Looking For A Turnaround

“It’s a macroeconomy story,” said John Bakane, chairman and chief executive officer of Cone Mills Corp., reflecting on the second-half outlook for textile and sourcing firms.

Coming off a bleak first half and facing a retail climate in which merchants are trying to trim their inventories ever further, executives said the business climate going into the second half is uncertain and unpredictable.

They contend that, as suppliers, they have done what they can to meet vendors’ and retailers’ needs.

“Across the board at retail, the environment is weak. Not only are we seeing it in some of our denim lines, but home furnishings, as well,” Bakane said. “The U.S. economy is in weak shape and it’s got to get better from a macroeconomic standpoint before retailers will see more traffic and start opening up the open-to-buys. And from a macroeconomic standpoint, I’m not encouraged.”

Rick Darling, president of Li & Fung (USA) Ltd., the New York arm of the Hong Kong sourcing powerhouse, had a different outlook.

“The economy has started to bottom out and be stronger again,” Darling said. “Interest rates and inflation are at significantly low levels. The growth of the economy appears to be beginning. People are being careful and buying close to when they need delivery and keeping open-to-buys available. But the overall feeling is the third and fourth quarters should see a turnaround.”

The problem executives cited in making their second-half plans was determining what would be the stimulus that would spark consumers to spend again. They pointed out that some in the industry had expected a pickup in sales after the war in Iraq that had not materialized.

“That was one of the debates during the war,” said Keith Hull, president of marketing and sales at Graniteville, S.C.-based Avondale Mills Inc. “After the war, there has not been a bounce back. We have not seen the so-called pent-up demand unleashed, which underlines that it wasn’t really the distraction of the war, but that there were some fundamental economic problems.”

Reflecting the absence of a bounce back, Avondale’s sales for the quarter ended May 30 slid 16.5 percent to $152.3 million.The horizon looks particularly cloudy for denim mills, as the jeans business has started to stall after several years of strong growth. In recent months, jeanswear giant VF Corp. reported a 7 percent decline in its first quarter U.S. jeanswear sales, while Levi Strauss & Co. reported growth of less than 1 percent in its second quarter and acknowledged sales would have been down if not for the effect of fluctuating exchange rates.

However, suppliers of synthetic fabrics and other styles of textiles aimed at casual sportswear reported a bit of an uptick in demand in recent weeks.

Most supply executives said their concern was that retailers would keep inventories so tight, they would run the risk of being unable to meet consumer demand if it picks up during the second half.

“We look at the first two weeks of August as a critical time because then there is no time left for the stores to make a move if they want to produce goods quickly and get anything into the stores before November,” said James Gutman, president of Pressman-Gutman, a New York-based importer that supplies fabrics and full-package production services from Asia and Central America to U.S. brands and manufacturers.

With the domestic textile industry remaining shaky, a growing contingent of U.S. firms is inking deals with manufacturers in Asia and elsewhere around the world to take advantage of lower-cost supply.

One such firm is Texfi and its affiliate, New River Industries, which recently signed a letter of intent to work with Tuntex Textile (Thailand) Co. Ltd., a major polyester supplier, according to Andrew Parise, president and ceo of Texfi Marketing.

“The letter of intent is to form a strategic alliance in technology and global marketing,” Parise explained. “We’ll be developing products with them for our market here, whether the customers make the garments in the States or the Caribbean and Asia.”

He said New York-based Texfi would begin selling Tuntex-made fabrics under the deal and would be able to offer full-package production through Tuntex’s vertical operations.

“We’ll be able to introduce new products for our customers, new developments out of Asia and also products which will make us a lot more competitive globally,” he said. “If our customers want to bring in garments from Asia, we’ll be able to offer production for them.”Tuntex has an increasing involvement with U.S. suppliers. Last fall, yarn supplier Unifi inked a deal with the company, giving it a toehold in the Asian market, as well.

Also last week, Nano-Tex LLC, a developer of nanotechnology enhancements to fabrics that’s majority owned by bankrupt Burlington Industries Inc., said it had reached licensing agreements with two major Indian suppliers to use its technologies.

