The Denim Bubble

A couple of weeks ago I saw this article in Slate.com asking whether the so-called Denim-bubble was about to crash.  Thinking it was some sort of joke, or just another misuse of the word "bubble" to describe something hot, I didn't read it at the time, but I should have.  It's pretty interesting:

Last summer, when spending $200 or more on a single pair of jeans still seemed crazy, the stock of a small company called True Religion traded at less than a dollar. But over the past year, as True Religion jeans started hugging the butts of celebrities—the company's Web site lists Jessica Simpson, Angelina Jolie, J. Lo, and the cast of Desperate Housewives as enthusiasts—the rest of us began snapping up pairs. True Religion's stock soared to over $17. If you looked at sales growth without knowing anything else about the company—$22 million in the second quarter, a fivefold increase from a year earlier—it would be easy to think that True Religion had come up with a cure for cancer instead of a more expensive pair of jeans.

Jeff and Kymberly Lubell, the husband-and-wife team who run True Religion and own more than 40 percent of the company's stock, should enjoy this while they can, because there is a denim bubble, and it looks like it's about to burst. The $110 million "premium denim" market is beset by signs of excess. Consider the $128 jeans—for toddlers. Or the 400 percent markup: A pair that costs $60 to make retails for $300. Or the race to rush new brands into the stores: Seven for All Mankind, followed by Citizens of Humanity, followed by Stitch's

More:

The first signs are the price cuts. Already, it's pretty easy to find most of the popular brands, including Sevens, on bargain Web sites like Bluefly.com or even eBay—though the companies often claim that the eBay jeans are knockoffs. Even Nieman Marcus recently marked down several styles of Seven jeans from $242 to $169 and discounted some Chip and Pepper jeans by 50 percent, to $92. And Urban Outfitters recently cut 20 percent off several new styles of True Religion jeans on its Web site.

The NPD Group, which tracks retail sales, says that after two years of dramatic growth, the market for pricey jeans is flattening and will settle at 1 percent of the $11 billion denim market. With the average pair of jeans costing $25, it's hard to imagine how many more people will be willing to shell out eight times that much for some high-priced jeans, no matter how well they fit.

Interesting stuff.  And today there's this article from Bloomberg which suggests that even the price cuts can't stem rising denim inventory:

The looming denim glut has prompted Gap and Limited Brands to discount jeans. Responding to a surge in popularity for torn, embroidered and paint-splattered styles last year, retailers bought on average 10 percent more denim apparel this season, said Legg Mason analyst Richard Jaffe in New York.

Record gasoline prices also may hurt results, particularly at retailers catering to lower-income shoppers such as Wal-Mart Stores. Sales in August and September, the biggest-selling season after Christmas, are expected to rise as much as 5 percent, down from an initial forecast of as much as 6 percent, according to the International Council of Shopping Centers.

"The back-to-school season so far has been pretty sluggish," said Mike Niemira, chief economist of the New York-based ICSC, who uses a U.S. Department of Commerce tally of spending at apparel, shoe, book and computer stores to make his estimate. "Is it weather, is it the economy, is it the energy price story? Probably all of it."

Companies loaded up on denim after teen retailers including Abercrombie & Fitch Co. posted average quarterly sales gains of 29 percent in the past year. Abercrombie is displaying "destroyed" jeans splotched with bleach and paint and torn in more than a dozen places for as much as $80.

Trendy teen retailer Hennes & Mauritz announced Monday it will begin selling a new brand of jeans, "&denim," in September, and will include about 100 different varieties each season.

"They're very popular at school, but I just don't see why you'd buy pants with holes in them," said Elizabeth Childress, a high school senior in Greensboro, N.C., after buying two pairs of faded jeans at JC Penney for $40. "They are very expensive."

They are expensive, and it must be disturbing for these companies to hear a high-schooler talk with such fiscal sanity.  The potential fallout from this shift in trends seems like it could be significant since all the retailers and clothing companies seem to have made the same bet.  Although, this doesn't necessarily represent anything long-term, so perhaps the fallout could create some buying opportunities.

Tonight on CNBC: IS THERE DENIM IN YOUR PORTFOLIO?

Comments

[Kitmeout]

There’s a growing trend amongst fashion companies to attempt to apply depth and mystique to their brand by introducing religious or philosophical elements. There’s Edun, Theory, Coexist, Mecca, Gsus, Buddhist Punk and True Religion to name but a few.

Do these companies opt for the psuedo religious or philosophical connotations because there’s a growing spiritual awakening amongst their target audience and they want their product to make a direct and lasting impact, or is it simply an offering of what’s holy and Universally ingrained as an offering at the altar on mammon? Most likely it’s a combination of the two as the ultimate aim appears to be brand recognition and exposure — and if profaning what’s holy along the way increases the odds of success then you would be failing in your Capitalist duty not to do it!

Another line of thought regarding True Religion is relationship between their brand name and brand logo which appears to subtly suggest that Buddhism is the true religion: the True Religion logo appears to depict a Buddha type character — which in combination with their brand name appears to suggest Buddhism is the True Religion which axiomatically insinuates that other religions are false. Perhaps this is reading too much into the new trend and we’re inadvertently entering the “David Ike” realm. Whatever your view we all surely have a responsibility to respect the sacred, if not the Sacred Blue.

Brand name connotations aside, True Religion produce some of the best premium denim jeans on the market with remarkable embroidery and innovative hand-sanded vintage washes. True Religion jeans are worn by an impressive list of celebrities including: Kate Beckinsale, David Beckham, Sarah Chalke, Courteney Cox, Gary Dourdon, Faith Evans, Tom Ford, Jennifer Garner, Heather Graham, Kate Hudson, Angelina Jolie, Donna Karan, Heidi Klum, Nick Lachey, Jennifer Lopez, Freddie Ljungberg, Madonna, Chad Michael Murray, Gwyneth Paltrow, Brooke Shields, Jessica Simpson, Jada Pinkett Smith, Gwen Stefani, Justin Timberlake, Usher, Bruce Willis, the Wayans Bros. — Wow!! Maybe this is a New Religion if not altogether true!

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