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These 2 stocks could be huge winners from a once-in-a-decade fashion shift

·Anchor, Editor-at-Large
·4 min read
In this article:
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This fall, if you aren't rocking some form of wide leg jeans while also owning shares of Abercrombie & Fitch (ANF) and American Eagle Outfitters (AEO) in your portfolio you may be off trend in two areas of your life.

Google searches for low-rise jeans have surged 91% over the past six months — with wide leg and flare jeans being the most popular styles — per fresh analysis from Jefferies retail analyst Stephanie Wissink. In other words, the 18-year reign of skinny jeans as the de facto jeans style of choice is slowly coming to an end. 

And that could be a good thing for many retailers, Wissink says, but notably aforementioned jeans leaders American Eagle and Abercrombie.

"We believe we are in the early innings of a major ‘macro’ shift in predominant silhouette, which would be the first in over a decade. Shifts of this magnitude are infrequent in nature and significant when they do occur, as they drive consumers to completely restock their closets. Typically, these shifts occur once every ~10 years and are led by a change in bottoms silhouette. The change in bottoms trend tends to be followed by shifts in consumer preference for tops, footwear, and accessories, all of which require a refresh to be paired with the new bottoms silhouette," Wissink explains. 

To be sure, the jeans industry could use a shot in the leg in the form of a fashion shift that spurs sales. 

As consumers have gotten bored with skinny jeans and sought out comfier fitting stretch pants (aka joggers), the U.S. jeans industry has seen sales fall by $5.5 billion over the past decade. Wissink points out that $4 billion of that decline is the byproduct of the 2020 pandemic that brought retail to its knees. Even still, U.S. jeans sales were generally stagnant before the pandemic. 

Meanwhile, sportswear sales in the U.S. (which includes athletic-fitting bottoms) have gained $20 billion in sales in the last decade, per Wissink's research. 

Wide leg jeans are in this fall.
Wide leg jeans are in this fall.

"I think we can confidently say that we're in the early innings of a new denim cycle," Levi's CEO Chip Bergh told analysts on a July earnings call. 

Levi's sales increased by triple-digit percentages year-over-year in the second quarter in the Americas, Europe and Asia regions. The gains partially reflect easy comparisons to the start of the pandemic in 2020, but also the trend change to wider leg bottoms. 

Added Bergh, "We are seeing on both the men's and women's business that these are big drivers of our business on the looser, baggier fits are almost half of both men's and women's sales this past quarter. And that's a pretty significant change, especially on women's from Q2 two years ago. And as bottoms silhouette changes, it also has an impact on tops, it has an impact on footwear, and it really does present an opportunity to update people's wardrobes broadly, beyond just the denim bottoms." 

FRANKFURT AM MAIN, GERMANY - MAY 02: Influencer Victoria Tori Scheu wearing an orange micro bag by Tory Burch, light blue wide leg denim jeans pants by Levi's, a white oversized blazer by Sundarbay, a beige cropped tie top by Zara and black sandals by Essen during a street style shooting on May 02, 2021 in Frankfurt am Main, Germany. (Photo by Streetstyleshooters/Getty Images)
FRANKFURT AM MAIN, GERMANY - MAY 02: Influencer Victoria Tori Scheu wearing an orange micro bag by Tory Burch, light blue wide leg denim jeans pants by Levi's, a white oversized blazer by Sundarbay, a beige cropped tie top by Zara and black sandals by Essen during a street style shooting on May 02, 2021 in Frankfurt am Main, Germany. (Photo by Streetstyleshooters/Getty Images)

Wissink agrees, and has already found evidence of the new trend in jeans triggering interest in more form-fitting tops and chunky shoes.

"While it may take some time, this shift towards less narrow, skinny bottoms will lend itself to shorter, more tailored tops and chunkier more substantial footwear options. We are already seeing evidence of this shift in search data, in retailers' assortments and in influencer trends, especially those catering to a younger demo," Wissink says. 

The shift in jean preferences appeared to show up in Foot Locker's second quarter, too.

Sales in Foot Locker's women's business surged more than 20% in the quarter, outperforming the mid-single digit percentage drop in men's footwear sales (where the wider leg jean trend is less pronounced). 

"The culture of basketball has got some great, very female-friendly silhouettes. The [Nike] Dunk has been well accepted. AJ1s [Air Jordan] has been well accepted by her. We had a great run with some Ugg boots and Ugg slides that very much led a female-led attack in the summertime. Our Crocs business, there is just a ton of things that are appealing to her right now in the sneaker world," Foot Locker Chairman and CEO Richard Johnson told analysts on an earnings call. 

Johnson added, "I think we’re taking some market share. I think she’s very comfortable in sneakers. And I think we’ve got a great assortment for her."

Brian Sozzi is an editor-at-large and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.

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