NEW YORK — The panic appears to have passed.

Textile mill executives headed into this year ready for the worst: With bankruptcy reports piling up and retailers slashing inventories, it appeared as if the beleaguered industry might be heading into its final battle.

As it turned out, things didn’t get any worse. Instead, business started to improve.

"The first half of the year has shaped up excellently," said Keith Hull, president of marketing and sales at Graniteville, S.C.-based Avondale Mills Inc. "The volumes started to pick up in late January, particularly in denim, and have not really slacked off at all. It’s not even a fair comparison because last year was such a disaster."

That’s not to say that the first half of the year has been all smooth sailing for the industry. Galey & Lord and Guilford Mills both filed for Chapter 11 protection, following Burlington Industries, Malden Mills and CMI Industries and continuing a five-month streak that saw many major textile mills go into bankruptcy. But since Guilford’s March filing, there hasn’t been another major textile bankruptcy.

The main worry for executives is whether consumer spending will hold up, since that ultimately keeps the order books filled. The uptick in commercial ordering early this year reflected what typically happens after a recession: As the economy softened last year, retailers cut back on their buying. The Sept. 11 attacks caused them to cut their inventories deeper. After Christmas, their stockrooms were even emptier than buyers had intended, and merchants had to boost their orders to get inventories back up to the level necessary to meet current demand. That helped mills improve their sales in the first half of 2002.

The question now becomes whether consumers will continue to buy at their current rate. If they cut back, the inventory-cutting-and-filling cycle could repeat itself.

"The first three to four months [of the uptick in sales] was clearly inventory build," said Hull. "But it appears that inventories are still in good shape, and there is some consumer offtake feeding some of this demand. Admittedly, everything that occurs in the denim world in this time frame is geared for back-to-school, and b-t-s sales we won’t get a feel for until late July and August."Executives noted that another factor contributing to the reported improvement in sales is that many mills closed over the past few years, which has made it easier to find orders to keep the remaining facilities running at or near full capacity.

"Business picked up nicely in February and our business remains strong right now," said George Henderson, chairman and chief executive officer of Greensboro, N.C.-based Burlington Industries Inc. "[Business is] particularly strong in denim, but it’s also strong in our other fabrics.

"I think part of this is driven by the better demand from the market, but also part of it is circumstantial in that it’s related to the fact that we have reduced capacity," he acknowledged.

In January, Burlington kicked off its largest round of layoffs in years, cutting 4,000 jobs and closing five plants. That followed more than 5,500 job cuts in the preceding five years.

So while the company’s plants are running at full capacity — "our deliveries are further out than we would like to see, because of the demand," Henderson remarked — Burlington’s sales are still below last year’s levels.

While the pickup in demand has been strongest in the denim business, it hasn’t been ahead of all executives’ expectations.

"It has not been quite as strong as we thought it would be across the board," said John Bakane, chief executive officerof Greensboro-based Cone Mills Corp. "Month to month, demand has been pretty steady. But…one of those things that has struck me is we would get a couple of weak weeks and a couple of strong ones. There’s still a stop-and-go element to this recovery."

The recovery also hasn’t been as strong in other segments of the fabric market. Sales of polyester fleece, for instance, have been soft.

"Heading into the year, we never expected it to be as tough, to be honest," said Cesar Aguilar, senior vice president and general manager of Polartec Worldwide at Lawrence, Mass.-based Malden Mills.

He acknowledged that the company’s sales have been down this year, though he did not say by how much, and said he expected them to remain down in the months head, hopefully flattening out next year."Retailers have been very conservative in their buying and that has a trickle effect all the way down to us," he said.

For some textile firms, the boom-or-bust cycle of the intensely competitive apparel market becomes more trouble than it’s worth.

Guilford Mills of Greensboro is one such company. After closing a half-dozen domestic plants last year, the company in April said it planned to close two more apparel-fabrics mills — one in Altamira, Mexico and one in Lumberton, N.C. That left its Mexico City factory, which produces sportswear and lining fabrics, as its sole apparel-fabrics operation.

"Our core business, going forward, is focused on automotive and technical textiles," said president and ceo John Emrich. "Those businesses are very strong right now….[W]e have seen a pickup of activity. We’re hoping that business will continue and it won’t be a load-up-and-fill situation, but it’s hard to predict."

While Guilford’s pre-negotiated Chapter 11 petition was the last recent textile-bankruptcy filing, the mill may be the first of a group to return to solvency. Emrich said he expects the company to emerge by the end of the summer.

"We will have been in and out in less than six months," he said. "That’s looking real good."

Burlington, which started the last wave of major bankruptcies with its Nov. 15 filing, may be among the last to emerge. The company said it has completed its operational restructuring around five core units: Burlington Apparel Fabrics, with plants in the U.S. and Mexico; Burlington Worldwide, a Hong Kong-based unit that sells fabrics made by other overseas suppliers; Nano-tex, which develops new textiles enhanced by nanotechnology; Lees Carpets, and Burlington House, which produces home-furnishings projects.

Still, Henderson said it could take until the summer of 2003 for the company to finish restructuring its finances and prove that it can be profitable.

"We really have to confirm our business model and have several quarters of experience behind us to verify that our business model will be as successful as we think it’s going to be," he said.

