INDUSTRY ON SHAKIER GROUND AS LEVI’S SLASHES 3,600 U.S. JOBS
Byline: Scott Malone
NEW YORK — Levi Strauss & Co. struck another heavy blow to U.S. apparel manufacturing Monday and the tremors could put even more pressure on the nation’s surviving denim mills.
Following in the footsteps of many of its competitors, Levi’s said it plans to eliminate 3,600 jobs and close six domestic manufacturing plants, as part of a move to shift more of its production to outside contractors.
The San Francisco-based jeans giant plans to shut down plants in Texas, Tennessee, Georgia and California by the end of October. The moves will reduce the firm’s head count by 20 percent. After the cuts are complete, Levi’s will employ 13,000 people worldwide, with 5,000 workers in the U.S.
“This is a painful, but necessary business decision,” Philip Marineau president and chief executive officer, said in a statement. “There is no question that we must move away from owned-and-operated plants in the U.S. to remain competitive in our industry. The plant closures will contribute to the ongoing progress of our business turnaround. Outsourcing production supports a more variable cost structure, helps us maintain strong margins and enables us to invest more resources in product, marketing and retail initiatives.”
Levi’s is in the midst of a five-year sales slump, which has seen its net revenues drop from a $6.86 billion in 1997 to $4.23 billion for the fiscal year ended Nov. 25. While sales have been down each of the past five years — and the company has already warned it expects 2002 to bring another decline — earnings have been up and down. Last year, they were off 32 percent to $151 million. Privately held Levi’s releases its financial results because it has publicly traded bonds.
Last year, there were indications the company saw its future in manufacturing through outside contractors, when company officials said that as part of a campaign to cut inventories Levi’s was reducing work schedules at its U.S. manufacturing facilities rather than cutting orders from outside contractors.
The plant closings will come in three waves:
By the end of June, the company will shut a Blue Ridge, Ga., factory that employs 394 and a facility in San Francisco with 100 workers.
By the close of August, Levi’s will close two Texas plants, one in Brownsville with 656 workers and one in San Benito with 483.
By October’s end, a Powell, Tenn., plant with 902 workers and an El Paso, Tex., plant with 780 will be shuttered.
The company also plans to lay off about 300 of the 531 workers at its San Antonio finishing plant, though that factory will continue to operate. It will also continue in that city to run a sewing plant, which employs 591.
The San Francisco factory, located on Valencia Street, has been in operation since 1911. It was the first factory the company rebuilt after its facilities were destroyed in a huge fire that engulfed the city. The company will continue to own that building and may turn it into a museum or design center, according to a spokesman.
A Levi’s spokesman said the company will report on the costs and cost savings associated with the closings when it releases second-quarter results.
Levi’s has already reached a severance agreement with the United Food & Commercial Workers union, which represents the workers at the San Francisco and Powell plants. It is still in negotiations with UNITE, which represents the other workers.
“To me, Levi’s was one of the last of the jeans companies that had a big share of its production domestically,” said Bruce Raynor, president of UNITE. “But we’re confident that we’ll be able to negotiate a better-than-acceptable package for the workers.”
The company said its Levi Strauss Foundation has set up a $2.8 million fund to provide grants to the affected communities.
The plant closings are likely to be unnerving to U.S. mill officials, who have seen their domestic customer base steadily contract in recent years. While it has been closing plants in waves over the past several years, Levi’s had been one of the few remaining large branded apparel makers with a strong U.S. presence.
Another such maker, and a major Levi’s rival, is VF Corp., which last fall said it would cut 13,000 jobs and close 30 to 35 plants, mostly in Alabama and Virginia, as it starts to use more contract manufacturing. These two companies together consume a large chunk of the output for U.S. denim mills.
David Love, vice president of the U.S. supply chain at Levi’s, said of the plant closings: “Our buying patterns, certainly in terms of U.S. fabric, will not change. That’s largely because it’s very much moving to countries where…U.S. fabric still makes sense.”
He said the company would be moving more production to contractors in Mexico and to Caribbean Basin nations, including Guatemala and the Dominican Republic. All those areas have special trade deals with the U.S.
In terms of U.S. mills, Levi’s tie to Cone Mills Corp. is particularly strong. Levi’s represented 37 percent of Cone’s 2001 sales and Cone supplied 28 percent of all Levi’s denim, according to filings with the Securities and Exchange Commission. Cone is the sole supplier of denim for Levi’s signature 501 jeans in a deal that runs through 2007.
Cone officials could not be reached for comment Monday, but its most recent annual report noted: “The loss of Levi as a customer or a significant reduction in its purchases from Cone would have a material adverse effect on Cone’s financial position and the results of operations.”
Levi’s is also the top customer of Galey & Lord Inc., where it accounted for 21 percent of 2001 sales, according to an SEC filing. Altogether, Levi’s buys 70 percent of its fabric from U.S. mills.
Levi’s has been steadily chopping its head count for the last half-decade, with major rounds of plant closings coming in 1999 and 1997. Before the 1997 round of plant closings, its global workforce had been about 37,000 people.