The deal with denim maker Arvind Mills Ltd. and cotton-fabrics maker Ashima Dyecot Private Ltd. include the rights to use the Nano-Care wrinkle-resistance and Nano-Pel water-resistance technologies on woven and knit fabrics and garments made on the Indian subcontinent and in the Middle East.

The need to find ways to take advantage of lower costs overseas is clear to textile manufacturers as they continue to face intense price pressures from their customers. The highly promotional retail environment has most buyers seeking lower prices for merchandise each season. Manufacturers said that trend has held up, even as the cost of energy and many raw materials have risen over the past year.

“Pricing has not deteriorated, but it certainly is at unacceptable levels,” said Avondale’s Hull. “With the raw-materials [price] increase that most of the mills had and have been able to pass along — so they’ve had to absorb — it hasn’t been pretty.”

Hull said there are only two ways for domestic manufacturers to handle the price pressures. Cutting costs is the first way, but mill managers have been focusing on costs for decades now and there comes a point where there’s no more fat to cut from an operation.

The other route, he said, is “to put more emphasis on new products. If you can find a differentiated product that is not a commodity, you can get paid for it. There is a relationship there. It’s not an unlimited dollar amount, but you can get paid better.”

While many textile executives agreed with that assessment, they noted it’s proven quite a challenge to develop new fabrics that are different enough from what’s out there for consumers to feel motivated to buy them.

“We’re trying to stimulate them with new fabrics that offer wrinkle-free, stain-defense, odor control,” said James Martin, president of apparel fabrics at Dan River Inc., Danville, Va. “We’re putting something on all our new products to attract the consumer.”But finding the right treatment that will spur sales remains elusive.

