Is there a blue-jeans bubble?

Commentary about business and finance.
Aug. 10 2005 6:37 AM

The Denim Bubble

Is the $300-jeans market about to crash?

Illustration by Mark Alan Stamaty.
Click image to expand.

Last summer, when spending $200 or more on a single pair of jeans still seemed crazy, the stock of a small company called True Religion traded at less than a dollar. But over the past year, as True Religion jeans started hugging the butts of celebrities—the company's Web site lists Jessica Simpson, Angelina Jolie, J. Lo, and the cast of Desperate Housewives as enthusiasts—the rest of us began snapping up pairs. True Religion's stock soared to over $17. If you looked at sales growth without knowing anything else about the company—$22 million in the second quarter, a fivefold increase from a year earlier—it would be easy to think that True Religion had come up with a cure for cancer instead of a more expensive pair of jeans.

Jeff and Kymberly Lubell, the husband-and-wife team who run True Religion and own more than 40 percent of the company's stock, should enjoy this while they can, because there is a denim bubble, and it looks like it's about to burst. The $110 million "premium denim" market is beset by signs of excess. Consider the $128 jeans—for toddlers. Or the 400 percent markup: A pair that costs $60 to make retails for $300. Or the race to rush new brands into the stores: Seven for All Mankind, followed by Citizens of Humanity, followed by Stitch's …

Overpriced denim is an essentially fickle market. Companies are built, literally, on the backsides of celebrities—most of the premium jeans have distinctive back-pocket stitching that separates them from ordinary Levi's and, of course, each other. Today that means that every issue of InStyle showcases a hot new brand favored by Hollywood's elite. The August issue of InStyle, for example, spotlights five different brands ranging in price from a pair of $545 Stella McCartney jeans (favored by Gwyneth Paltrow and Kate Hudson) to a $176 pair of Earnest Sewn jeans that apparently grace Halle Berry's legs. But tomorrow (or next year), when Hollywood tires of denim—as it did of trucker hats—InStyle will feature no jeans of any kind, and the cool brands will be cool no more.

Though Alan Greenspan has yet to warn of "froth" in the pricey denim market, several analysts have been cautioning about a jeans glut since the beginning of the summer. With the big jeans-buying season under way—during a recent True Religion conference call, Chairman and CEO Jeff Lubell said third-quarter sales are historically the strongest, and he's projecting sales of $28 million to $30 million—analysts including the influential Stacy Pak at Prudential Securities say the demand for high-priced denim has already peaked.

The first signs are the price cuts. Already, it's pretty easy to find most of the popular brands, including Sevens, on bargain Web sites like Bluefly.com or even eBay—though the companies often claim that the eBay jeans are knockoffs. Even Nieman Marcus recently marked down several styles of Seven jeans from $242 to $169 and discounted some Chip and Pepper jeans by 50 percent, to $92. And Urban Outfitters recently cut 20 percent off several new styles of True Religion jeans on its Web site.

The NPD Group, which tracks retail sales, says that after two years of dramatic growth, the market for pricey jeans is flattening and will settle at 1 percent of the $11 billion denim market. With the average pair of jeans costing $25, it's hard to imagine how many more people will be willing to shell out eight times that much for some high-priced jeans, no matter how well they fit. True Religion's stock price had been posting month after month of double-digit gains, but it has fallen about 15 percent in the last two weeks. True Religion, which is expanding its line to jackets and other nondenim items, may well survive, but lesser brands will wash out and vanish. The high-end denim market won't crash, but it will do what its $300 jeans aren't supposed to: shrink and fade.

Michelle Leder writes a daily blog at www.footnoted.org that looks at SEC filings and is the author of Financial Fine Print: Uncovering a Company's True Value.

TODAY IN SLATE

History

The Self-Made Man

The story of America’s most pliable, pernicious, irrepressible myth.

Rehtaeh Parsons Was the Most Famous Victim in Canada. Now, Journalists Can’t Even Say Her Name.

Mitt Romney May Be Weighing a 2016 Run. That Would Be a Big Mistake.

Amazing Photos From Hong Kong’s Umbrella Revolution

Transparent Is the Fall’s Only Great New Show

The XX Factor

Rehtaeh Parsons Was the Most Famous Victim in Canada

Now, journalists can't even say her name.

Doublex

Lena Dunham, the Book

More shtick than honesty in Not That Kind of Girl.

What a Juicy New Book About Diane Sawyer and Katie Couric Fails to Tell Us About the TV News Business

Does Your Child Have Sluggish Cognitive Tempo? Or Is That Just a Disorder Made Up to Scare You?

  News & Politics
Damned Spot
Sept. 30 2014 9:00 AM Now Stare. Don’t Stop. The perfect political wife’s loving gaze in campaign ads.
  Business
Moneybox
Sept. 29 2014 7:01 PM We May Never Know If Larry Ellison Flew a Fighter Jet Under the Golden Gate Bridge
  Life
Atlas Obscura
Sept. 30 2014 10:10 AM A Lovable Murderer and Heroic Villain: The Story of Australia's Most Iconic Outlaw
  Double X
Doublex
Sept. 29 2014 11:43 PM Lena Dunham, the Book More shtick than honesty in Not That Kind of Girl.
  Slate Plus
Slate Fare
Sept. 29 2014 8:45 AM Slate Isn’t Too Liberal. But… What readers said about the magazine’s bias and balance.
  Arts
Brow Beat
Sept. 29 2014 9:06 PM Paul Thomas Anderson’s Inherent Vice Looks Like a Comic Masterpiece
  Technology
Future Tense
Sept. 30 2014 7:36 AM Almost Humane What sci-fi can teach us about our treatment of prisoners of war.
  Health & Science
Bad Astronomy
Sept. 30 2014 7:30 AM What Lurks Beneath The Methane Lakes of Titan?
  Sports
Sports Nut
Sept. 28 2014 8:30 PM NFL Players Die Young. Or Maybe They Live Long Lives. Why it’s so hard to pin down the effects of football on players’ lives.