MILLS GET A TASTE OF IMPORTING
Byline: Joshua Greene
NEW YORK — Textile companies are trying to take a page from the apparel makers’ playbook.
After years of dismal business and evaporating margins, major textile mills are scrambling to find ways to improve their profitability in the face of a brutally competitive environment. Some mill executives are following in the footsteps of major apparel companies, by starting outsource production of some of their fabric, rather than manufacturing it all in company-owned mills.
It’s a business model familiar to executives at many apparel companies, which largely contract out their production to factories in foreign countries, thus eliminating the need to own expensive manufacturing equipment. Some observers contend that the success of the model on the apparel side suggests it will work for textiles.
Outsourcing isn’t entirely a new phenomenon in the textile industry. For decades, converters have sold fabric without owning machinery. As many converters have gone out of business in recent years, some of the survivors wonder if mills will find the strategy all that successful.
Still, with textile executives in need of new ideas — and often facing bankruptcy-court deadlines for restructuring — U.S. mills are striking deals with factories in Thailand, Indonesia, China and Taiwan to put together fabric lines to offer their customers at home. Andrew Parise, president of New York-based mill Texfi Industries, said he expects outsourcing to make up 25 percent of his future business. He said the company will continue producing synthetics such as polyester-rayon-wool blends for women’s apparel, but will start acting as a marketing and merchandising company that offers a diverse range of products with outsourced materials.
“We are currently making gray goods domestically and outsourcing domestically and it works to our advantage depending on the fabric,” Parise said. “In the next few months we plan on outsourcing overseas and are currently looking at goods out of China and Indonesia. We will purchase gray goods and finished goods abroad and then style and merchandise them to our specifications and lay out a sales plan based on initial sample orders.”
Parise noted Caribbean apparel manufacturing can be cost competitive with Asian imports and said it is important to continue offering goods eligible for CBI and NAFTA duty-free treatment.
Executives at Burlington Industries — which filed for bankruptcy in November — are also combining outsourcing and domestic production in their restructuring plan. The mill merged its apparel-related operations into three divisions that offer cost-competitive fabrics outsourced from Far East mills as well as domestic fabrics. A new division, Burlington Worldwide, has its headquarters in Hong Kong and works directly with factories in that city, China and Taiwan to contract fabrics. Burlington North America focuses solely on manufacturing fabrics eligible for NAFTA and CBI trade benefits, while the third division, Nano-Tex LLC, develops and licenses nanotechnology enhancements for fabric.
“It’s a whole new business model,” said Burlington president and chief operating officer Doug McGregor. “The benefit is to give the customers what they want, rather than just what we make. It’s a lot more sourcing, developing and styling that works with the customers on a global basis.”
McGregor said the company will initially focus on products that a Burlington customer expects, including synthetics, wool and denim fabrics: “We’re sitting down with Asian mills and getting them to make [fabrics] to our specifications in terms of style, design and quality and then taking those fabrics and distributing them through Burlington Worldwide.”
In addition, McGregor said Nano-Tex fabrics will enter the Asian market through licensing agreements with Asian mills that will in turn sell fabrics to Burlington Worldwide to distribute. The Hong Kong office currently employs eight people who work with the mills directly to develop products.
“They’re not just sourcing people,” McGregor said. “They’re textile graduates that understand the textile industry. We think that by being a good customer of these Asian mills, we can have a fair amount of influence on how they operate and the service levels we get. We might not have as much influence as if we owned them ourselves, but we’d rather be a customer of a mill.”
Nicholas Hahn, president of Stamford, Conn.-based textile consulting firm Hahn Industries said he thinks companies should outsource if they don’t offer competitive prices.
“It doesn’t necessarily mean outsourcing in Asia, it might be in the Carolinas,” Hahn said. “If you have a vertical textile operation and you can buy your yarn cheaper from somebody in the U.S., then that’s what you should do, instead of spending money on antiquated spinning equipment.”
Hahn cited apparel vendor Liz Claiborne as an example of an outsourcing business model: “They don’t own a sewing machine, but they’re the largest public women’s apparel producer in the world.”
But mill executives, on the other hand, argue the pressure to support factory workers limits their ability to downsize, since some small towns depend on local mills as the main source for work, especially in the South.
Washington, N.C.-based National Spinning Co. employs nearly 1,900 people in five North Carolina counties that have unemployment rates ranging from 7 to 11 percent, according to president and ceo Jim Chesnutt.
“It’s becoming increasingly difficult to find enough business to maintain these jobs,” Chesnutt said. “It’s not just keeping these people with jobs, but health care for them and their dependents and giving them an opportunity to put something away for their retirement.”
Chesnutt said National Spinning is focusing on customer needs, quality, quick turnaround and delivery to maintain business: “We’ve squeezed every ounce of cost from the system we can and our plants are working five and six days a week.”
Hahn said the decision to outsource is not an easy one, yet he doesn’t see an alternative on the horizon.
“It’s easy for me to say this because I don’t own a mill that supports 500 people and their families,” said Hahn. “But if you don’t make the decision and you go out of business instead, what have you accomplished?”
He argued that name recognition, as well as having product development and design teams already in place could make U.S. mills competitive if they shift into outsourcing. Further, he said clients trust the companies they know to make sure human rights and quality control issues are well organized.
“They’re going to be textile suppliers,” Hahn said. “They’re moving back toward the converter model where the company doesn’t own production. They’ll become fabric suppliers rather than fabric makers.”
For established converters and importers, however, outsourcing is old news.
“My first trip to China was in 1976,” said Fred Baumgarten, president of New York-based converter Majestic Mills, which specializes in bottom-weight fabrics like corduroy and velvet. “I say welcome to all the mills that have discovered outsourcing.”
Baumgarten said importing was difficult 10 years ago when quotas were more restrictive and taxes were higher. With the upcoming abolishment of quotas in 2005, Baumgarten said mills are trying to become flexible importers.
“I think the converter is set up to [import] in a swift process, so I wonder how they are going to meet that challenge,” he said. “I wish them luck.”