Dampened Denim Sales Call for Diversification and Innovation
Lately, the denim market has been on a rollercoaster.
After a sharp sales decline early in the pandemic, consumers scooped up denim in 2021 and 2022. But this pent-up demand has subsided, ending this upward trajectory. In the first half of 2023, Circana data shows a 5 percent drop in denim sales. Women’s denim is performing better, with sales dipping 3 percent in H1 compared to 9 percent for men. For the entire year, Coresight Research projects a 1 percent denim decline.
More from Sourcing Journal
The industry is competing with its own recent strong performance. As former Levi Strauss & Co. president and CEO Chip Bergh noted during the company’s second-quarter earnings call last July, the denim category in the U.S. over the last 12 months was 12 percent larger than it was in 2019. “Since the pandemic, there have been wild swings within the category—extreme downs, extreme peaks, lots of volatility,” he said.
Partly accounting for the recent slowdown is the inflationary environment and resulting consumer price sensitivity. “Based on the first two quarters of this year, we’re actually seeing softened consumer demand for denim products, largely because of the overall softened consumer demand for discretionary products,” said Sunny Zheng, senior analyst at Coresight Research.
Consumers are also prioritizing other fashion purchases, including dressier styles such as clothing for the office and occasion wear. Through April 2023, tailored and dress apparel sales grew 5 percent year-over-year and 8 percent over the same period of 2019, according to Circana.
Cost Consciousness
Price is the leading consideration for denim purchasers, mentioned by 60 percent of respondents in a September 2022 survey from Coresight Research. With cost on consumers’ minds, mass-market prices are currently winning out. In Coresight’s survey, 54.7 percent of consumers who bought denim in the last year said their total spending was between $0 and $110. Budgets were most concentrated between $30 and $70, with 27.1 percent of respondents. A Cotton Incorporated Lifestyle Monitor survey from March 2023 found the average price consumers say they pay for jeans is $53.
Centric Software’s analysis also shows that lower prices are moving more jeans in the U.S. Denim with an initial cost up to $50 had the strongest sell-out rate in the 30 days ended Aug. 14 (21 percent), followed by $51-100 (14 percent).
There are also pockets of positivity for designer and luxury denim, with Centric noting that sell-out rates trend higher in more expensive women’s denim, particularly in the $151-$300 range.
American Eagle relaunched its AE77 premium brand last year as a sustainable capsule collection with men’s and women’s styles. “It’s a small test, albeit, but these jeans are not cheap,” said Jen Foyle, chief creative officer and Aerie global brand president, during a May earnings call. “They’re a premium price point, and we like what we’re seeing early on. And definitely, that would entertain an older customer.”
Levi Strauss’ value brands were down double digits in the U.S. in the second quarter of 2023. However, Bergh said there was “strong demand” from consumers earning $100,000 or more, supporting more premium mainline sales. Whereas “surgical price reductions” were conducted on certain Red Tab products in the wholesale channel, mainline full-price stores were not lowering prices.
“So far, average discount penetration and average discounts are trending slightly higher than 2022,” said Elizabeth Shobert, director of retail market intelligence and research at Centric Software. “However, the back half of the year will be crucial, and in July 2023, both discount penetration and average discounts were actually lower than the same month last year. Notably, we also see higher sold-out rates compared to last year, in part due to more discounting as well as better inventory management by brands and retailers.”
Retail Strategy
Consumers’ search for value is also boosting denim performance in lower-price channels. Per Maria Rugolo, apparel industry analyst at Circana, mass brand men’s denim sales declined 3 percent, less than the overall market, while women’s off-price denim was up 3 percent. Multi-brand pure-play e-commerce platforms have also grown denim sales 15 percent in the first half of 2023.
Physical stores are still capturing a significant portion of sales. Cotton Incorporated’s survey found that 59 percent of shoppers do all or most of their jean shopping in store, while 25 percent split their purchases between online and in-store and 17 percent favor online shopping.
Per Coresight’s consumer survey, the top retailers that shoppers have bought denim from in the past 12 months were Walmart (35.7 percent), Amazon (24.1 percent), Kohl’s (21.6 percent) and Target (20.1 percent), all of which have their own private label offerings.
