By  on January 15, 2002

NEW YORK -- The U.S. textile industry is a very sick patient, said consultant Nicholas Hahn at a Wednesday financial forecast for the Knitted Textile Association, but the situation is not terminal.

The seminar, held at Arno Ristorante in New York, brought together three speakers to address the issue of recovery from the current economic recession. Opinions on when the economy might bounce back were positive, but the outlook for the future of the textile industry remained grim.

The forecasts from the three-person panel -- Mark Golivan, senior regional economist at J.P. Morgan; Carl Steidtmann, an economist at Deloitte Consulting, and Hahn, who serves as chief executive officer of the Hahn International consulting company -- ran the gamut.

Golivan said that despite elevated levels of unemployment and low consumer confidence following Sept. 11, the consumer continues to support the economy through spending. Holiday retail sales were OK, he said, as the consumer started to spend more as 2002 approached. Golivan said he expects the recession to come to an end by spring or summer, with businesses recovering sooner than later.

He said, "2002 is not as bright as it was 18 months ago, but the prognosis is good."

Steidtmann said deflated prices will be the main issue of concern for the economy and that manufacturers will be affected most directly.

"It's a manufacturing-based recession, the consumer is fine and that will continue, but we will see deflation," he said, contending that deflation is not necessarily bad. Often, deflation requires an increase in productivity and forces the best companies to the surface, Steidtmann said.

Most executives are not experienced with a deflationary world, and apparel textile prices have come down since 1998 and jewelry and furniture are all seeing price deflation, he said.

He added that the U.S. will have to adapt to a free-trade environment, since developing countries use apparel manufacturing as an entry into the world economy.

"That's probably not good for the U.S. textile industry, but it is good for the world's consumption of textiles," he said, adding that he expects 2002 to be "overall not a bad year, but not a great one either."Tax cuts and a stimulus package for consumers of $120 billion are positive steps from the government, he added. Hahn, however, disagreed that the industry should look to the government for any relief. He said there was no magic wand that would heal the industry, but made it clear that relying on the government is not a solution.

"Washington isn't going to solve the problems of the industry. CBI is good, but it isn't the holy grail. It's not Mexico or CBI, the issue is Asia."

Hahn noted that Far Eastern countries -- including Pakistan, Indonesia and India -- can dye, finish and sew at high quality and a low price. He said that even a robust economy will not get the textile industry back on its feet and if U.S. production can't compete, then outsourcing is a possible solution.

"Large apparel manufacturers and brands understand outsourcing," he said. "I don't think Liz Claiborne owns a sewing machine. They've made a science of coordinating and distributing to retailers, and despite everything today, they still beat their numbers."

According to Hahn, if a mill can buy gray goods in Indonesia for less than it costs to weave them itself, it should do so. In that model, the mill would just dye and finish the fabrics on its own.

"Whatever piece they cannot compete with they should outsource," Hahn said.

Hahn suggested the creation of a worldwide outsourcing conference to help get the process started.

Also, he recommended the domestic industry look at the business structure of Hong Kong-based Li & Fung Ltd., a top player in full package production and supply management.

Overall, Hahn said he was in disbelief at the current state of the industry, and disagreed with Golivan's "rosy" outlook for the future.

"I thought I'd seen it all," he said. "And never in my 40 years in the textile industry did I think I would see Burlington Industries operating under Chapter 11."

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