Finally, this season’s assortment of tops is nothing short of compelling. It’s been years since so many retailers have put so much effort into knits and sweaters. Merchants had essentially been phoning it in on this category, focusing all their creative energy on the polo and the tee (in varieties plain and graphic) and the standard sweater.
However, BTS 2006 is a whole new ballgame. This year’s offering includes hoodies, v-necks, and cardigans in addition to the new lacy tanks and long tees. Even the portrait collar crops up as ready-to-wear designers like Prada include it in their collections (mark my words, there is money to be made in great boatneck, scoopneck, and portrait collars in spring 2007 as the hoodie and chunky cardigan wear out their welcome). And, beyond styles, the sophistication of fabric, color palette, and finish is up at all price points. The current level of creativity mimics denim’s evolution from 2000-2005, and, just as it did for the dusty denim category, such creativity is driving sales in the previously tepid tops classification.
All in all, then, tops rule for teens this BTS; denim is now the also-ran. So, how might this affect some key denim players in the market today? I’ll focus on four retailers that I chose because denim has figured prominently in their results – good or bad – in recent quarters. But, a specific denim story is now unfolding at nearly every retailer in America. The ‘decline of denim’ will not affect results equally, on the up or the down side, and every retailer’s performance will depend greatly on how they execute in the choppy days ahead.
Abercrombie
Abercrombie has had some of the greatest exposure to denim as a result of their home run BTS 2005 season, which was built primarily on destroyed and washed denim. They’ve acknowledged that denim is down across the chain in both men’s and women’s. But, in women’s specifically, sales of tops have been very strong and should keep them on track to meet or exceed last year’s sales figures. A particular standout is the assortment at the master brand, Abercrombie and Fitch, which is exactly brand-right: casual luxury built on wearable styles that hug the body in soft knit formulations spun with good percentages of natural fibers. It’s an outstanding, winning assortment, and given the virtual disappearance of all but the extreme sizes off their racks only days after delivery, their customers must agree.
Urban Outfitters
Urban Outfitters is certainly putting up a fight this BTS 2006. Throughout the denim boom, denim represented only single digit percentages of Urban’s sales. Nonetheless, when kids buy denim, they buy other pieces to outfit it, and that means that more than just single-digits was on the line for Urban this BTS. When compared to spring and summer, the BTS denim assortment at Urban crosses multiple styles rather than being hyper-focused on skinny. In addition, they’ve brought in some of the only gray and black denim around, and the total denim inventory doesn’t appear to be too deep. Thus, they seem to have mitigated their risk exposure to the category, a good call as it continues to decline. Instead, their focus is definitely on the rest of the store. In tops, specifically, they’ve stocked the gamut – from chunky cardigans to military khaki jackets and plaid knits – and most look good. Any weakness on the floor is in what I’d call basics: the garment dyed T-shirts, the plain fleece hoodies. Where they’ve given something a distinct point of view and a fashion twist, they’ve done well. But, just to offer the basic top isn’t enough this season, especially with the varied options the competitors have offered. Given all this, it could be that the best Urban can do is fight to stay even with last year.
Guess?
Guess? has lots of denim. It forms the basis of their entire brand, and they continue to price it high and move it out the door. While the current trend shift to tops should, in theory, be killing them, August held up well. If anything, the tops trend is helping them gain traction in the ‘newer’ categories of their business built over the past few years, including tops as well as accessories and even dresses. Simply put, the Guess? core customer starts with denim because denim delivers her look: hot and sexy. She doesn’t want to be off trend, but she makes the trend work for her and that means working with denim. Therefore, as long as the Guess? team really knows her, what she wants, and can deliver that, they’ll continue to do well – and that means doing denim right year in and year out.
The Gap
The Gap has the biggest denim exposure of any retailer. Denim is how The Gap started out, and denim remains an essential part of the brand’s connective tissue with customers. Ironically, then, even as The Gap elevates their stores and customer experience through their remodels (see InFocus August 2006), the decline of denim in BTS 2006 stalls the total brand turnaround because they lose not just volume but also brand relevance whenever their key category moves down fashion’s hot list. Indeed, The Gap had hoped to finally ride the denim wave this season. Their second-half marketing push started with a denim story reinforced through store visuals from windows and front displays to 3-D jeans sculptures hanging from the ceiling. Matched with product design and fit quality finally equal to the level of the marketing buzz, The Gap could have been well positioned for BTS, if only it were 2005. However, it’s 2006, and, frankly, The Gap made it to the party one year late. Now, other categories will have to make up for the downward contribution of denim, and, while knits and active bottoms are trending well, neither of these products acts as a destination category for The Gap. Teens are much more likely to hit Abercrombie or American Eagle for both these products. Therefore, though the denim design and assortment is the best it’s been in years, the industry-wide drop-off in denim will mean that The Gap’s breakthrough sales season – and thus the real brand turnaround – is at least another few months away.
One last thought. I’ve talked about how this is the season where retailers are really going to have to get back to the basics of Retail 101: traffic, conversion, and units per transaction (UPT). Denim’s decline makes up a large part of this story, as it stood out as a compelling trend driving all these variables for the last few years: traffic rose as more shoppers were on the hunt for denim, conversion increased because the right jean was a must-have item that simply had to be bought, and UPT expanded as one pair of jeans translated into two extra tops, one extra jacket, and the right accessories to give shoppers the whole look. Moreover, denim alone lifted up the average transaction size because its price point simply exceeded most other product in the store, save cashmere and outerwear. Denim really was the golden egg for most retailers, and its loss will challenge them significantly.
Thus, keep listening to how folks are doing on all the core store metrics; there is not a one-size-fits-all story emerging here. Retailers who share the same malls are describing diverging traffic trends. Traffic behavior then forms their opinion on conversion – do they need greater levels than last year or can they sit pat? In either case, how will they achieve their goal, and will the cost of achieving it de-leverage their business? And, no matter how they feel about traffic and conversion, at the end of the day if they’re not making denim numbers in line with 2005, how are they making up the lost revenue? Are they boosting UPT through more tops and casual bottoms? Are they boosting higher-priced areas like handbags, dresses, and outerwear to make up the difference without having to sell more units? These retailer-by-retailer stories will be painted throughout the upcoming weeks, and they will tell us a lot about Holiday 2006. Let’s all listen carefully.