In general, Rugolo noted that manufacturer- or brand-owned channels have declined. However, Levi’s and Kontoor have bucked the trend. Kontoor’s direct-operated e-commerce and brick-and-mortar stores revenues rose 15 percent in the second quarter ended July 1.
While Levi’s overall net revenues declined single digits in the second quarter of 2023, direct-to-consumer channels—including its mainline and outlet stores—grew 13 percent. E-commerce was up 20 percent in the quarter. During the earnings call, Bergh spoke about the brand’s “DTC-first strategy,” calling its direct-operated mainline channels “the most premium expression of the Levi’s brand globally.” In the first half of 2023, DTC represented a record 44 percent of sales.
Bergh added, “Why that’s a strategic focus of ours globally is, we’re in control of the brand, we’re in control of the consumer experience, we’re in control of what we focus on in our stores, we’re in control of the assortment in the stores, and the consumer comes into the store wanting to buy Levi’s.”
Levi’s has been expanding its NextGen store concept that focuses on experiential retail, with customization through a Tailor Shop and larger fitting room areas that encourage interaction with stylists.
Zheng noted that opening physical stores could be more challenging for smaller denim brands in 2023 or 2024, since they must compete with the industry leaders and mass merchants. For them, DTC online services may be a better fit. “They could start to build a niche market, do some marketing on social media and they gather certain consumers that are loyal to their products,” she said.
Denim Diversification
What denim styles are hot, and which are on the way out? In men’s denim, straight legs are the leading fit and have seen a 3 percent increase in H1, said Rugolo. Straight and skinny—the top two styles for women that together make up over half of sales—were down a respective 3 and 14 percent. The number three style, bootcut, saw an 8 percent increase. And in an overall declining market, flares—which are approximately 9 percent of the market—have been flat and maintained sales.
Looser fits are still popular. Per Centric, between July 2022 and July 2023, searches grew for “flare jeans” (9 percent), “baggy jeans” (7 percent) and “wide leg jeans” (2 percent). A 37 percent uptick in searches for “cargo jeans” nods to the utility trend. On the decline is “low-rise jeans,” for which searches fell 12 percent.
Denim is also no longer solely about the five-pocket jean. Edited found that in Spring 2023, bottoms had a 2 percent smaller share of the denim product mix in the U.K. compared to Spring 2022. At the same time, tops and outerwear gained share, reflecting the “double denim” trend.
Centric found searches grew 84 percent for “denim dress” and 82 percent for “jean skirt” between July 2022 and 2023. Per Edited, these products also moved more in Spring 2023 than 2022, with sell-outs for denim maxi skirts up 564 percent and long denim dresses up 827 percent.
Edited expects that silhouette options will continue to expand. Aoife Byrne, senior fashion and retail analyst at Edited, noted the Trucker jacket’s return at Pre-Spring 2024 shows like Erdem, Ganni and Moschino. “The success of non-traditional silhouettes is set to persevere for the coming seasons as consumers continue to embrace the denim revolution and seek out unique items,” she said.
Consumers are also seeking denim that can serve more functions. Rugolo noted the appeal of “hybrid usage” clothing that can be worn at home, at work and for going out. “Their wallets have shrunk, but they’re still going to spend and they’ll need apparel,” said Rugolo. “But where they’re going to put those dollars are going to be in the areas where they see the most use out of whatever it is that they’re buying.”
Abercrombie & Fitch has diversified beyond being a “jeans and T-shirt business,” including with non-denim bottoms and “cleaned up” denim that can be worn to work. CEO Fran Horowitz said during the retailer’s first quarter earnings call in May, “The consumer for Abercrombie has many different wearing occasions. And now that many of them are back to the office, they’re coming to Abercrombie to help…service them for that need as well.”
In its “Data Driving the Denim Boom” report, Edited pointed to denim as a “lucrative middle ground” between casual and occasion wear as the lines between the two blur. “Creating and promoting multi-wear garments is key, from multi-way straps to convertible lengths,” said Byrne. “Furthermore, merchandising add-on accessories and including day-to-night product shots and website edits such as ‘jeans and a nice top’ will also help drive sales of casual-leaning items. We also predict the growth of embellished and coated denim for ‘dressier’ casual options.”
