The $13 billion denim industry — a life preserver for the sinking apparel industry the past year — may be fraying at the high end of its product line.
While old standbys including Levi's, Lee and Wrangler are still seeing sales increases that likely will continue in the coming year, sales increases for pricey premium jeans will likely occur only in the under-$200 category, according to market research firm NPD Group.
Sales of these and even pricier jeans had soared deep into the recession — up 17% last year alone, says NPD — as retailers and apparel makers benefited from a largely recession-resistant jones for jeans. But really pricey denim pants may be falling out of fashion.
"The economy shifted, and all of a sudden those outrageous prices actually look outrageous," says NPD chief retail analyst Marshal Cohen. "The superpremium jean business has dropped off tremendously because the inspirational shoppers aren't going up that high, and luxury customers aren't buying two or three pairs anymore."
Still, as retail strategist Todd Hooper of Kurt Salmon Associates, says, "Premium denim is too big to fail."
While at least one high-end manufacturer boasts of planning no adjustments for the coming year, others have dropped prices and are offering additional product lines to consumers who want the brand appeal without the $300-plus price tags. And Gap plans to take advantage of the downscaling of denim next month when it introduces a $60 line of what it says are great-fitting jeans designed in part by hires from premium jean companies.
Total jeans sales were up 2.3% for the three months ended in February, NPD says, while apparel sales overall declined 6.3% for the same period.
That three-month period was the most challenging in terms of consumer spending, so any growth during that time is significant, Cohen says.
Shoppers such as Debi DeFrank, 42, helped drive the recession trend of jeans-buying. DeFrank, a Fox News makeup artist from Ellicott City, Md., owns about 25 pairs, including several by high-end manufacturers True Religion, 7 for All Mankind and Citizens of Humanity.
"I'm always looking for the pair of jeans that fits the best," says DeFrank. "Then I go and shop some more and say, 'No, these are the ones that fit me the best.' "
DeFrank, who travels extensively for work, says jeans are the perfect thing to pack. "I don't want to have to put dress pants in my suitcase."
Instead, she wears a pair of her many light-colored jeans by day and her darker ones with heels at night for dinner. There are skinny jeans for certain boots and every other possible cut to go with the dozens of shoes and 10 pairs of boots she owns.
Opening their own stores
Still, with record drops in sales at luxury department stores, makers of pricey jeans can't rely on devoted customers like DeFrank for survival. So they are rapidly opening their own stores, diversifying into other apparel and shifting more to lower price points. They're also trying to communicate why their jeans are worth hefty price tags.
"We really don't believe consumers today understand the value of premium denim," says Topher Gaylord, president of 7 for All Mankind, which is owned by VF. "It's the whiskering of the denim, the wash ... and taking raw denim and creating artistic interpretation."
Much of Hollywood, Gaylord says, knows the "idea is to have a pair of jeans that look like you've owned them for 20 years." And he says the hand distressing and other denim treatments make his production costs 10 times higher than jeans sold in the mass market.
But it's been hard these days to convince regular customers that such care should add more than $100 to the price. So at 7 for All Mankind, about 95% of the company's jeans are now less than $200, up from 70% a year ago.
True Religion, which sells jeans that top out at $398, says its wholesale sales were down 17% in the first quarter, and sales at its stand-alone stores were down about 10%. It's opening stores as fast as it can — more than 30 in the last year — but experts say it is still hampered by its reliance on luxury department stores.
"They're still growing rapidly, but obviously the rate of growth will slow down," says retail stock analyst Jennifer Black. "The question becomes, 'Are people going to continue to spend $250 and, in some cases, over $300 for jeans?' "
Black, who has dozens of pairs of premium jeans in her closet, says department stores are buying more of the $200-and-under jeans for the fall, a segment in which manufacturers like True Religion have scant offerings.
But True Religion says it isn't going to shift its strategy.