Part of the problem, Martin suggested, is that the increased casualization of American culture has made clothing a lower priority for consumers today than it was a couple of decades ago.The Price GameAfter a steep price hike stemming from the war in Iraq and other global factors surrounding raw material prices earlier this year, fiber prices for nylon and polyester are expected to stabilize in the third and fourth quarters, according to fiber executives.Cellulosic fibers, on the other hand, were stable during the first half of 2003, but could see a price increase sometime in the next six months.Though China’s consumption rate for polyester fibers is closely tied to global filament prices, there were other reasons for price hikes this year. They mostly revolved around raw material prices, such as oil price uncertainties before the war in Iraq and the political instability in Venezuela, one of the top crude oil producers in the world.However, as business slowed in Asia due to fears of SARS, so did the demand for polyester, and prices began dropping in April and May, according to Sohan Mangaldas, manager of global analysis at Unifi Inc., who noted that last month’s polyester filament prices had returned to January levels.“Prices went up after January this year, then crashed in May and June,” said Mangaldas. “Now we’re at the same point as January. China and Asia set the price in polyester and the U.S. usually follows that. If China prices go up, you can usually bet the U.S. will go up the next month.”At Hyosung, polyester and nylon prices are expected to stabilize for the third and fourth quarters, according to James Ford, vice president of Hyosung America Inc., the U.S. arm of Seoul-based Hyosung Corp.“I hope spandex will be fairly stable until the end of the year. There was a big surge back in March and April for polyester of about 10 to 15 percent, but that’s stabilized,” said Ford. “Increases have gone back down, so we’re going to compensate with pricing.”Overall, Ford said both the domestic and Far East business is soft, with imports still creating a lot of problems for the cut-and-sew industries. While he said he hopes business will start to perk up, it might take until the fourth quarter for any decent improvement, he said.Nylstar, meanwhile, was unable to pass along the raise in price for nylon earlier this year, said Sonny Walker, president. Prices are expected to remain stable for the rest of the year for the nylon 6.6 fibers market, he added.International Paper, a main domestic supplier of wood pulp for the cellulosic fibers market, closed down its wood pulp factory in Mississippi earlier this year. Since it was one of the main suppliers to Celanese Acetate, among other cellulosic fiber makers, it could cause a price increase for the market.According to Keith Nagy, director of filament at Celanese Acetate, that could mean an increase as high as 10 to 12 percent over the next six months since there is now more demand for wood pulp and fewer suppliers. Celanese, however, negotiated a deal with International Paper to purchase enough wood pulp to last the company through the end of the year at its current price.“When you take out an entire plant, things get tight,” said Nagy. “There are other large suppliers, but the aspects of supply and demand take over.”At Tencel, a lyocell fiber maker, no price hike is expected through the end of this year, according to David Adkins, regional director of Tencel Americas.“We could see a possible increase in raw material prices, but nothing dramatic,” said Adkins.The process to make Tencel’s A100 fiber, however, uses a different raw material than regular Tencel that could experience a price increase sometime this year. Though Adkins wouldn’t disclose the raw material, he said it could raise about 5 percent.“We may take the opportunity to pass along the price increase before the end of the year,” said Adkins. “Basically, various chemicals and products included in that fiber have gone up, but we can’t be too specific about them.”Tencel had bought wood pulp from International Paper on occasion, but Adkins said the company is supplied by more than one group, so IP’s exit from the wood pulp business is not critical for the company.DuPont’s TimetableThe days are counting down to DuPont’s self-imposed end-of-the-year deadline to sell or spin off its $6.3 billion DuPont Textiles & Interiors unit.Company officials insist they are still considering all available options, including holding an initial public offering if it can’t find a buyer willing to take on the massive business, the largest company in the rapidly changing synthetic-fiber industry.“The options remain the same,” said Bill Ghitis, DTI president of global apparel, in a recent interview. “It will be an IPO, partial purchase or total purchase.”Sources have said that Koch Industries, the Wichita, Kan.-based petroleum company, is the leading candidate to buy DTI. DuPont in April said it was in talks with a single entity about buying the DTI business, but did not identify the buyer. DuPont representatives have declined to comment on whether they’re speaking with Koch, and Koch Industries officials have declined to comment on DuPont.During the past year, the Wilmington, Del.-based DuPont has steadily been completing the housekeeping details it needs to accomplish to separate the business. In February, DTI started operating as a stand-alone operation within DuPont, and last month DuPont bought back the minority shares in DuPont Canada it had not already owned to allow it to merge some Canadian fiber operations into DTI.An arbiter also recently wrapped up a dispute between DuPont and Greensboro, N.C.