Driving Demand
As denim brands must compete for consumers’ discretionary dollars, the optimal strategy combines calculated merchandising, consumer engagement and innovation.
Zheng suggested that brands lean into “evergreen styles” by making core merchandise 60 to 70 percent of their assortment. This enables them to carry merchandise into another season without discounting. The remaining portion can be used to respond to consumer demand, especially the fast-changing preferences of Gen Zs.
During Gap Inc.’s first quarter earnings call in May, the company’s chairman and then-interim CEO Bobby Martin explained that Gap had driven further growth in women’s denim by pursuing best sellers such as its Baby Boot and High Rise Stride styles. He added, “Gap brand’s focus on amplifying its icons is truly resonating, as the team focuses on reintroducing the most modern versions of its iconic styles.” For instance, Gap’s Cheeky Straight got a silver faux leather update.
Although price comes first, consumers also look for comfort (52.3 percent), fit (45.2 percent) and quality and durability (30.7 percent) in their denim, according to Coresight’s survey.
Activewear’s ascent has pushed denim brands to be more innovative with aspects like stretch and flexibility, said Rugolo. Across apparel, Circana’s research has shown consumer interest in performance properties such as breathability, moisture wicking and stain and odor resistance. Denim can also be a “confidence booster,” borrowing sculpting ideas from shapewear and activewear. “There’s definitely a need to make sure that there is innovation in the space because it’ll warrant people spending more,” she said.
Denim brands are widely addressing sustainability, but just 5.2 percent of consumers told Coresight that they consider environmental friendliness before buying jeans. Although it may not incentivize purchases, sustainability remains important. “From an investment perspective, denim brands and retailers must invest in sustainability—not only because they want to attract conscious consumers, but also for their equity and brand images,” said Zheng.
Denim brands are also driving demand through influencer collaborations. Kontoor’s Lee has a Los Angeles stylist showroom that engages with influencers and celebrities, and Wrangler’s sponsorships align the brand with the Country Music Awards and Dallas Cowboys. American Eagle Outfitters also benefited from an influencer boost, as an organic TikTok post from Alix Earle made its new Dreamy Drape style go viral.
Brands can also try partnering with key opinion leaders (KOLs), such as pop stars, said Zheng. For instance, Calvin Klein’s “Calvins or Nothing” Spring 2023 campaign featuring Kendall Jenner, Michael B. Jordan and K-pop sensation Jennie Kim from Blackpink as well as the debut campaign with new ambassador Jungkook of BTS boosted global site traffic 39 percent and sales 150 percent compared to the weeks ahead of launch. A denim shirt worn by Jungkook in the ad sold out on Tmall in a mere 30 minutes. As part of PVH’s “influencer engine” plan, the brand also collaborated with Kim on a capsule collection, for which 65 percent of the shoppers were new to Calvin Klein, expanding its audience.
Denim is largely cyclical, since shoppers’ primary reason for purchase is to replace old or worn-out jeans, mentioned by 58.5 percent of consumers in the Coresight survey. Over a third (37.3 percent) cited buying jeans to replace denim that no longer fits. Although the replenishment cycle is currently favoring fancier attire, it will pivot back to denim. Rugolo noted that men tend to rebuy denim every two to three years, which would mean a rebound in 2024. For women, keeping up with trends serves as an additional purchase driver.
Coresight forecasts that U.S. jean sales will grow 2.2 percent in 2024, totaling $17.3 billion. However, it does not expect denim to regain the full apparel market share it held prior to the pandemic as faster growing categories like athleisure gain share. Still, denim remains a key part of consumers’ wardrobes, and respondents in Cotton Incorporated’s survey most commonly said jeans are their most worn bottoms, with 34 percent choosing them over sweatpants, leggings and casual pants. “Denim will be a staple, everyone needs a pair of jeans,” said Zheng. “But consumers are looking for new ideas, looking for something different.”
