READY FOR ROUGH GOING IN FIBERS
Byline: Joshua Greene
NEW YORK — The fiber industry isn’t worried about the recession; they’ve been in one for a while. Now they’re looking to the upturn, which they hope will come by spring.
Companies in other sectors are scrambling to cut costs and reduce headcount to survive the recession, but executives at fiber producers said they have already cut their costs, improved their efficiency and generally prepared their businesses for tough times. They hope that will leave them well positioned to hang on until consumer spending picks up again.
“The textile industry has been in a recession” for some time, said Radici Spandex vice president of sales Bill Girrier. He said that typically the textile industry slips into a recessionary cycle early in an economic slowdown, but that it historically has been one of the first sectors to emerge. He’s hoping that pattern will hold for the current recession.
Girrier said his company significantly cut its staff six months ago when it consolidated two of its factories in Gastonia, N.C., into one and stopped production completely at its Fall River, Mass. location.
He said the company is assigning more responsibilities to its current employees in an effort to be more productive without raising headcount. The company is also restructuring its European distribution.
At Unifi Inc., senior vice president Michael Delaney said, “We began sometime back over the past year to take out costs+.We’ve focused on reducing debt, and last year paid more than $150 million in debt and shut down operations that needed to be shut down. We’ve lowered our expenses by $60 million.”
Delaney said Unifi cut 750 employees in the U.S. and Europe after shifting the company’s focus to value-added products instead of commodities.
Celanese Acetate this fall dramatically cut its production capacity to meet the shrinking demand as part of a broader round of layoffs at parent company Celanese AG.
DuPont, which last year merged its textile fiber operations into one unit, DuPont Apparel and Textile Sciences, has stepped up its focus on consumer marketing.
“We’ve reorganized the business around what we believe are the key consumers globally. We’ve done extensive market research and it always comes back in the same ways: comfort, easy care, durability and style,” said Bill Ghitis, president of global apparel at DuPont. “In preparation for the future, we will focus our investment on six to eight brands, rather than the 60 we carried.”
DuPont’s primary fiber brands today are Lycra, CoolMax, Thermolite, Supplex, Teflon, Cordura and Tactel.
Fiber executives said they hoped the economy might start to pick up as early as the second quarter of 2002.
Thomas Fahnemann, vice president and general manager of intermediates and polymers and filament for KoSa, said he believes the industry recession will continue for the first quarter, but said he expects to see improvement by the second.
To cut costs, this fall KoSa divided its Textile Fibers Business into three segments — nonwovens, filament and fine-denier staple. Koch Industries, which previously shared 50-50 ownership in KoSa with Mexico’s Saba Group, this fall acquired total ownership of the fiber operation.
Cotton Incorporated president and chief executive officer Berrye Worsham said of the downturn, “I think we’ll come out probably the middle of next year.”
Despite the economic climate, Cotton Inc.’s $63 million budget was recently reapproved for next year. The company plans to use roughly two-thirds of it on marketing. The rest, Worsham said, will be geared towards research, much of which is focused on improving the quality of cotton for growers. Improving the output of cotton on a given amount of land, insect management and weed control are some biotech projects the company will invest in next year, Worsham said.
Print, outdoor, and television ads will continue as key tools in marketing cotton throughout next year. The company this fall updated its “Fabric of Our Lives” campaign, which will continue running into 2002.
The Woolmark Co. will focus on promoting Easy Care garments next year, to raise consumer awareness. Formerly funded by a voluntary levy on Australian wool growers, the company has functioned independently since January 2001. After the levy was reduced from 4 percent to 2 percent, the company began to look for other revenue sources, primarily licensing out its Woolmark name and logo. It also offers technical consulting and quality assurance services.
President and group manager for the Americas, John McGowan, said that the company is considering an initial public offering — possibly in Australia or England — over the next 12 to 18 months.
He said the company’s key focus is improving recognition of its Woolmark brand. By marketing wool as a consumer-friendly fiber, McGowan said he hopes to build consumer trust and build revenue.
“As long as it’s an Easy Care garment, it doesn’t shrink, it doesn’t itch and it doesn’t have to be dry cleaned,” said Woolmark new business account executive Michael Paduano.