At Malden, Aguilar said the company completed most of its head count reductions before filing for bankruptcy in November."There are going to be some things we will have to do next year, and we will start taking those steps in September to make sure we do the things we need to weather this storm," he said. Further restructuring steps would be "mostly flow changes and reconfigurations of the facility to run more efficiently," he said.

He added that the company continues to toy with the idea of moving some of its production out of the U.S., although it has made no firm decisions. He did not say when the company might emerge from bankruptcy.

Arthur Wiener, chairman, president and ceo of Galey & Lord Inc., speaking from headquarters in New York, said the company’s bankruptcy proceedings were going "fine." But he declined to comment on when the company might emerge from Chapter 11. Galey cut its head count by about 30 percent while streamlining its operations in the two years before its filing. The company now primarily focuses on reworking its finances while operating under court protection.

Not all of the companies drawn into the last wave of filings expect to emerge from bankruptcy.

Columbia, S.C.-based CMI Industries Inc. filed for Chapter 11 protection in November but is now liquidating. Its Elastics Fabrics of America division is expected to live on under new ownership. It follows in the tracks of companies, including Dyersburg and Thomaston Mills, which have gone out of business over the past few years.

Worldtex Inc., a maker of narrow elastic fabrics, emerged from a year’s stay in bankruptcy this March.

Despite the wave of bankruptcies, not all mill executives have focused solely on cutting costs and keeping their heads above water. In April, a team of investors bought the Columbus, Ga.-based denim division of the Japanese denim maker Marubeni. Monte Galbraith, vice president of sales at that business, now called Denim North America, said his company plans to unveil its new fabric collection later this month and is expecting a strong second half.

"In denim, the demand has picked up overall," he said. "We anticipate a very busy rest of the year. It’ll take a lot of hard work. We’re not going to coast through the rest of the year by any stretch of the imagination. But we’re optimistic."Greenville, S.C.-based Delta Woodside Industries is also making new investments in the domestic fabric business. The company last month kicked off a multimillion-dollar modernization program at its Piedmont, S.C. mill. The program intends to make the facility run faster and cheaper, while improving quality.

President and ceo Bill Garrett said in an interview last month that after a sharp falloff in business following the Sept. 11 attacks, the company expects to report profitable results for its fourth quarter, which ended in June.

Looking towards the coming six months, he said, "We think business is going to be OK. It’s not what we would like. We won’t run at full capacity, but we will be running with a reasonably good diet.

"A lot will depend on activity at retail, consumer confidence and unemployment," he added. "That is a tough call today, but we do feel that we’re positioned with the right partners to get through these difficult times."

Other firms are expanding their operations overseas, borrowing from the apparel-production model and outsourcing their production to contractors in countries with lower wages.

Burlington’s Worldwide division is now selling fabrics made by about a dozen partner mills in China, Taiwan, South Korea, Hong Kong, India and Indonesia, said Henderson. The company is also in negotiation with more mills to add to its supply chain.

"We’re not trying to reproduce or trying to source exactly what we make" in the U.S., he continued. "We’re just augmenting our line with a lot of products that we don’t produce here. It’s quite a range of product. We’re sticking to wovens to start with. The products are in the same product family as what we make today."

For Texfi Marketing, a descendent of Texfi Industries, which last year closed its remaining mills and was then acquired by NRB Industries, it’s taking more time to find overseas mills with which to work. For now, the New York-based company is selling NRB fabric.

"We’re evaluating imported products. We haven’t found the right fit at this point," said president and ceo Andrew Parise. "We have not brought in any major production at this point. We’re evaluating and trying to hook up with the right suppliers."The challenge so far, he continued, has been "finding someone [who] can live up to the quality and delivery times that we need. We will probably hook up with someone who will sell us gray goods, where we can do the dyeing and finishing [in the U.S.]. We may be bringing in finished goods. The problem with bringing in finished goods is the lead time is too long for most of our customers."

He added that the company expects to begin importing fabric by the end of the year.

Cone is also looking to expand its presence overseas. That company has had a Mexican denim joint venture, Parras Cone, since 1995 and in 1998 took a stake in the Indian denim producer Ashima.

Bakane called Cone’s Mexican operations "an outstanding success for us." He was less upbeat about the Indian venture, saying, "We just haven’t found the right formula for that particular situation….It’s premature to say how that is going to eventually end up."

He said the company is currently exploring other ways of joining forces with foreign fabric producers. While declining to name what companies Cone is talking with, or even what countries it’s looking at, he said the mill is "cementing some relationships" for "sourcing partnerships and alliances."

The company has a clear motive to increase its presence overseas. As reported, beginning next year Cone will no longer be the sole denim supplier for Levi Strauss & Co.’s iconic 501 jeans. Levi’s, currently Cone’s top customer, decided to break that deal as a result of its decision to close most of its remaining U.S. plants and move its production to foreign countries. By working with foreign producers, Cone may be able to keep its key role in supplying denim to Levi’s.

Another option that some textile vendors continue to pursue is full-package garment production. While several prominent efforts by U.S. mills to extend their manufacturing operations into apparel flopped — Burlington and Galey have pulled the plug on their garment plants — other firms are finding success in apparel by outsourcing the actual sewing.

New York converter Pressman-Gutman is such a company. It has begun producing basic pants in Asia and Central America for some customers."We’re making some garments now for customers, which has increased our sales dollar volume, somewhat at the expense of the piece-goods business," said president Jim Gutman. Contracting out the production, he added, "allows us to grow our sales without additional overhead."

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