something that is the next big thing.”
Ron Gelfuso, executive vice president at New York-based Mavi America Sportswear, suggested that the absence of any other companies with the clout — in terms of consumer image and finances — of the status brands makes it unlikely that, for now, the retailers could find substitutes for them, though he said he believes they might like to.
“I don’t know how they could do that easily,” he said. “It’s one thing to want to do it, it’s another thing to go ahead and replace them.”
All this uncertainty as to whether anyone would really be in a position to take on the role of status brands led industry analyst Larry Leeds, of Buckingham Capital Group, to conclude that the status brands, in the end, aren’t likely to lose out.
In his estimate, the current crop of status brands will remain a major part of department store sales for some time.
“Where else have they got to go?” he asked.
He even dismissed suggestions that a further drop-off in consumer spending would sour consumers on status brands.
“Would they go to moderate brands? I don’t think so,” Leeds added. “They haven’t in the past. What are they going to buy instead?”

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