To market Easy Care wool products, Woolmark is seeking out detergent and appliance manufacturers to carry the Woolmark name and seal on their Easy Care-compatible products. The Woolmark label can be seen on the bottles of select detergents now and Paduano said he expects to have the label on washing machines in the early part of next year.
The recent bankruptcies of industry heavyweights including Burlington Industries and Malden Mills have left many executives worried that large-scale commodity-driven domestic manufacturing operations are at a great risk of losing out to overseas competitors.
Still, Unifi’s Delaney held out the hope that tough times will give companies the impetus to find new approaches to the business.
“While we’re concerned about the industry, we see people taking strong initiatives to rebuild themselves. We still see growth opportunities, but the formulas will change. People will get leaner and meaner which means a healthier textile industry long-term,” he said. “Periods where there is increased pressure make companies look for ways to take out costs and be more competitive. In many ways, the pressures of today are going to create a stronger industry in the future.”
Delaney, along with other executives, cited the Caribbean Basin trade as a growth opportunity for the U.S. industry and said the benefits of last year’s trade parity law for that region still haven’t been completely felt. In 2002, he said, he hopes to see more companies focused on CBI programs. Unifi this week is launching an initiative to help manufacturers make contact in the region by hosting seminars in both North America and Caribbean Basin countries about the benefits and logistics of CBI.
“The growth that is potentially going to take place there hasn’t been reached yet, partly from a lack of knowledge and partly from a lack of contacts,” he said. “What we’re launching is a fairly broad CBI campaign that will help companies throughout the supply chain.”
He continued, “It’s convenient to work within [CBI regions]. Many people that make the trip overseas consider it taxing. It’s not easy to be in contact with every part of a supply chain that’s stretched around the world.”
Delaney said the extension of quota-free and duty-free status to garments made in the CBI region of U.S. fabrics and yarns has given domestic manufacturers a second chance to compete with low-cost imports from Asia and elsewhere in the world.
Executives have expressed particular concern about Chinese competition in recent weeks, following that country’s formal admission into the World Trade Organization at the group’s summit in Qatar last month.
Hector Camberos, president of polyester staple supplier DAK Americas, said the entire North American textile industry has been under serious attack from imports, especially from China. He said CBI has the potential to reduce the number of garments imported from overseas.
“The potential for growth in manufacturing in CBI is very positive” he said. “It’s a very good option to displace Asian garment imports,
DAK Americas was formed in July, when Mexican chemical company Alpek bought out DuPont’s stake in a joint-venture polyester staple manufacturer the two companies had formed.
Not only Western Hemisphere fiber makers have felt the heat of Chinese competition. Jun Oogawara, general manager for the textiles division at Teijin Ltd., of Tokyo, said imports from China to Japan have increased rapidly. He said he expects stagnant consumer spending to continue in that market for another year, but doesn’t plan for any major changes in 2002.
John Anderson, vice president of marketing for polyester producer Wellman Inc., said Wellman hopes to bring new products to market faster next year. Anderson said he hopes to do this by strengthening the distribution of products around the world.
“We’ve found places where we can turn yarn into garments in about six weeks, where a traditional path could take months,” he said.
After rising substantially over the past two years, the price of oil — a key raw material for most synthetic fibers — has dropped off following the Sept. 11 terrorist attacks. While fiber companies aggressively sought to raise their prices during 1999 and early 2000 when oil prices were rising, executives said they never managed to completely offset their rising expenses.
They said fiber buyers shouldn’t expect the drop in oil prices to be matched by a decline in fiber prices.
“Crashing prices at the pump don’t turn into crashing production prices for textiles,” said Wellman’s Anderson. “There’s a time lag.”
DuPont’s Ghitis said there has been a dramatic reduction in prices at the pump, but not on his side of the business.
Fiber executives pointed to one sign of hope for the entire apparel supply chain — after a year of uneasiness about the economy, inventories throughout the pipeline are low. That, observers said, could mean that retailers’ demand for shipments should rise as soon as consumer spending picks up.
“One bright spot that I do see is that inventories are at a low level,” said Keith Nagy, director of filament at Celanese. “I believe many companies have reacted appropriately to high inventory levels at the end of last year, so if there’s an uptick in demand, there will be an uptick in production, because there isn’t a whole lot sitting there.”