Fear of Jeans Glut Knocks Apparel Retailers’ Stocks
Can there really be too much of a good thing?
That’s the question being asked about that most basic piece of American apparel, denim jeans, after one Wall Street analyst predicted Friday that a glut was brewing as stores prepared to stock up on jeans for the back-to-school shopping season.
Shares of Anaheim-based Pacific Sunwear of California Inc., Abercrombie & Fitch Co. and American Eagle Outfitters Inc. all lost ground after analyst Stacy Pak of Prudential Equity Group downgraded them to “underweight” from “neutral.” San Francisco-based Gap Inc. and Los Angeles-based Guess Inc. also fell. American Eagle took the biggest hit of the group, losing $1.07, or 3.9%, to $26.64.
Industry experts aren’t saying the jeans craze is over -- back-to-school shoppers have always gravitated to denim.
“Clearly, denim is hot,” Pak wrote in a research report. “The question with any hot trend, though, is how long and how high?”
She and other analysts fear that merchants may have become over-exuberant as they placed their fall orders, trying to ride out a four-year trend.
Market research firm NPD Group estimates that U.S. retailers, which sell about 750 million pairs of jeans annually, have in recent years steadily built their inventories to about 4 billion pairs.
“When you add that up, it means we have a five-year supply,” said Marshal Cohen, NPD Group’s chief industry analyst. “The problem is, the nanosecond jeans start to slow down, this will be a huge problem.”
Pak’s report cites unidentified sources saying that Abercrombie has been trying to cancel denim orders. Abercrombie executives could not be reached for comment.
For retailers, “the question now is, will there be enough demand for them to charge full prices? And I think there’s a real concern there,” said Jeffrey Van Sinderen, a Los Angeles-based analyst with B. Riley & Co.
If analysts’ worries play out, it could be good news for shoppers for whom price is paramount.
Joal Querubin, 17, loves jeans and owns about 30 pairs, including 10 he bought within the last year. He figures he will snap up at least two more pairs before the next school year.
The Hollywood resident, who says he spends an average of $30 to $40 a pair, broke the bank last summer by doling out $100 for a pair of jeans that he couldn’t resist.
“I regretted buying that,” Querubin said, shaking his head. “It was too much -- I liked the style.”
Chance Owen, a manufacturer of a non-denim clothing line, was browsing Friday at the Abercrombie & Fitch in the Glendale Galleria. The San Marino resident, 37, said the price of jeans was getting out of hand. His wife recently spent $200 on a designer pair, he said; his own jeans average about $150 to $200 a pair.
“It’s crazy,” Owen said. “At some point, enough is enough.”
He and other shoppers in the market for high-end denim -- a segment dominated by Los Angeles-area manufacturers -- may be another worry for retailers. In a report this month, analyst Brian Tunick of J.P. Morgan Securities Inc. asked the pressing question: “What will pop first -- the premium denim bubble or real estate prices in Manhattan?”
In the last few years, there has seemed to be no limit to how much people are willing to pay for jeans that have been bleached, ripped, stone-washed or even burned.
Prices have swelled to $400 and in some cases much higher: At Fred Segal in Santa Monica, the women’s couture embroidered Dolce & Gabbana jeans are selling for $1,430.
“It’s almost like a mania type of mentality,” analyst Van Sinderen said.
As the denim market heated up, some retailers fretted that they weren’t invested heavily enough in the category.
At the same time, as more businesses elbowed their way into the premium niche, it has become quite crowded.
“It almost reminds me of the dot-com industry,” said Pepper Foster, co-founder of Los Angeles-based denim label Chip & Pepper.
Foster is not worried about his brand because it’s the “riffraff” companies that won’t be able to compete if demand drops, he said.
Denim makers have little to worry about if John Natividad is any indication. The 25-year-old Walnut resident owns about 60 pairs of jeans, including the 30 he collected last year. On average, he said, he pays about $180.
“There’s always a reason to buy new jeans,” he said. “There’s always a different style that you have to have.”
He also picks up some high-end denim in off-price stores, such as the $250 True Religion jeans he found at Saks Inc.’s Off 5th outlet store for $80.
Levi Strauss & Co. spokesman Jeff Beckman said he believed that the “overabundance” of jeans brands had confused consumers. The San Francisco denim trailblazer will launch new television and print ads in the fall to boost demand, he said.
“Our focus is on working very closely with our retail customers to make sure we’re planning an appropriate amount of products based on what we think the demand will be for our brand,” Beckman said.
Ilse Metchek, executive director of the California Fashion Assn., isn’t worried that demand for denim will shrivel. That’s partly because the jeans industry builds in obsolescence with continually changing styles. This year, she said, waists are higher and the finish is darker.
“Clearly, everybody needs a new pair of jeans,” she said. “And when they get around to realizing that, then you’re going to see a boom.”
