Denim Isn't Dying, It's Going Digital

12/30/2014
Denim has been the star of a familiar narrative this year. If you believe the story, denim is vinyl. Denim is Microsoft. Denim is the long-reigning champ dramatically knocked off its pedestal by a newer, better, more user-friendly rival: athletic wear. Like Apple computers, the alternative is more comfortable. Like MP3s, it is (supposedly) more durable.

Time announced back in August that America had reached "Peak Denim," noting with a touch of poetry that, "much like what happens to...denim over time, the ubiquity and everydayness of jeans seems to be fading." The explanation was simple. "[S]hoppers are more likely to turn to comfortable leggings."

Business Insider quickly followed suit with a profile on Levi's, reporting a 76 percent drop in second quarter profits for the iconic denim brand. Its title summed up the company's strategic response: "Levi's Is Trying To Make Jeans Feel More Like Yoga Pants."

A few weeks later AP sealed the narrative, contrasting a 6 percent drop in denim sales with a 7 percent growth in what the media cleverly dubbed “athleisure,” explaining "people more often are sporting yoga pants, leggings, sweatpants and other athletic wear instead of traditional denim." Stories from NBC, CBS, and Entrepreneur followed, all citing the same statistics and source.

The story helps explain some of the bad news in apparel this year by highlighting one of the few growth areas, and like all good stories it contains a kernel of truth. But the reality is far more complex than the recent blunt take on denim’s fate would have you believe.

The truth is, the market for denim is changing rapidly in response to many factors, some of which are intersecting in important ways, but most of which we don't understand yet. Did athleisure really knock out denim this year? Here are five reasons to hold your bets:

1. The data isn’t clear, especially on premium denim. The source for the gloomy data fueling this story is market research company The NPD Group (NPD). The Time story additionally cites NPD's October 2013 estimate that sales of premium denim were falling across the country, including an eye-catching 40 percent drop on the West Coast.

Yet five months earlier The Business of Fashion used the same source to report the comeback of premium denim, proclaiming brands priced at over $75, the fastest-growing segment of the denim market, was up 17.3 percent to reach an estimated market value of $1.4 billion. That same month (April 2013) NPD reported that women bought more jeans in 2012, shifting their denim dollars from department stores to specialty stores along the way.

2. The recent changes are part of a broader trend even the smart guys don't understand yet. Apparel sales as a whole have suffered this year, especially women's apparel, and especially in malls. Mickey Drexler, CEO of J. Crew, just weighed in on the state of the apparel union as we close out the year. J. Crew saw a terrible third quarter so he has good reason to search for answers. "Traffic is down and things are on sale," he said. "I don’t have the answer. There are no particular mistakes I can point to in women’s."

Athleisure is a fairly dramatic success story against this backdrop (as the Wall Street Journal nicely summarized), but it isn't necessarily the cause of denim's fluctuating demand. Apparel as a category is seeing dramatic changes, and denim is too large a product segment (still 20 percent of apparel sales at national department stores) not to be impacted by the same forces.

3. There's a major channel realignment happening. While the state of the overall denim market may be unclear, two trends are indisputable: apparel sales at department stores and major retail chains are down, and price-conscious shoppers are buying fewer pairs of jeans.

It's noteworthy that the biggest brand responses to the athleisure threat so far come from Levi's, Wrangler, Lee, and Guess. It’s also worth noting that the retailers reporting the biggest shifts in denim demand are J.C. Penney, Sears, and Kohl’s.

Whatever is happening to denim, it is clearly being driven both by price factors and by consumers' evolving shopping habits. This alone is a clear signal that it may be too soon to talk about a decline in denim across the board, even if athleisure is the trend these lower-tier brands and stores are counting on to pull them through the uncertainty. The landscape is changing, but that doesn't mean denim is disappearing.

4. Shoppers are buying more apparel online. A third indisputable trend is that digital commerce is growing rapidly for apparel. As Drexler summed up, "customers are shopping online more than ever. The world is changing, and customer behavior and expectations are changing even faster."

The shift in apparel sales to digital has been widely documented, as has the recent scramble among holdout brands to adopt smart e-commerce plans. eMarketer forecasts the size of the online apparel market to reach $86 billion by 2018, putting the e-commerce category behind only consumer electronics in both size and growth rate. Digital commerce now accounts for 20 percent of all apparel sales, and that number is growing rapidly.

Digital commerce technologies have responded with a host of features that make shopping for denim online easier than ever, including customer-informed fit guides, fit videos, and detailed customer reviews. Retailers are responding with omnichannel solutions and relaxed return policies that further reduce the risk.

Until recently, customers were using online resources to research in-store purchases. Now they seem to be using brick-and-mortar stores to try new styles, but pulling the purchase trigger online. Until we know how the migration to digital commerce is affecting offline sales, we can't meaningfully evaluate the true state of denim.

5. Digital commerce sales of premium denim are growing. As mentioned, NPD (whose report of a 6 percent drop incited the rush to call 2014 the year the denim died) reported premium denim grew 17.3 percent in the year ending February 2013. Just this quarter, Women’s Wear Daily predicted a bright future for premium denim (albeit more so in Europe than North America). These rosy reports include offline retail.

At Onestop Internet, we handle the e-commerce operations for a number of high-end apparel brands including a robust portfolio of premium denim brands, the majority of which are enjoying significant online growth. Year-to-date e-commerce revenues for this category are up 24 percent on average. Over the cyber holiday weekend, Onestop's premium denim brands beat last year’s online revenues by 37 percent.

Digital sales of premium denim are undoubtedly benefitting from the overall migration to digital commerce. But there is another important factor at work. Even as the premium denim marketplace becomes crowded with competition from new brands, higher-end customers are finding quality, fit and brand experience. And, according to NPD itself, quality matters more than ever to women's apparel shoppers.


In his role as Onestop's CEO, John Tomich is responsible for successfully guiding the company's continued growth and product innovation. 
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