MILLS’ HOPE: BETTER TIMES AHEAD — MAYBE
Byline: Scott Malone
NEW YORK — Mill executives haven’t been smiling much in recent years.
As they come to the end of a tough year, however, some of them believe conditions in 2000 might get a bit better. Apparel makers are becoming a little more willing to source in the Western Hemisphere, and mills, yarn spinners and converters are starting to be able to pass along some of the increases in fiber prices they have experienced this year.
But they’ve seen down periods follow up cycles before. For instance, a drop in the denim market followed the initial recovery in the synthetic-fabrics business this year, quashing hopes of an overall recovery. So executives are far from exuberant about the potential improvement.
At Burlington Industries Inc., conditions in 1999 were about as bad as had been expected, said George W. Henderson 3rd, chairman, president and chief executive officer.
The Greensboro, N.C., mill, a big producer of denim and synthetic blends, went through substantial restructuring and layoffs this year, but having done that, said Henderson, “We feel good about our position.”
Overall, he believes next year’s conditions should be good for business.
“We think 2000, from an economic point of view, ought to be pretty good,” he said. “We see soft goods continuing to fight for the consumer dollar versus electronics and computers. We do think that it’s likely that the 2000 year might start slow because of some Y2K stockpiling at the end of 1999.”
He also takes heart in the fact that North American mills aren’t facing the same Asian “fire-sale” prices they confronted during the depths of the Far Eastern economic crisis over the last two years.
“The economies in Asia have gotten better, and because of that, the whole Asian influence is abating,” he said. “And so, we see evidence that prices out of Asia are going up.”
Nonetheless, he’s not expecting to have a substantially better year in 2000.
“I’m not going to predict an improvement,” he said. “The markets are likely to remain about the same. I think that a lot of structural changes that are going on now will continue in 2000. I think there will be continued price pressure on commodity products and I think there will be some consolidation happening in the industry.”
John Heldrich, president and ceo of Swift Denim, based in Atlanta, a division of Galey & Lord Inc., said 1999 had been “a real difficult year” for the industry.
“It’s been more competitive than anybody anticipated, so while there’s been some real strength on unique product and fashion merchandise, there’s been an oversupply on basic denim globally, and certainly in North America,” Heldrich said.
But he was somewhat more positive in his outlook, based on the influx of new ideas into the jeans business, such as Swift’s “Hardcore Blues,” its bid in the dirty-denim game.
“I see a continued competitive marketplace,” he said. “But I’m very encouraged with some of the products and some of the ways our customers are using those products. I think it’s going to be one quarter at a time, but there will be a gradual improvement.”
Makers of synthetic fabrics have a somewhat more positive outlook, largely because they’re beginning to succeed in passing along the increases in fiber prices they began experiencing in the middle of the year.
Their tone has changed significantly since July, when one top mill executive said his chances of getting a fabric price increase to stick were “absolutely zero…as a matter of fact, I don’t think we would even try.”
At Guilford Mills, executive vice president and chief financial officer Terry Geremski said the company had managed to secure some price increases in recent months.
“It’s been a mixed bag for us,” he said. “We have passed on some price increases in some cases and in others we have not. But it’s more or less balanced. If it was a specialty yarn, we had to pass it along. In the others, it depended on our programs.”
Part of the reason for the success of North American mills in getting price increases has been that their rise in fiber costs has not been as significant as those in Asia, where fabric prices were driven up as much as 40 to 60 percent, Geremski continued.
Similarly, in reporting its results for the quarter ended Oct. 2, Dyersburg Corp. said it had succeeded in raising some prices.
Eugene McBride, chairman and ceo, said, “During the latter part of last year, any number of times we felt that we had hit the bottom with pricing, only to find out a couple of weeks later that it went even lower. Now we clearly have reached the bottom and on a couple of products have begun to turn around.”
He remained cautious in discussing rising fabric prices.
“I don’t want to suggest that we are out to increase our prices,” he continued. “But there has been a little bit of firming.”
Mill executives expressed some confidence that while their costs would continue to rise, most likely they would be able to pass those costs along — though they emphasized that the process would be painful.
