Outgrowing the Denim Bubble
With dire predictions of a pop in the denim bubble, premium-denim makers are taking steps to add more sizzle to their lines so they don’t fizzle.
Recent industry reports and executives at top premiumdenim companies indicate that while the future of luxury denim is far from apocalyptic, something has to give.
Premium denim, the most touted but smallest segment of the industry, is seeing softening sales that give industry watchers pause.
Predicting a premium-denim shakeout—but not a bust— the industry’s big players say they have a plan for riding out the denim slump forecast by some industry reports.
Those reports include one from the NPD Group, a market research firm based in Port Washington, N.Y. The trend watcher reports that sales of women’s jeans priced between $80 and $99.99 grew 20.3 percent for the 12 months through March. That sounds great, but the reported growth rate for the same category one year ago was a gigantic 408.5 percent.
Women’s jeans priced above $100 reached sales of $113.1 million for the 12 months through March. That is a 34.7 percent increase above sales reported for the same period last year—but not quite as impressive as the 71.1 percent increase posted between 2004 and 2005.
So something has to give. But who will it be?
“The strong will survive,” said Thomas George, owner of the E Street Denim specialty store in Chicago. “That doesn’t necessarily mean the biggest or smallest company.”
Fat blue line
In part, the slowing sales can be blamed on too many cooks in the kitchen.
“There is a lot of denim being jockeyed around,” said Bruce Berton, director of international business consulting at Stonefield Josephson Inc., a Los Angeles–based accounting and business consulting firm. “Denim volume will continue to grow. It’s the amount of players that will shrink.”
The top players—7 for All Mankind, Citizens of Humanity and True Religion, all from Los Angeles—are finding themselves in an interesting predicament. The success they earned on the backsides of trendsetters has pushed them into the mainstream spotlight—and has given them the opportunity to survive the denim slump by growing beyond it.
“Suddenly, they have a much bigger pipeline because the mainstream has adapted to them, and they have to keep traffic up. This happens to all brands that lose that ’gotta have’ status. They hit a wall and have to maneuver in a way to capitalize on their new customer,” said analyst Barbara Bylenga, chief strategist and president of San Francisco–based Outlaw Consulting.
While consumers aren’t likely to totally turn their backs on premium-denim, they do need something new.
“There is a sense of saturation in the market,” said Jerome Dahan, co-founder and chief executive of premium-denim brand Citizens of Humanity and a veteran of 7 for All Mankind and Lucky Brand Dungarees. “I’ve seen it before. In the 1980s, denim died, and only Guess was making money. But there’s always something. You just have to ride the wave.”
Tim Kaeding, head designer of 7 for All Mankind, can’t imagine a world without luxury jeans. “It’s been established that premium denim is the sexiest pant you can wear,” he said. “People are used to it and they like to own it. I can’t see people going back to $50 denim.”
Playing the name game
While the top luxury denim brands continue to rely on jeans for their bread and butter, they see their future expanding beyond the sea of blue. Premium-denim companies are capitalizing on their name recognition, broadening their product offerings and exercising restraint.
“Brands have to diversify so they can maintain that fickle premium customer,” consultant Berton said.
Citizens of Humanity, 7 for All Mankind and True Religion are all making moves toward becoming lifestyle brands by expanding to branded contemporary apparel.
“There is a lot of talk about becoming lifestyle,” Kaeding said. For Spring 2007, 7 for All Mankind is launching a women’s knit line and offering dresses. A few seasons ago, it launched men’s shirts and blazers, which are doing well. Soon they will be accompanied by trousers and a more extensive shirt line. “It’s not a full collection, but it is certainly a broad extension of the line,” the head designer said. The company will continue to offer corduroy and twill bottoms, which have always accompanied its denim selection.
So far, 2006 has been 7 for All Mankind’s best year ever, according to Kaeding. “We’ve beaten all our sales records, but it also has been our hardest year ever.”
The company has struggled to remain relevant with premium-denim addicts while luring Middle America into the fold. “As long as you have edge, you can keep your cool customers and still reach the mainstream,” Kaeding said. To keep freshness, 7 for All Mankind offers two new washes a month and focuses on the fit and quality that built the business.
True Religion, which went public last year and has been trading on the Nasdaq stock exchange for about $17 ever since, is counting on licensing agreements to expand its portfolio.
It recently hired InGroup Licensing, a full-service licensing company in New York that specializes in fashion and lifestyle brand extensions, to help increase revenues.
“Licensing is a key ingredient in accomplishing our mission of building True Religion into a global premium lifestyle brand,” Jeff Lubell, the company’s chairman and chief executive, said in a statement.
To grow its sales, Citizens of Humanity is offering a line of women’s knit tops to complement its denim. In addition, a contemporary line could be just months away. “We do have plans to expand beyond denim and knitwear,” Dahan said.
“But we won’t do it until we have the plan just right. The client has to perceive it as being important.”
For now, the company is focusing on managing its denim distribution and growing rationally, even if it means turning down business. “Sometimes, you have to refuse orders,” Dahan said. “I’m dealing with a department store right now that I’ve had to refuse orders from because the quantities they want are too high.” He fears that filling inflated orders now will result in Citizens jeans showing up on a sales rack later.
That attitude holds with Dahan’s belief that growing a company too quickly and saturating the market is a recipe for disaster. “Growing from $20 million to $100 million overnight is dangerous,” he said. “How long can you stay at those numbers? If you’re too hot now, what will you do next season?”
Denim purveyor George agrees. He wants to remind premium brands that playing hard to get may be in their best interest. “They want everyone in America to want them, but they don’t want everyone to buy them,” he said. “They should look at the auto market. There’s not a Mercedes dealership on every corner.”
