Once as essential as notebooks and No. 2 pencils for kids heading back to school, denim this fall has failed to make the grade.
Sales of denim were down in August at many apparel retailers including Abercrombie & Fitch, Gap, Old Navy, Express and Pacific Sunwear. The month’s results were in line with analysts’ dismal forecast, and September is appearing to be equally soft for the category.
Traditionally, denim sales pick up in August and soar as school resumes in September. This year, however, consumers are slow to adopt the skinny jean. Analysts said what ails the category is a lack of differentiation in styles along with high demand for “wear-now” items.
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Most analysts agree there is little hope for any sort of recovery in September unless major changes are made. Most believe retailers will be forced into drastic markdowns. Already, retailers are dropping price points and using gimmicks and promotions to attract teens to the jean racks.
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“With simpler looks and a de-emphasis on denim this fall, we were not surprised to see a 5 to 10 percent decline in average denim pricing across teen specialty and some lower prices at Abercrombie & Fitch and American Eagle Outfitters,” said Dana Cohen, senior research analyst at Banc of America, in a research note.
At Abercrombie & Fitch, the company marked down its Ezra Fitch Line in August to $89.90 from $148, and men’s basic denim was on sale for $39.50, down from $79.50. “We believe [Abercrombie & Fitch’s] denim business is comping negatively because of a glut of destroyed denim inventory and a lack of cleaner and darker washes and straighter leg styles,” said Kimberly Greenberger, specialty apparel retailing analyst at Citigroup Global Markets Inc., in a report.
Teen specialty retailer Wet Seal is practically giving denim away. Its deals for this month include $10 crop jeans, $10 denim minis, $14.56 for fashion jeans and $20.50 for skinny jeans and five-pocket jeans. Jimmy’Z, Zumiez and Charlotte Russe also have cut opening prices for denim while the “Denim Lab” at Express is featuring select jeans for $29.99, with original prices ranging between $59.99 and $79.50.
Retailers who are attempting to break into the denim business or are trying to rebound their denim sales also have resorted to extensive discounting.
“Gap is the poster child for this. Denim used to be its bread and butter, but they let it go and are trying to make up for it in one season,” said Eric Beder, senior vice president at Brean Murray, Carret & Co.
Even with television ads pushing new denim arrivals and lowered denim inventory in the second half of this year, Gap had to extend its 25 percent off select jeans promotion until Sept. 7 to push sales. And Old Navy ran a promotion that cut $5 off all men’s and women’s denim, and several styles were on sale for $25.
In order to compete with mainstream denim providers, Aéropostale, which has only been carrying denim items for two years, is offering jeans for $24.99 to $29.99, and $20 off ticket prices on select items.
But despite murmurs from competitors that the category is down-trending, teen retailer American Eagle managed a stellar performance in both women’s and men’s denim, proving there are ways to keep customers interested in the American classic. Less price-promotional than in the past, the company found ways to connect to its customers with innovative marketing tactics such as giving out a free AMC movie ticket when customers try on a pair of jeans in July.
“American Eagle’s denim business continues to rock and roll, having doubled its market share in the last five years and set to move up another notch this year,” said Dorothy Lakner, retail analyst at CIBC World Markets, in a report. “Having 90 percent newness in denim for back-to-school and the right balance in its assortments is a key reason why American Eagle’s denim business has performed so well, in our view.”
In fact, consumers are actually willing to spend a little more on their favorite brand of jeans if they are trend-right. According to a recent survey conducted by Slant for the Retail Advertising and Marketing Association, 41 percent of those polled typically spend more than $100 on each denim purchase, 30.9 percent spend between $50 and $99 and 28.2 percent spend less than $50.
Mistakenly anticipating that the narrow/skinny jean would drive sales heading into the fall season, many retailers overstocked the style and missed fashion opportunities in alternative bottoms.
“This new trend driver is being scantily adopted,” said Greenberger. “It is performing well in New York and along the West Coast, but the middle of the country is not catching on.”
This is not surprising since the new style does not flatter or fit many consumers. “More and more women realize that being fashion-right at times is ‘just wrong’ for their body types,” Beder said in a report.
With a less broad appeal, few retailers are properly incorporating the skinny style into their merchandise, said Thomas Filandro, retail analyst at Susquehanna Financial Group. He praised American Eagle for being the only company to democratically add the trend to their wardrobe selections.
True Religion is another company still finding success in denim. Believing the potential for the skinny jean was limited, the company opted to make it only a small percentage of its assortment, according to Brad A. Stephens, financial analyst at Morgan Keegan & Co.
By placing too much weight on the skinny jean and increasing levels of denim offerings, retailers and vendors both agree they have missed the trend shift to nondenim bottoms and were significantly under-inventoried in shorts, Stephens said in a report.
“We have had four great years of denim. Everyone’s closet is full of denim, they don’t need any more, especially since there are not really any new styles out there,” said Greenberger.
An increase interest in dresses may provide retailers with an opportunity to offset the decline in denim, but Greenberger said she does not see a viable replacement for the sector.
“The question is, will the consumer start to adopt nondenim items?” she said. “Retailers need to start bringing freshness to alternative bottoms to see a drive in the bottom division.”