It's all in the jeans

Denim is a $15.8 billion industry with low margins and soaring profits. No wonder so many companies are trying to break in.

By Jessica Dickler, CNNMoney.com staff writer

NEW YORK (CNNMoney.com) -- The explosion of the premium-jeans market has created intense competition among small denim manufacturers, but there isn't enough room for everybody.

The market for high-end designer denim has ballooned since 7 For All Mankind first hit the scene in 2000 with its pioneering pants. In 2006, jeans sales totaled $15.8 billion, up from $15.2 billion a year earlier and $14 billion in 2004, according to market research firm NPD Group Inc.

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Many high-end jeans makers distinguish themselves from the competition by signature stitches on the back pockets.

"Premium denim is accepted," said Karen Short, a senior analyst at Friedman, Billings, Ramsey & Co. "People who would never have considered paying more than $80 aren't blinking at $170 [a pair]."

With prices now ranging from $150 to $250 for a pair of high-end jeans by designers like Citizens of Humanity, Joe's, True Religion (Charts) and Rock & Republic, it's no wonder that new brands are emerging all the time, each trying to distinguish itself with different trims, washes, construction and - especially - stitching on the back pockets.

"There are certainly not a lack of denim brands to pick from," said Kathy Bradley, senior vice president at fashion merchandising and consulting firm the Donegar Group.

In fact, at last week's fashion industry trade event, MAGIC Marketplace, the number of department-store and other buyers shopping for women's denim jumped 72 percent and buyers shopping for men's denim rose 35 percent since the February 2003 show.

"Premium denim has been the engine fueling the growth of the denim category as is evidenced by the growing number of brands carrying premium denim in our show," a spokeswoman for MAGIC said.

Macy's East, a division of Macy's based in New York City that encompasses nearly 200 stores along the East Coast, currently carries 15 different premium denim brands in its contemporary women's department, with two to three styles per brand.

"Depending on the seasonal trend change we are constantly looking to add the hottest premium styles," said Elina Kazan, a spokeswoman for Macy's East.

Getting a leg up

"The profitability is very high which is why it is so competitive," according to Angelique Dab, a senior equity research analyst at Nollenberger Capital Partners.

Even though there has been a degree of consolidation in the industry over the last year and a half, smaller brands are still trying to capture market share, Dab said. Which means the battle to be the must-have brand is "much more fierce."

And as long as customers continue to want the next, best, latest jeans without much resistance to higher prices, the scene will continue to be flooded with manufacturers trying to get a leg up.

"It's just confusing," Michael Ball, CEO and founder of Rock & Republic, said of the multitude of new jean makers hitting the scene, which he refers to mostly as "bottom feeders."

Although most high-end brands are sold in boutique shops, success among the premium denim jean makers generally means being carried by a major department store like Saks Fifth Avenue (Charts), Nordstrom (Charts) or Bloomingdale's, which is owned by Federated Department Stores (Charts).

"If you're not in department stores in a significant way, then you're not going to make it," said Ball.

What's more, just being on trend does not guarantee a spot at the top. Because a lot of the firms in the field are so small, many of them may have the business expertise but not the talent, or the talent and not the industry savvy, Bradley said.

"The percentage that really can excel and grow is probably very small."

When Paige Adams-Geller, the designer and founder of Paige premium denim, started her jeans business two years ago, one of the "largest struggles was getting taken seriously as the new kid on the block," she said.

In addition, she said it was hard to find manufacturing facilities near Los Angeles that would agree to provide support for her small company, which has less than 100 employees.

Fortunately, according to Adams-Geller, she could rely on the expertise of her husband, Michael Geller, who had 20 years of experience in the garment industry and was adept at negotiating manufacturing deals for private labels.

"We make a perfect team together," Adams-Geller said. Together they pulled down $24 million in sales in the first year and doubled that figure last year.

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Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer.

Morningstar: © 2014 Morningstar, Inc. All Rights Reserved.

Factset: FactSet Research Systems Inc. 2014. All rights reserved.

Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved.

Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor’s Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2014 and/or its affiliates.