Blue jeans selling strong, but high-end sales could suffer

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."

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