-based Unifi Inc. concerning two jointly managed polyester filament operations. The arbiter awarded DuPont $16 million in damages, less than the $85 million it had originally sought. The ruling also closed the question of whether DuPont would be able to execute the put-call provisions of the joint operating agreement, which could have allowed DuPont to force Unifi to buy one of its polyester plants if Unifi was found to have materially breached the agreement. The arbiter found the breach, which consisted of Unifi not buying as much polyester from DuPont as it was supposed to, was not material.DuPont’s fiber portfolio remains extensive, including the Lycra brand of spandex, as well as unbranded spandex and polyester and nylon. The question of what will become of the fiber assets of the company that essentially invented the synthetic-fiber business by inventing nylon in the last century, remains a major topic of interest within the industry.Lobbyists lamentLobbying the Bush administration to slap quotas on surging Chinese textile and apparel imports is the main near-term goal for an alliance of six U.S. fabric, yarn and fiber trade groups, who last month adopted a unified lobbying platform.The alliance is hoping that, heading into an election year, it will be difficult for the White House to ignore pleas to activate the the China safeguards. The U.S. can impose unilateral quotas on China under a deal the Chinese struck in joining the World Trade Organization, which by 2005 will eliminate all limits on global apparel and textile trade for the rest of its 146 member countries.The group also is positioning the safeguard issue as a means to collect on an administration promise to help the flagging textile sector better compete with foreign suppliers to the U.S. market. The promise was made two years ago in exchange for votes from GOP textile-state House lawmakers that were needed to pass a bill renewing presidential Trade Promotion Authority, key to Bush’s expansive free-trade pact negotiating agenda.This is the first time since the 1980s that all sectors of the textile industry have been united on a trade issue. U.S. mill executives fear that once quotas are eliminated in 2005, low-cost China — which for the year ended April 30 held 13.2 percent of the market for imports of apparel and textiles to the U.S. — will surge ahead as a dominant foreign supplier to the U.S. in many apparel and textile categories. It’s a concern shared by developing countries, which see China elbowing them out of their U.S. market share post 2005.With quotas already lifted on many categories, China’s apparel and textile imports in the U.S. over the last 12 months have soared 46.7 percent, in dollars. The alliance noted this comes as textile employment has fallen by about 21,000 over the past year and 50 textile mills have closed in recent years.The textile sector’s plea for administration relief on China might get a boost from the fact that the entire U.S. manufacturing sector has been taking a beating in the weak economy. More than 2 million manufacturing jobs have been lost overall in the last two years. The textile alliance, which has chosen not to name itself, also has its sights on Central American Free Trade Agreement negotiations with five countries, which the administration hopes to complete by year’s end. (For more on the alliance’s efforts, see page 21.A Buyer for Burlington?One of the dramas that textile executives have been following for the past 18 months is due to come to a conclusion this month. Bankrupt Burlington Industries Inc. goes up for auction on July 21 and is expected to choose a bidder by the end of the month.The early months of this year were an emotional time for executives at Burlington, which filed for Chapter 11 protection in November 2001. In February, Berkshire Hathaway, the investment concern run by Warren Buffett, made a blockbuster $579 million offer for the Greensboro, N.C.-based mill.Textile executives reacted to that as a strong sign of hope, not just for Burlington, but for the industry as a whole. Many investors follow where Buffett leads, and some executives and observers hoped that his move might stir up more investor interest in the sector as a whole.But by the end of the month, Buffett walked away, after a Wilmington, Del., bankruptcy court struck down parts of his offer calling for a $14 million breakup fee if Burlington went with another bidder, and requesting that any competing bid be at least $5 million higher to be considered.Wilbur L. Ross, chairman and chief executive officer of Burlington’s lead creditor, W.L. Ross & Co., was instrumental in the rejection of the offer, calling it insufficient for a company that last year brought in $1.01 billion in sales and saw revenues decline 21.5 percent through the first half of its fiscal year. Burlington’s fiscal year ends in September.Since then, a lot of companies have expressed interest in different parts of Burlington, according to sources. Its Lees Carpet business is seen as the gem operation and officials at Mohawk Carpet confirmed they were looking at it immediately after Buffett pulled out. Burlington’s Mexican denim operation also has attracted some interest, with executives from Cone Mills and São Paulo, Brazil-based mill Santista Têxtil said to have eyeballed the facility.Cone officials have declined to comment on the matter and a Santista executive did not return phone calls. But Cone officials earlier this year said they were looking to expand in Mexico and briefly considered a financing deal with W.L. Ross to help them build a new mill.Still, there’s been no sign of any investor with deep enough pockets and sufficient interest to buy the whole operation outright, as Buffett had intended. But sources said Buffett, or more likely his agents, may yet reappear at the auction. After being rebuffed once and seeing little competition, sources said they would expect any subsequent Buffett bid to be lower than his initial offer.Ross said he’d welcome another bid from Buffett.