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A Recession Is Coming and the Denim Industry Can’t Repeat History

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There’s an 800-pound gorilla in the room and it is called a recession.

The National Bureau of Economic Research has not yet declared the U.S. in a recession, but experts say it is more a matter of “when” it will hit than “if.” A recent report on trade and development by the UN indicates that a global recession is a real possibility in 2020. Increased disagreements over trade rules, currency movements and a global ecological crisis are among the factors fostering “uncertainty and instability,” the report states.

And despite enduring more than a century of economic turmoil and being a staple in wardrobes across the world, a look back at the Great Recession of 2008 proves that denim is not immune to the effects of an economic crisis.

Flashback to the 2000s

If you wanted to know what the premium denim category was like in the 2000s, picture this: A Gatsby-style bash, where Ed Hardy subs for Jay, the mansion is relocated to Los Angeles and the revelers—still socialite ‘It’ girls, but this time in the form of Paris and Nicky Hilton—are dressed to the nines in low-rise jeans by brands like 7 for All Mankind, Earl Jean and Chip & Pepper.

Or, at least that was the level of confidence and Big Denim Energy the premium denim category exuded during its heyday.

“It was flying,” said Alberto Candiani, owner of Candiani Denim, the mill that ushered in the premium denim category with its high-quality stretch fabrics and on-trend washes. “We pretty much doubled our capacity between 2004 and 2006 and the business was booming until late 2009.”

Paris Hilton

Paris Hilton shopping at Kitson in Hollywood.

The 2008 Great Recession would begin to affect the mill a year later, but Candiani said the company was prepared for the hit and managed to reconfigure its production in order to stay efficient and profitable.

Nonetheless, the global recession took 20 percent of the mill’s business. U.S. brands dropped dramatically in the beginning, Candiani said, but they were more dynamic and were able to “remix” the market. Europe, on the other hand, declined slower but consistently year by year and never really recovered.

Andrew Olah, founder of Kingpins and Olah Inc., began to see the denim business take a turn in April 2007. At the time, he was representing the Japanese denim mill Kurabo. While customers said orders were coming, their orders began to drop. Meanwhile, he said, stories about retailers cancelling 2007 Christmas deliveries began to circulate that summer.

“That was the first time that all of us kind of knew that there was a problem,” he said.

While the recession started in 2008, Marshal Cohen, NPD Group chief industry analyst, retail, said consumers didn’t begin to pull back on purchases until 2009. But when they did, denim was one of the first to feel the effect of tighter purse strings.

“The 2008 recession was like the perfect storm for denim,” Cohen said.

Consumers could no longer spend $300 for a pair of jeans and were looking for premium at a better price, so they “traded down” and sought out new brands and retailers, he said. This was compounded by the casualization of the workplace, which Cohen said gave rise to the birth of the athleisure, comfort and stretch bottoms, which began to accelerate during the Great Recession.

“The third component was saturation,” he said. “The market already had a tremendous amount of denim in consumers’ closets and the market didn’t do enough to change. It wasn’t innovative enough. It was the beginning of the skinny stretch denim trend and it never really evolved out of it. It’s still stuck there.”

Fast times for cheap denim

In its aftermath, the Great Recession left the denim industry grappling with a new normal.

“I believe the recession set new standards, and realistically, looking back and dreaming of the ‘Golden Age’ of denim is no longer a possibility,” Candiani said.

The focus for many brands now, he added, is on Asia and the “new markets,” but few have truly succeeded. “If you look at the denim world map, the West has almost lost it all,” he said.

Cue fast fashion’s entrance. While the recession left the premium denim category in disarray, Candiani said there was more to it its decline, namely the rising popularity of fast-fashion alternatives.

“Most brands responded to the recession with wild outsourcing trying to squeeze cents here and there to make their product cheaper, and guess what? The fast retailers grew even more because at some point their jeans were ‘okay’ enough to replace the premium pair in consumers’ shopping cart,” Candiani said.

“Those guys have dominated the last decade, taking [a large share] from the premium segment by making a better-looking product for a fraction of the price,” he added.

The plot twist, Cohen added, was that disposable clothing became acceptable during the last recession.

“Consumers had pride in their ability to showcase what they could put together on a budget,” he said. “So it became fashionable to expose how you were able to be very value-centric.” And that was true amongst all different income levels, he added, eventually evolving into the trend for mixing high and low.

In the case of what a 2020 recession could bring, Cohen paints a different picture that doesn’t put fast fashion in the fore.

The internet, for one, is a more integral part of the retail equation today than it was in 2008. “That is going to change the dynamic and it is going to afford the consumers the ability to be able to find what they want, where they want, at whatever price they want,” he said.

Value-centric retailers have evolved, too, with retailers like Target advancing the quality of their products. “Consumers are now in a place where they can get better product—more value-centric product—but with greater attributes,” Cohen said. “They can find things at good prices that have what used to be luxury attributes, whether it be the fabric, material or function.”

