When Glenn McMahon joined AG in July as the premium denim company’s first chief executive officer, he arrived at its Los Angeles doorstep with a mission to grow it beyond its core product. Category expansion had been the cardinal strategy at his previous experiences as the executive vice president of Giorgio Armani, president of Liz Claiborne, president of Dolce & Gabbana Americas and the chief executive officer of St. John Knits.
“My initial inclination was OK, there’s a lot of runway for improvement by adding categories or classifications to the business — and I still believe that there are — but one of the big learnings I’ve had five months in is that we are a denim brand. We are a denim-first brand and there is a lot more that we can be doing in denim,” he said at Sourcing Journal’s Fall Summit in New York City last week.
Conversations with AG’s customers as well as meetings with the brand’s internal and external teams have opened McMahon’s eyes to the big wide world of indigo, however. “There’s a lot of value to being a single category business like a denim brand. So, I’d like to continue to grow and build on the foundation of the DNA,” McMahon said.
In a market driven by global brands with 100-plus years of heritage, AG, which celebrated its 20th anniversary in 2022, has the unique selling proposition of manufacturing at its own vertically integrated facilities, allowing it to carefully monitor and control production and address trends quickly. Its business is split 50/50 between men’s and women’s, and over half of total business is done through direct channels like e-commerce and AG’s U.S. stores. Not to mention, it is one of the original brands that crowned L.A. as America’s premium denim capital in the 2000s.
That’s not to say AG isn’t evolving with the times, in terms of products. For two years, the brand has released “The Jean of Tomorrow” collections, a line of denim jackets and jeans made with fibers derived from old AG jeans. The brand is also refurbishing worn AG jeans for resale.
In terms of AG’s business, McMahon is taking the “if it’s not broken, don’t fix it” approach. “It’s an interesting different set of challenges, but it is a very healthy, profitable business,” he said, adding that his focus now is on “being strategic and methodical about how we continue to engage with the consumer.”
Since the pandemic, McMahon said companies are challenged by a shift in the brand-consumer dynamic. “The consumer is definitely in the driver’s seat. The consumer is dictating to the market where they want to shop, how they want to shop, what brands they’re interested in, [and] what channels,” he said.
“Consumers are looking to be engaged with a brand that they shared their vision or their purpose with and that’s been a big, dramatic shift that I’ve seen over the past 30 years. It used to be that a brand could dictate, ‘this is who we are, this is what you need to look like, and this is how you need to dress or the lifestyle that you need to live,’ and I think that’s changed pretty dramatically,” McMahon continued.
Consumers are in control, but AG has the reins on a market space that is neither mass nor luxury: jeans retail for $200 to $428 for a pair made with selvedge denim. That’s not to say consumers are not being forced to make budget decisions, however. McMahon pointed out that data from credit card companies indicate that consumers continue to spend, probably by racking up the credit debt.
“We’re a higher-price-point premium brand,” McMahon said. “We have some insulation, I would say that [our] customer has been less impacted by some of the economic, political and social changes that we’ve all experienced.”
Through a volatile environment, AG isn’t pulling back on the retail.
McMahon said there are opportunities to expand the brand’s “relatively limited distribution” in the U.S. and internationally, which is currently only online. At one point, the brand had a very large, successful business in Japan, and the CEO would like to recapture AG’s global footprint. The company recently signed with a group for European distribution, and it is in discussions now with potential partners in India, China and Korea.
The brand continues to have a large wholesale business with Nordstrom, Saks, Bloomingdale’s and Neiman Marcus, but McMahon said he thinks AG’s main sources for expansion will be international and domestic regional freestanding retail stores. “We currently have 12 retail stores. We could probably have two or three times as many here in the U.S. So, we have identified potential locations where we know our customer lives based on our e-commerce business,” he said.