“We have no ax to grind against him,” he said in a recent interview. “We’ve done business with him before. We were big creditors of Fruit of the Loom and it was the same thing, bumping along. But he ended up buying at what we considered a fair price.“It’s very logical for him,” Ross said of Buffett, “because he owns Shaw carpet, which is number two in residential carpeting. Mohawk is number one, and Burlington — through Lees — is the number one carpet company in commercial. So it’s very logical for any of the three major carpet companies. Lees would also be a good match for Mohawk or for Collins & Aikman.”Still, Ross acknowledged, if Buffett’s interest is in the Lees division, which last year generated 26 percent of Burlington’s revenue, there’s a key question: “Would he bid for the whole company or just for the carpet part?”Berkshire Hathaway officials typically do not disclose their investment plans in advance. Burlington officials have kept mum on the bidding process since Berkshire Hathaway withdrew its initial bid, a move that Burlington chairman and ceo George Henderson at the time called “unfortunate” in a statement.Market sources said it appeared that Burlington executives would strongly favor any bid that would keep the company intact over moves that would result in its divisions being sold off piecemeal.Still, the top textile executive admitted there’s another topic industry officials are more worried about, given the state of the North American textile industry.“The ownership doesn’t really matter in the grand scheme of things,” said the source. “It may matter to the people at Burlington, but what matters to the industry is what happens to the capacity, and supply versus demand.”In other words, executives at existing North American mills wouldn’t mind seeing some of Burlington’s plants taken offline, a development that would help reduce the problem of oversupply.For his part, Ross said he doesn’t care if the company is sold as a whole or in parts, so long as the price is right.“Whatever maximizes value,” he said. “It’s complicated, because there are tax issues, all kinds of issues. We’re mainly concerned with maximizing value.”On the Road AgainAfter a four-month period in which they spent a lot more time sitting at their desks — and a lot less time racking up frequent-flier miles — than was typical, textile and apparel sourcing executives said they’re getting ready to start living out of their suitcases again.In early March, in preparation for the U.S.-led invasion of Iraq, many U.S. apparel companies put in place travel restrictions that most managers expected to remain for a few weeks or so, just to ensure their employees abroad weren’t subject to any anti-American actions protesting the war. But that month the world also learned of an outbreak of a new pneumonia-like disease called SARS. The first case was detected in China in November, but the Chinese failed to alert the world of its presence until the Hong Kong authorities realized four months later that they had a major outbreak on their hands. The disease spread to 31 countries and eventually killed 812 people.Now that SARS has been brought under control and the World Health Organization has lifted all travel advisories to affected countries in Asia and elsewhere, many apparel executives are likely to resume long-delayed trips to Far Eastern suppliers.“Assuming that SARS stays wrapped up, most travel is back on, and July and August looks like it will be an active period,” said Rick Darling, president of Li & Fung (USA) Ltd., the New York arm of the Hong Kong sourcing giant.Darling said Li & Fung has lifted all its restrictions on foreign travel and he’d heard from many U.S. clients who were planning to return to Asia this summer.Similarly, Jim Gutman, president of the New York-based importer Pressman-Gutman, said, “We’re going to have people traveling. We haven’t been in Asia probably in six months and in the next three or four weeks we’ll have people going back, making their two-week trips to all the spots. It’s fortunate because we need to be there. It’s been too long.”Still, Darling suggested that, since apparel sourcing was able to go on virtually unimpeded during the outbreak, companies will likely question whether it’s necessary for their sourcing managers to travel as much as they have in the past, and instead rely a little more on electronic communication.“The lesson to be learned from the last four or five months is there is going to be pressure on retailers and brands to be sure their trips are rationalized,” he said. “The days of assuming one has to make five or six trips a year are over. There is some benefit of some of the new technologies that will effect travel patterns in the long run. But, that said, for the next three to four months, we’re going to see a tremendous amount of travel.”In DevelopmentAs the market for commodity fabrics and fibers continues to be dominated by imports, several U.S. converters and fiber makers are focusing their research and development on technically advanced products for the sportswear, activewear and medical markets.The shift toward these markets comes at a time when consumers are getting more familiar with the benefits of performance fibers, textile executives said, since they’re used to seeing hangtags for branded fibers and experiencing some of the benefits in activewear.