As a result, Cohen said the brands and retailers that will suffer the greatest loss in the next recession will be different from those during the Great Recession.

“It looks like the department stores are going to take it the hardest because they are the least equipped to be able to sell a consumer who is looking to trade down as well as attract the consumer who is already value-centric,” he said. “And that is the big difference between the 2020 recession, if you want to call it that, and the 2008 recession.”

Sustaining sustainability

Many of the denim brands to emerge after 2008 adopted sustainable business models that resonate with millennials—the cohort that arguably was the most affected by the Great Recession as it struck just as they entered a depleted workforce.

For Candiani, sustainability is the “new premium” and the instigator behind creativity. Brands like Re/Done, Atelier & Repairs and Blue Of A Kind introduced a different interpretation of denim by deconstructing and restoring 5-pocket jeans into more iconic and sustainable pieces, he said.

And while it appears that consumers are waking up to the damaging effect consumption has on the environment, and that apparel brands are taking steps to reduce their impact on natural resources, their tune may change in 2020.

The focus on sustainability would diminish during a recession, Cohen said, unless it was built into a brand’s DNA. However, he said the companies that tap into “value while still being sustainable” are going to have the winning combination.

Despite owning “the greenest mill in the blue world,” Candiani is confident that sustainability will be one of the first line items that brands cut when a recession hits. “Most of the big brands are ready to sacrifice sustainable innovation for 1 cent per yard,” he said.

“As a whole, we need less and we need it to be better, durable and long-lasting. Less is truly more,” he said. “Our economy and our society has been built on constant expansion and as a result, we have huge piles of burned garments and enormous landfills. Unfortunately, the industry doesn’t like the idea of producing less…which means we still have to make more.”

Olah is more optimistic about sustainability’s survival rate during a recession. The industry, he said, has come too far in making transparent sustainable manufacturing a reality to go backwards.

“This is the new way of behavior, globally,” Olah said.

Post-recession premium denim

The Great Recession left in its wake a new set of consumer priorities that denim brands have had to accomodate.

“Nowadays, it seems like a pair of jeans is taken for granted and isn’t as appealing to the consumer as it once was, but then you see amazing cases like Amiri—and bam—a jean becomes luxury,” Candiani said.

Today, Candiani said, premium denim brands are trying to re-establish themselves with attention to product and details.

And oftentimes that means the brands are casting a wider net.

In 2010, denim overalls propelled Los Angeles-based Frame onto the radar of fashionistas, but today the brand is in expansion mode by adding leather handbags and sneakers to its line.

Baldwin stepped away from denim as its main focus earlier this year when it rebranded as BLDWN. The brand now aims to be a men’s and women’s lifestyle brand based on “modern American fashion” inspired by the stories of artists and “creative minds” (i.e. cardigans and tweed jackets).

These shifts away from denim mirror another trend Olah is seeing in the supply chain. “The people selling indigo dye are selling less, which to me indicates that there is a reduction in demand for indigo fabrics,” he said. “Generally speaking, there’s not a lot of conversation about orders being reduced.”

Meanwhile, 7 For All Mankind is playing both sides of the card for Spring/Summer 2020 with its first collection designed by new creative director Simon Spurr. The line is dense with sophisticated non-denim items like linen sets and suiting, yet includes a 20th anniversary capsule collection of the premium denim that it made its mark with in the 2000s.

The collection is produced with its original 080 fabric—the one used during the peak years of its premium denim business—and features nostalgic styles and signature details like the “squiggle” back pocket stitching.

However, throwback collections and non-denim items are unlikely enough for the denim sector to come out on top of a potential 2020 recession. Cohen said the denim industry has not done enough to make denim a product that is uniquely different from what is already in consumers’ closets. Shoppers lack a reason to buy more.

“The secret to fashion is uniqueness and products with dramatic differences, and that doesn’t happen in denim,” he said. “The industry has to remember very clearly what got them to where they are and what kept them where they are. They can’t be steeped in tradition, doing the same thing for 10 years.”

Political games

While all signs point to a challenged economy in 2020, don’t forget that it is also an election year in the U.S.

“Politics creates a distraction to retail,” Cohen said. Though elections with an incumbent president are typically less volatile to retail, Cohen said the 2020 U.S. presidential election will be anything but typical.

But what does that have to do with denim?

“We’re going to be spending less time and money on shopping for product as we are paying attention to what’s going on out there in the world, even if you’re not a politically charged individual,” Cohen said.

That means the denim industry will have to do an even better job of creating products that break through the noise of the news cycle.

“You’re going to be fighting against outside influences to get the attention of the consumer and certainly their money,” Cohen said. “We have to recognize that that’s going to be probably be the biggest issue in 2020.”

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