California Apparel News

Meeting the trials and tribulations of the denim industry

Founded in 1959, Olah Inc. has seen its share of cycles in the denim market. But what’s different about the current one is how high the market spiked and how hard the star is falling.

But consider it a call to rise to the challenge, says Andrew Olah, owner of the New York–based denim supplier and consultancy. Because, in order to weather this downturn, he says, you’ll need to be the best at what you do—whether that’s coming up with brilliant designs to sell at premium or producing your denim line more efficiently and with excellent quality control.

California Apparel News spoke with Olah about the boom times, like when he brokered $80 million worth of denim and got two calls per week from new customers, as well as about today’s more “rational” times. Olah also shares his thoughts about the current state of the denim industry in its many facets.

CAN: Tell us about Olah Inc.AO: The company was started by my dad, and next year will be our 50th anniversary. I joined in 1973. We were originally a Canadian company but are now based in New York with an office in Los Angeles.

I fell in love with the jeans industry. One of my early customers was Levi’s, and I cherished the opportunity to have been a vendor to them. CAN: What do you do?AO: We were originally a fabric agency for textile mills around the world. We’ve evolved, and now we’re a marketing company—a product-development company—we sell fabrics, sponsor a trade show called Kingpins and do consulting. The main source of revenue is the agency, which has two sources of revenue: fabric and finished garments. CAN: Who are your customers?AO: We operate in two zones: the premium and upper retail. So we do business with Banana Republic, Gap, Abercrombie & Fitch and American Eagle, but also Adriano Goldschmied, Paige Premium Denim, Citizens of Humanity, Gold Sign and Seven For All Mankind. CAN: How many companies are there like yours?AO: The basic way people sell textiles hasn’t really changed. What has changed is that companies have their own offices. So somebody works out of his home and represents one company. From that perspective, every supplier is a competitor. But when you consider all the different things we do, I don’t think there’s anybody [else doing that]. That’s probably because nobody’s stupid enough to do it.

It’s very expensive to run a group of 13 people, which is an enormous amount of overhead. That’s a lot for a fabric-selling company. The reason we do it is that we hire people who are really competent, who have degrees in textiles or who can engineer a factory.

Our managing director in L.A. has spent nine years running laundries, so if a customer has a problem with a fabric related to washing, we can solve it instantaneously. CAN: What’s the denim market like right now?AO: It’s in another pattern of maturity. One of the things that has happened to the denim industry historically is that it has massive spikes up and down. It’s just the nature of the industry. And this particular spike was a bit larger and more forceful than the others because it also involved not just consumer demand but a shift in how people wear jeans.

The reason the spike went so high is more people began wearing jeans to clubs, restaurants and work—a completely different approach to jeans. It was a huge social change. Those people now are like, “What’s next?” And the industry hasn’t been able to give them the same excitement as when premium jeans first came out. CAN: When did the cycle peak?AO: We knew there was an issue in 2006. Everybody who has been in this industry for a long time knew it couldn’t last. CAN: So where are we now in Summer 2008?AO: I think we’re in a period of difficult times with the size of market that has been anticipated. When business booms, there are a lot of new entrants, and if they don’t have sustainable strategies, they suffer the most. Levi’s or VF Corp. [owners of Lee and Wrangler] probably won’t suffer at all. CAN: So you have fewer orders today?AO: Everybody in the business, except maybe Target, has fewer orders than they did two years ago. CAN: As a percentage, how much has it fallen off?AO: It has dropped an amount that I would call unfortunately expected. $80 million was a spike we probably didn’t deserve, so it has gone back to the rational level where it used to be.

I think 500 million pairs of jeans are consumed per year, and I’m sure that number will go up each year by 2 to 5 percent. I don’t think anything has changed. The people that spiked most were the new entrants. Seven For All Mankind came from zero five years ago.

Right now we’re in the real jeans business, with a stable demand—the demand we had before the boom. CAN: What’s the next fashion trend as far as denim goes?AO: People are talking about vintage washes right now, especially in Europe. Not ruined, not with holes, but vintage-looking. And in women’s, which is 70 percent of the market, the trend is toward new fibers, such as Pima cotton, or different kinds of stretch fiber. CAN: How has the green trend impacted denim?AO: I worked for a Portuguese textile company that was the first to make organic shirts for Patagonia, so I’ve been involved with organic since 1995. I teach a textile development course at the Fashion Institute of Technology, and we have this conversation every semester. I always answer the question the same way: “If you would like to be environmentally friendly, never buy a new thing again. There’s already enough jeans, furniture and cars—just stop buying.”

So let’s not talk about how we’re going to create new things that customers don’t need—which is what all consumer products are—and say they’re environmentally friendly. CAN: So do you feel “bad faith” about your business because you’re providing new jeans?AO: Not at all. Whatever consumer industry you’re in, we all make stuff that nobody needs. Do we feel bad that people enjoy what we do? No, I think it’s a great feeling. But practically speaking, as a citizen of the planet, I don’t have a problem saying nobody needs anything we make. CAN: Tell us about your consultancy work. AO: We work for Bayer Agroscience in the development of their product called FiberMax, a fine-quality cotton that’s grown in Texas, and we’re trying to make people aware of this brand.

We also work with a company in Morocco called Atlantic that’s the largest manufacturing company in all of Morocco, making 8 million jeans and 5 million yards of denim each year. They’re a great company, selling to Diesel and Miss Sixty, and we’re helping them with the U.S. market. CAN: What do you think of the jeans at Target?AO: They’re fantastic. They’ve achieved reasonable quality at a fair price. CAN: What’s on the horizon for the denim industry?AO: There are a lot of textile mills out there that were built during the boom. The question for all of us over the next few years is what this overcapacity of denim and apparel manufacturing is going to mean for the industry. It’s going to be great for the consumer, because you have an oversupply.

I don’t want to say we’re in a bad time, because I think we’re in a normal time, but I do think there’s an oversupply. There’s more production than needed. CAN: Who will survive?AO: The people who are the best at what they do. This business is always about the fork between logistics and fashion. There’s nothing in the middle. By logistics, I mean making whatever someone wants in a huge quantity, quickly, with great quality, and delivering on time, and doing that repeatedly.

Those are the two roads, so pick a road.