The Anatomy of the Bubble in Fashion

Let’s take a classic Bubble pattern (mind you, this is schematic of a financial bubble):

Bubbles happen when the price of (fill in the blank) rises to an extreme level – way beyond its fair market value. So what causes a product’s price to rise so high?  The simplified reason is strong demand and, of course, investors and businesses capitalizing on that demand.

Generally bubbles are used in relation to Housing or Financial, but I see the same ebb and flow in our Fashion and Fast Fashion industry.

As explained by John Mauldin, Bubbles generally operate on 5-part phases: 

1. Displacement (All bubbles start with some basis in reality. Often, it is a new disruptive technology that gets everyone excited, although Kindleberger says it doesn’t need to involve technological progress.)

2. Boom (Once a bubble starts, a convincing narrative gains traction and the narrative becomes self-reinforcing.)

3. Euphoria (In the euphoria phase, everyone becomes aware that they can make money by buying stocks in, creating and/or selling Widget X)

4. Crisis (The momentum is disrupted. In the case with retail, it’s generally by a flooded market of competition and lowered price points. The only way to sell is to offer prices at a much lower level. The bubble bursts, and euphoric buying (producing) is replaced by panic selling. The panic selling in a bubble is like the Roadrunner cartoons. The coyote runs over a cliff, keeps running, and suddenly finds that there is nothing under his feet.)

5. Revulsion (Just as prices became wildly out of line during the early stages of a bubble, in the final stage of revulsion, prices overshoot their fundamental values. In other words, consumers discover the ugly truths of marketing, inflated pricing and the products themselves)

The first recorded bubble occurred in the Netherlands during the early 1600’s and involved tulips (yes, the flower). Tulips became so popular that their price soared, even to the point where some bulbs allegedly cost more than 10 x the annual wage of a skilled worker.

Sounds silly, right?  There are similarities, however. 

The average cost to manufacture a yoga legging in China = $6

Retail Cost = $90

Demand upon entering market: High

Why?  New. Different. Comfy

Worker’s wage to manufacture that legging = $1.78/hr.

I can see this Bubble in our entire fast fashion industry, but for the sake of simplicity, I will narrow it down to say, jeans and activewear (yoga pants).

Denim hit quite a boom for several years and the premium denim market was soaring to great heights.  Premium denim was king and everyone started producing with Italian, US and Japanese fabrics. LAs garment district for denim was crazy.  Big brands emerged from nowhere and exclusive boutique brands popped up all the time before burning out. Denim’s bubble definitely burst when companies started creating premium fitting denim without the premium price.  As a result, consumers found value in brands such as Uniqlo and American Eagle. A lot of companies either went under, lowered prices considerably or sold their brand to dept. stores like Kohls (Rock & Republic). The premium denim companies who are still alive after the bubble are struggling to climb and compete with: Yoga Pants. 

Activewear has been around for a long time, and it was gaining popularity in 2005, followed by a slight decline before it began to rise again in 2011 (1. Displacement). But Activewear really begin to soar around 2015 (namely yoga pants), outselling Jeans.  Leggings became the new jeans and the price and numbers reflected as such. (2. Boom)

Leggings followed the premium denim market, and it wasn’t unusual to see leggings retailing for $90, although in reality, the true cost of manufacturing spandex or nylon leggings in large scale production in China is only about $6-$8 per piece (far less than the average $15-$35 manufacturing of better to premium quality jeans). The machines involved with manufacturing a legging are roughly 3, whereas jeans require about 8 different sewing machines and also require more skilled labor as well as washing and finishing machines, techniques and processes.

So it stands to reason that what we are seeing in Activewear is also trend and a Bubble created not only by consumer demand for new, fresh and comfortable, but the capitalization (over-capitalization) of this demand.  The hot trend of activewear has allowed brands, manufacturers and investors to do what they do best: jump on a bandwagon and run it into the ground and saturate the market.

What we saw in 2014-2015 was new yoga wear brands and existing brands expanding to activewear (3. Euphoria)

Rebrand, New Brands, New Collections, Sell, sell, sell – at whatever cost it takes.  Make up fancy fabric names for what is really just nylon or spandex. Increase the prices to make it appear more interesting. Create expensive marketing campaigns to increase the demand.

But consumers get smart. When they see brands like American Eagle and Forever21 offering the same $85-$90 pants for $20, they begin to question everything. The illusion is shattered and there is no turning back.

The market is now totally flooded. Sales (and perhaps interest) will begin to decline. Investment will become limited, brands will scale back their SKUs. (4. Crisis)

I’d presume where we are right now in the Activewear bubble is right around the Delusion and New Paradigm (or on the cusp of Euphoria and Crisis) area.

Brands are scrambling to market the same product with fancy names or reinvent the yoga pant and what we see are innovative fabrics that promise to melt your fat and eliminate cellulite while you wear the leggings. Or better yet, they’ll step up their game with even more expensive leggings and target a luxury market.  (5. Revulsion)

Consumers are aware of the true value and product availability now exceeds the demand.

The Bubble has burst.

The same happened with denim.  There was a premium denim bubble. And it happened much in the way I’m seeing the activewear market. It rose, hit hard and then the market was flooded.  The prices declined, the lower fruit bearers shut their doors and the strongest brands who were the first and best players survived.

The bubble is bursting with Junior brands also. PacSun, Aeropostale, etc. Same clothes, different stores.  Homogenized.

The fashion industry is totally flooded.

The activewear market is absolutely flooded at this point, with a big range of price points. And the bubble will burst within the next year or so, leaving tons of brands in the red with tons of inventory to be sold on sites such as Overstock, 6PM and Zulily. In fact, I am already seeing this.  While new companies and brands are jumping on bandwagons, they are missing the silent Stealth phase of what’s to come.

So what creates a demand or drives a trend?

Truthfully, I think the biggest portion of the activewear market right now is in women’s yoga and fitness.  It’s strong not because Lululemon introduced it to us.  Activewear has been worn since the 1980s. Activewear is a reflection of where women’s interests are right now.  Women want to be healthier, live healthier, more soulful lives. They want to run, be active, do yoga, feel beautiful and be comfortable.  Women are tired of wearing shit that isn’t flattering or comfy.  Women are becoming more self aware, more empowered and either starting their own companies, or taking jobs that allow them to just be themselves.

“A report from the Institute of Women’s Policy Research (IWPR) shows that women are steadily increasing their presence in the world of small-business ownership. About 29 percent of America’s business owners are women, that’s up from 26 percent in 1997. The number of women-owned firms has grown 68 percent since 2007, compared with 47 percent for all businesses.” – Gillian White, The Atlantic

In order to see what trends are ahead, it’s important to see who your target customers are and where they’re heading.  What are their interests and who do they want to be?

So what’s next? 

As with any bubble, there is a burst and a return to normal.

My guess is: Minimal.  

Comfort and quality over quantity.

Comfortable, classic. Leisure loungewear that plays double duty as day to active wear? Perhaps.

Less is more? Probably.  

Where is our focus these days?

The basic little black dress of casual wear (black yoga leggings) will probably never leave our closet, but the athleisure trend will fade.

The next phase, or our Return to Normal is not another sport bra and yoga legging.  It’s simplicity. The only way to see where we are going is to see where our focus, as a whole, lies.

Sources: Forbes, The Atlantic, Google Trends, Jean-Paul Rodrigue, Mauldin Economics.