"Fashion-conscious consumers are spending less in this current environment, but when they shop, they look for products that stand out," says True Religion CEO Jeffrey Lubell. "Our innovative products oftentimes cost more to make, so our strategy does not contemplate reducing our jeans' prices."
Lucky, which sells jeans from $99 to $139, is well-positioned for the downturn, says Bill McComb, CEO of Liz Claiborne, which owns Lucky, because it isn't selling at the upper reaches of denim. The company also got a jump-start on competitors by opening specialty shops, where it can control its promotions and displays. But, as with 7 for All Mankind and True Religion's stand-alone stores, Lucky often finds it has to compete with department stores, which are discounting their jeans faster than they'd like.
Privately held premium-denim company Citizens of Humanity doesn't release sales numbers but, "Our business is not what it was last year," says Chief Operating Officer Gary Freedman. Still, he says, it's better than expected, and the company hopes to steal more sales with its recent introduction of "super stretch denim."
Like its competitors, Citizens is expanding beyond denim. It will offer knit tops for the holiday season, allowing "our customer base to buy Citizens of Humanity products at a lower price."
After all, as retail brand and design expert Ken Nisch notes, you can sell "three or four tops for every bottom." Jeans makers, he says, have to become "lifestyle companies" with non-denim clothes and accessories to thrive.
Fitting a niche
Levi Strauss and VF's Lee and Wrangler brands, while affected by the economy, are weathering it better than some at the highest ends. VF reported revenue from Wrangler jeans was up 3% in the first quarter of 2009, and Lee revenue was up 7%.
Levi's non-denim Dockers brand has been hit hard, and several of its retail stores have gone out of business, but Jon Graden, Levi's vice president of brand merchandising, says its jeans sales were stable "with pockets of growth."
But neither company is sitting on its denim-clad duffs. Levi's didn't alter its strategy when the economy began its downward spiral but asked consumers what they wanted in jeans. Among the answers they got — and responded to — were snug skinny-fit jeans, slim-fit jeans that Graden says are "not as snug," as well as new back-pocket treatments. Levi's also is capitalizing on the trend toward "boyfriend jeans," which are snug on the rear and loose in the legs.
Even when you sell $20 jeans, Wrangler spokeswoman Jenni Broyles says, consumers "need a reason to buy."
This spring, Wrangler began offering jeans with a "Comfort Solution," which includes a waistband that expands as you move.
Gap, which says denim is its "birthright," is celebrating its 40th anniversary by launching a collection that builds on its expertise, as well as that of designers it has hired away from companies including Joe's and Earl.
"Our goal is to build jeans every bit as good as any premium player," says Gap spokeswoman Louise Callagy.
Gap, which lost many middle-age female customers when its pants went too low-cut several years ago, will offer seven different "fits" for men and seven for women, including "always skinny" and "curvy."
"I really believe they know what they're doing and that they'll take market share," says Black. "And they lost a lot of market share in denim."
Bloomingdale's, which sells 15 different jeans brands, has a department with contemporary jeans that "fit a lot of people but obviously are not going to fit everyone," says Vice Chairman Frank Doroff. "Then we have jeans for women who maybe just can't fit into those."
Among the latter selections, are the "Not Your Daughter's Jeans," which are popular with the 40-and-older set and aren't as low-rise.
With things "rather ho-hum in the industry, denim is definitely a highlight," agrees Liz Sweney, executive vice president of women's apparel at J.C. Penney.
Penney's now sells about 25% more brands of jeans than it did five years ago, including wide-leg dark-denim jeans with cuffs.
"A great-fitting pair of jeans ... gives you incredible self-confidence and self-esteem," says 7 for All Mankind's Gaylord.
DeFrank couldn't agree more. She passed several pairs of jeans along to her 24-year-old daughter recently and hasn't replaced them, more because of time than money.
She expects to return to jeans shopping soon and plans to buy some by Joe's and True Religion, "and then I think I better stop. (My husband) may want me to see a psychiatrist."