By and and  on October 14, 2008

The domestic textile industry is getting closer to the edge of extinction.

Thanks to the ongoing credit crisis and consolidation of retailers and apparel producers, the U.S. textile industry — which, in its heyday, employed more than 700,000 workers, but has since shrunk to less than 300,000 — is facing even bleaker days.

While domestic textile executives said the tight credit markets and high lending rates haven’t severely affected their businesses with large customers just yet, they are concerned many small companies that buy their fabrics are already feeling the pinch.

The domestic textile sector has faced a long-term credit crisis for more than a decade, said Auggie Tantillo, executive director of the American Manufacturing Trade Action Coalition. The current economic crisis has added another layer to the problems by pinching short-term credit and creating a higher level of operating difficulty.

“Many of our guys were dealing with a credit crisis even in the middle of a boom,” Tantillo said.

As pressure from cheaper imports from China and elsewhere on the domestic industry increased, banks became increasingly reluctant to lend money to textile manufacturers, he said.

“Now, add into that the current crisis, which is not unique to the textile sector,” Tantillo said.

Textile manufacturers aren’t having trouble getting credit, but they are faced with rising rates, he said. According to AMTAC, banks aren’t cutting off credit overnight or steering clear of 30-day credit arrangements, but they are significantly increasing lending rates. The London Interbank Offer Rate, which helps set commercial loan rates, shot up by nearly a third last week, but eased off 1.5 percent on Monday to 4.169 percent, according to

The higher rates could have far-reaching economic impacts on businesses already operating under less-than-ideal circumstances. So far, few executives have reported being denied credit outright, partly due to the long-term relationships the remaining domestic textile manufacturers have with their local bankers, Tantillo said.

A second layer of uncertainty swirls around the financial health of Wachovia, a bank prominent in the Carolinas where the remaining domestic textile industry is primarily based, Tantillo said. The region was once the hub of the country’s textile industry, which employed about 500,000 people just 15 years ago and was down to 297,100 last month, less than half of its peak employment in the mid-Seventies.

While there has been some anecdotal evidence of business returning to the U.S. because of rising fuel prices and higher labor costs in China, job figures don’t bear it out.

The majority of textile firms may be able to rely on their established financing partners, but not every company has that security net. Mills like Spectrum Yarns, a yarn spinner that makes products for use in apparel, home furnishings and automotive fabrics, could find themselves in a financial bind. Spectrum notified the North Carolina Department of Commerce that it would close two North Carolina facilities on Sept. 30 because it could not get adequate financing. The closure resulted in the loss of 200 jobs.

“The reasons for the closing of the Spectrum Yarns Kings Mountain plant and Marion plant relate in part to the recent problems in the nation’s financial markets,” said the company in a letter. “In the midst of this national financial crisis, Spectrum has been unable to obtain sufficient financing to keep operations going.”

Spectrum said it approached banks and private investors, but to no avail. In addition, Spectrum’s primary supplier, Nan Ya Plastics Corp., stopped shipping materials to the company, the letter said.

September was a particularly rough month for domestic textile manufacturers in North Carolina. Burke Mills, a yarn manufacturer for the apparel, home furnishings and industrial textile industries, let 130 workers go last month. Burke cited the general contraction of the domestic textile industry, declines in sales and a dearth of customers and potential customers as factors. Freudenberg Nonwovens also closed a North Carolina facility that resulted in the loss of 59 jobs.

As part of the announcement of worldwide layoffs of more than 8,000 workers, Hanesbrands Inc. said it would cease all its production of knit textiles in the U.S. The company closed a knit textile factory and a yarn plant in September that employed 610 workers. Another 135 workers at two other facilities are expected to lose their jobs before the end of the year. The last domestic knit textile plant the firm owns is slated to close next year, when an additional 600 jobs will be lost. All the announced layoffs were at facilities in North Carolina.

Jim Chesnutt, president and chief executive officer of National Spinning Co., which operates several yarn and dye plants in North Carolina, said, “Our bank is not pulling back on credit with us. I’m not concerned about my bank not taking care of my needs. I’m concerned for some of my customers.”

Chesnutt’s customers — knitters, weavers and sweater and hosiery manufacturers — have seen tightening in credit, which has trickled down to his company in the form of an extension of invoice due dates by several days.

Chesnutt also expects the slowdown at retail to eventually affect his business.

“I have to think there are marginal retailers out there that are going to have [credit] lines reduced,” said Chesnutt. “Their compliant banks are cutting back on their lines. It is more difficult to get lines for letters of credit and they’ve had to bring their inventories down.”

He said his hosiery business has seen a slowdown at retail, but his sweater and craft sales have been strong. Chesnutt said his business is now 60 percent textiles and 40 percent crafts.

“I think who we’re seeing the biggest impact with is the newer and smaller companies that might have new relationships with their banks and lenders,” said Brian Meck, general manager of Fessler USA, a Pennsylvania mill that specializes in manufacturing fashion knit tops for customers such as Nordstrom, Lucky Brand and Urban Outfitters. “Established brands and retailers seem to be very stable and we’ve had no issues or delays.”

Meck recommended that smaller labels and designers look to partner more with their manufacturers to weather the storm. According to Meck, Fessler makes it a point to partner with small labels and start-ups, offering anything from inventory management to marketing and customer service support.

“If there’s somebody with a real business opportunity, we’d recommend they have a real heart-to-heart with their manufacturer,” said Meck. “We’re definitely open to ideas like that.”

Allen Gant Jr., ceo of Glen Raven Mills, said, “I don’t think there is any question that the credit market has tightened dramatically.”

Every industry is probably going to see an impact on their supply chain, he said, but the remaining question mark for everyone is still what effect the $700 billion bailout package approved by Congress will have.

“Credit problems are very pervasive,” Gant said. “There’s not a single issue in our lives that won’t be affected by it. But I’m optimistic. I believe this country needs immense leadership and we will find it. Eventually we will look back and say we can’t believe we got so close to the edge and didn’t fall over.”

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