Keith Hull, president of marketing and sales at Avondale Fabrics of Graniteville, S.C., said, “We’re currently negotiating that, and [fiber makers] are actively and aggressively looking for further increases. At the early stages, it’s a difficult increase to pass along. Eventually, we will have to pass it up the chain, but it’s difficult. The industry has had a price deflation at retail on most apparel.”
George Shuster, president of converter Cranston Print Works, said his company had been able to achieve some price increases, though he noted, “I don’t think it’s necessarily one-for-one.”
From the European perspective, Jean de Jaegher, chairman of Italian textile and apparel concern Marzotto SpA, noted that with the price of raw materials rising, “you’ll see less reluctance on the part of manufacturers to raise prices.”
Yarn companies also expressed confidence that they’d be able to pass the increases along.
Willis C. Moore 3rd, senior vice president and chief financial officer at texturizer Unifi Inc., Greensboro, N.C., said, “We don’t really have much choice; we’re forced to do it.”
He added that he expected the cost of raw materials would continue to rise and said that his company “obviously” would continue to try to pass that along.
Not everyone was so confident, however. Bob Calabro, vice president of styling and product development at Delta Mills Marketing Co., which has its headquarters in New York, said, “There’s no way to pass cost increases on at this point. You show a product and you get what the market will bear. If we said, ‘This is what we’re going to get or we’re not going to sell it,’ we wouldn’t sell anything.”
Mill executives said they expected their domestic operations’ role in the apparel business to continue to change.
Guilford’s Geremski noted that his company’s stretch fabrics, intimate apparel and swimwear fabrics were experiencing growth, while sales of robewear and linings had dropped as more of those garments were sourced overseas.
Calabro noted that Delta Mills was putting more effort into working with fabrics that are harder to weave but command a higher margin, like lyocell.
“We’ve pretty much given up on a lot of polyester-rayon-type products, because you just can’t get paid,” he said. “We’ve done a lot of work with Tencel [the brand of lyocell]. That’s probably leading the market right now.”
Shuster noted that Cranston had entered the full-package garment-production business, following the lead of such companies as Galey & Lord and Burlington. He said packaging was “a small but growing” part of his business.
While many mills have started to move their operations out of the U.S. and into lower-cost nations like Mexico, Hull said that after evaluating the possibility, Avondale decided against it for the time being, though not for philosophical reasons.
“We’re studied the option and decided it’s not timely for us,” he said. “There is still significant value that we can bring by spending our capital dollars in the U.S.”
While many executives were reluctant to express anything more than guarded optimism for 2000, some said they were more confident.
Avondale’s Hull said he’s been pleasantly surprised by demand for fabric in recent weeks, given that the end of the year is typically a slow time for the bottomweight fabrics in which his company specializes.
“There is still significant price pressure on the marketplace, but the demand is stronger than we forecast — and we were pretty bullish,” he said. “I’m optimistic about demand for early 2000.”
He said apparel makers were moving some sourcing back from Asia to the Western Hemisphere.
“Some of the experiments in low-cost, long-lead-time, unknown-quality resources around the world have failed,” he said. “Maybe people are going back to something more predictable.”
Jim Chesnutt, president and ceo at yarn maker National Spinning Co., said that after what he called a “miracle” of a strong fourth quarter, he expected good results in 2000.
“I am not as enthusiastic as I was, going into ’98, but I am optimistic for next year,” he said. “Some people are coming back to our customers, who had tried to take advantage of cheap prices out of the Far East, but looked at the quality and service and were not happy about it.”
He said that, given cold weather and continued improvement in Asia, his company expects 15 percent revenue growth next year.
Also bullish about the year ahead is Malden Mills Industries of Lawrence, Mass., which is coming off of a strong year, according to director of marketing Jeff Bowman.
“We were a little ahead of what we thought,” Bowman said. “We predicted a flat business for ’99 and had 4 to 5 percent growth. It looks like we picked up market share in our core markets, so we’re pretty upbeat about that. Profitability was outstanding.”
Bowman added that the company expects “modest growth” in 2000, planning for a 2 to 5 percent increase in revenue.
In the end, the overall mood of mills was reflected by Dyersburg’s McBride, who said, “As long as we are cost-competitive and efficient, then 2000 will be a substantially better year for us.” But he stressed that the competition would be intense and added, “It’s still going to be a very difficult market, and very, very competitive.”