Do Too Many Jeans Spoil the Retailer?

Sept. 26, 2002 -- Whiskered. Flared. Boot-cut. Faded. Vintage. Low-rise. Dangerously low. Offensively low.

There's just no end to the variety of jeans for sale on retailers' shelves this fall. Always a casual wear staple, jeans are now the accessory of the moment, with fashionable brands influencing trends on both the high and discount ends of the retail spectrum.

Retailers this year have increased their denim presence to about 15 percent of their total fall assortment, up from around 12 percent last year. And many specialty stores are focusing on denim as their merchandising priority, according to a recent survey from investment bank UBS Warburg.

But some analysts worry the denim craze could be too much of a good thing, and caution an overemphasis could force many retailers to discount aggressively in order to move products off the shelves.

"I'm very concerned that the supply far exceeds the demand from the consumer for denim," says Marshal Cohen, co-president of NPDFashionworld, a market-research firm based in Port Washington, N.Y. "On Aug. 15, when I was in the malls, jeans were already on sale. That's a problem."

New Styles Sow Sales

Jeans are traditionally solid sellers in the United States, but denim does have cycles based on hot trends and new developments in fit or fabric.

What's driving the current craze is a wave of better-fitting jeans and a variety of different washes and styles inspired by countless higher-end fashion brands — such as Seven, Miss Sixty, Diesel and Earl Jean — that have made their way into the mainstream market.

"It's been getting more competitive over the last five years," says Levi's spokesman Jeff Beckman. "Five or 10 years ago, there were a handful of major brands that we competed with. As you look across the landscape today, there are hundreds of new brands and dozens of potential competitors."

Now details like low-rise waists, flared legs, stretch fabrics, different color options (such as "antique" washes) and "whiskers" — those faded horizontal marks that appear after jeans have been worn and washed for over a long time — can be found anywhere from once-traditional brands like Levi's to retailers like Wal-Mart and the Gap.

"Some of the appeal is spurred by the newness," says Richard Jaffe, retail analyst at UBS Warburg. "As long as they can keep tweaking it, the more customers will buy."

How Low Can They Go?

Some retailers have latched on to consumers' thirst for denim by emphasizing jeans in their ad campaigns.

Express, a division of Limited Brands, ran its first national television ad campaign ever this summer. With the tagline, "Express Jeans … for women and men," the spots focus on the company's denim offerings.

Gap is also highlighting denim in its fall print campaign, which features 50 different celebrities, from Willy Nelson to Wayne Gretzky, in their favorite Gap jeans. The retailer also introduced seven new fits for women this fall and some new washes, including brown and faded washes.

Levi's has also revamped its line, focusing on its new low-rise jeans in edgy television commercials featuring the tagline, "Levi's low-rise jeans. Dangerously low."

Levi's spokesman Beckman says the company learned that being at the forefront of fashion trends is key, after the late '90s when it got into the baggy jean trend too late and its sales suffered as a result.

One of its big trends for the fall is low-rise jeans for men. The company has two new low-rise styles for men — including one super low-rise version called "The Offender."

So far, the company's strategy is showing progress — Levi's third-quarter sales grew 3.5 percent, its first quarter of positive sales growth since 1996. Still, higher operating costs kept its profits down nine percent for the quarter.

"Even when you have core products that are doing well, you still need to be looking to creating and seeding in the marketplace a very relevant trend," says Beckman.

Discounts May Lie Ahead

But not every retailer will be a winner.

American Eagle Outfitters, which focuses on the 16-to-34-year-old set, reported its same-store sales were down almost 5 percent for the month of August. Some of the retailers' jeans are discounted by almost $20 on its Web site. Wet Seal, which is featuring low-rise stretch jeans in various washes this fall, saw its comparable store sales decline 12 percent in August.

And Gap's domestic same store sales fell 4 percent for the month, while the company's Old Navy units sales were flat.

Some industry watchers argue that the sagging sales have to do more with an overall drop in consumer spending rather than jeans fatigue.

"I don't think it's a denim problem, it's a retail problem," says Mark Messura, vice president of strategic planning at Cotton Inc., the New York-based trade group representing the cotton industry. "There's just too much of everything."

And analysts like UBS Warburg's Jaffe say many retailers have learned their lesson from last year, when they loaded up on sweaters, only to have a warmer-than-expected winter drain demand. Now, many retailers are keeping their inventories lean so they won't be stuck with unsold merchandise.

"The good news is they're managing around the inventory," says Jaffe. "If it's just selling OK, you just carry it forward, and cancel the next delivery."

Still, the fact that retailers might even have to consider cutting back on merchandise does not bode well for their bottom lines, says NPDFashionworld's Cohen.

"Canceling orders helps protect from further markdowns, but it doesn't protect what you already have," he says. "Remember if you're not bringing in new merchandise, you're not bringing in additional sales."