Levi's mini-me exhibition at Project fashion trade show 2011.

No matter how artificially pumped-up mainstream fashion media says things are going economically speaking, the reality is that sourcing problems, new trends in discounting, and an entirely new generation of youth culture consumers who have spent their teens living in a recession, are changing the game of the industry. Stay tuned for more about this in our upcoming Spring Youth Culture Study 2012. Just last week, Levi Strauss announced a drop in profits due to an all-time high in the prices of cotton—which is affecting the denim industry as a whole worldwide. Net income was $138 million in 2011 compared with $157 million in 2010. But their 4th quarter results were even more telling as profits dropped a whopping 49% to $44 million, down from $86 million a year ago.

The additional struggle is the ongoing advent of discounting. It’s a new consumer out there that’s waiting for sales rather than spending top dollar to be first to market. In order to get rid of inventory to prep for 2012, Q4 meant lots of Levi jeans heading to the discount outlets. According to the chief financial officer, Blake Jorgensen, “We did move a substantial amount of inventory through the discount channels.” He continued to say that more merchandise will be headed that direction through the first quarter of 2012.

Based on our research with various youth culture brands, selling via discount outlets is no longer the last resort, but as many brands have admitted (but wish to remain anonymous), it’s through discounting and selling at outlets that keeps the brand alive overall. Meaning that the new collections, those fresh styles in window displays, are not the cash cow of retail for many brands, but rather the shiny sprinkles on the frosting of the cupcake.