“The bottom line is we put over half our resources into developing and marketing new products,” said John Anderson, Wellman Inc.’s vice president of advanced polymer applications. “I am totally convinced it’s what you have to do. A U.S. producer can’t be [competing] with the Asian supply chain, so innovation is key.”Saxon Textiles president Gail Strickler said technical fibers will continue to filter down into other apparel categories, such as sportswear, as more consumers understand their performance-oriented benefits. She said advanced fibers not only make garments more comfortable through stretch and breathability, but can make their care easier by improving colorfastness.Strickler said U.S. resources need to find competitive advantages, since focusing on price can mean sacrificing quality or margins.“Chasing the lowest price has started to catch up because the only way to do it is to cut corners,” Strickler said. “But quality and consistency is so important.”Saxon, a converter, has focused on two-way stretch wovens. It recently introduced three new varieties of those fabrics, called Alta, Whistler and Ajax. The fabrics are named after Rocky Mountain ski hills.Alta is a plain weave of nylon and Lycra spandex used for active apparel. It is coated with Sax-A-Pel, a breathable waterproof laminate that makes it appropriate for rain jackets and skiwear.“The trend is towards soft-shell fabrics with some stretch,” said Strickler. “It allows you to make tighter-fitting garments that breathe, but have less wind resistance.”Whistler is a twill weave, two-way nylon stretch fabric for running apparel and Ajax is a nylon-and-Lycra-spandex air-jet texturized product for technical climbing gear. Though Ajax is lightweight, the air-jet process gives the garment texture, which can help protect the skin. Strickler said the effect of the air jet process is similar to the effect a perm has on hair: it gives bulk.Outside of activewear, Saxon offers a moisture-management fabric for the uniform industry that uses Unifi Inc.’s Sorbtek yarn in a polyester and cotton blend. Unifi’s Reflexx, a high-stretch performance yarn, gives stretch and moisture management when combined with polyester. Both fabrics are being used for pants for police officers and in overalls for maintenance workers.The Cordura brand at DuPont Textiles & Interiors promises durability. Though Cordura fibers are frequently nylon, such as those used in luggage, backpacks and high-tech outerwear, DTI is now wrapping a nylon staple version of Cordura around Lycra spandex to create rugged durability without sacrificing comfort and freedom of movement.Advancements in Teflon stain protection continue to be important for DTI, said Bob Kirkwood, director of technology for DTI Apparel.At nylon maker Nylstar Inc., with its U.S. headquarters in High Point, N.C., anemic profit margins in the commodity fibers market prompted the company to add more innovation to Meryl, its branded nylon line. Last month, the company launched Meryl Mattesse, a line of microdenier and super-microdenier fabrics with a dull luster for use in intimate apparel and activewear.Nylstar also recently began manufacturing Meryl Skinlife, a bacteria-eliminating fiber, at its facility in Martinsville, Va. Since it was previously produced in Europe, U.S. users had to pay freight and other importing costs. Now, Meryl Skinlife is eligible for the duty- and quota-free benefits of the Caribbean Basin Trade Partnership Act and NAFTA, as well as for military use.Andrew Dent, director of library materials and research at Material Connexion, a materials research library based in Manhattan, said advancements in fiberoptics are resulting in some interesting garment concepts.Fiberoptic threads, which are long fibers made of glass or plastic that transmit light, can be woven into a garment alongside natural or synthetic fibers. Traditionally, fiberoptic cables had been designed to emit light only out of their ends. That is a critical feature if one is trying to use the cable to transmit information via light pulses over a long distance. But it’s not all that useful for fashion designers who are looking for fibers that glow.Now, there are fiberoptic threads available that emit light along their entire length. This opens up new end uses, said Dent, citing the idea for a railworker’s uniform that could light up, rather than simply reflect ambient light.Fiberoptic cables can also be used to create garments that are wired to connect personal electronic devices, like cell phones, mp3 players or personal digital assistants, said Dent.Weaving technology has also improved, Dent said, making it possible to weave electrical wires into stretch fabrics, such as a tight-fitting shirt that’s able to monitor vital signs.Currently, VivoMetrics Inc. offers a product called the LifeShirt, which can record the wearer’s physiological activity and store the information for later medical review.Meanwhile, Wellman continues to find new end-uses for its Sensura fiber, including a micro-denier version of the fiber that launched last year. It’s also continuing to develop versions of its wicking fiber Comfortrel, such as Comfortrel XP, which is basically Comfortrel with stretch.

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