Fancy Pants!

A few weeks ago, we posted on the steps apparel companies were taking to reduce costs, and in particular what let them make cheap pants. Today, the Wall Street Journal has a story about the other end of the market, asking “How Can Jeans Cost $300?” (Jul 7).The short answer is “Lots of reasons.”One notable part is that there are lots of layers between growing cotton and covering the customer’s rump.

As with all fashion, a big part of the price of luxury denim is in the multiple profit margins taken at each level of production. Most any piece of clothing contains parts and services from potentially dozens of providers: from fabric and button makers, to designers and seamstresses, and wholesalers and sales agents. After all this, designers and retailers say the typical retail markup on all fashion items, including jeans, ranges from 2.2 to 2.6 times cost.

Some of the mark up could be avoided if the brands were more vertically integrated, moving either into retail or back into components. Some jeans brands have their own shops but I suspect that is an expensive strategy and that it is much cheaper to share one’s margin with the likes of Nordstrom or Saks than build out a chain that covers the country. Moving back into components would likely mean having to sacrifice scale and this is also likely not worth the investment. It should be noted that despite having to share with supply chain partners, manufacturers are still making 40-50% on premium jeans in comparison to under 20% or so on commodity jeans going through Sears or Wal-Mart.

One of the remarkable parts of the story is how similar the supply chains are for the firm’s in the industry.

Most premium jeans’ cotton denim fabric comes from the primary maker of high-end denim fabric used in the U.S. and Europe: Greensboro, N.C.-based Cone Denim, a unit of the International Textile Group. There, in a plant known as White Oak, shuttle looms dating from the 1950s weave the denim fabric that winds up in many premium denim brands, including J Brand. The looms are older, narrower, and slower than highly efficient modern looms, but they weave fabric with slight irregularities known as slubs, which impart a texture and character that modern looms lack.

Delores Sides, a spokeswoman for Cone Denim, says most of the weavers employed there have at least 20 years of experience, and one woman has being working at the mill for 55 years. They are employed full time and are paid benefits such as health care, she says.

The Cone fabrics are shipped by truck or train to Los Angeles, where denim brands cut and sew them to their designs. Each part and bit of labor may ultimately be marked up five times or more before the pants reach retail stores. So the $23.30 spent for a Los Angeles-based seamstress to sew a pair of Super Ts will cost the consumer more than $100 at full price. Other notable costs include roughly $10 worth of fabric (1.8 yards a pair, on average), 44 cents for pocket linings, 37 cents for a zipper, and $2 for the embroidery on a back pocket. Washes for coloring and fading may be done in Los Angeles or, sometimes, at mills in Mexico.

To be produced domestically, jeans have to be priced at “$200-plus,” says Shelda Hartwell-Hale, a vice president at Directives West, an L.A.-based division of fashion consulting firm Doneger Group.

The similarity in operations then moves competition to design and added extras. Some of those add costs. For example, the article notes that fashion fads like special washes and dyes are more expensive to do in the US than in countries with less strict labor and environmental regulations.

So is there a possibility of someone challenging this market with a cheaper premium jeans? In some ways that seems hard if only because of time. It would be hard to slice costs significantly without going overseas. Labor is the biggest cost component after materials. But labor savings would have to be weighed against increased inventory costs and being less responsive to the market. If fashion moves fast enough, overseas production may not be viable.