MILLS: JUST TOUGHING IT OUT
Byline: Scott Malone
NEW YORK — Dismal, brutal, recessionary — these are some of the words textile executives used to describe the business environment they faced in the first half of the year.
They’re not expecting the months ahead to be much better.
For an industry that limped through the late Nineties — a period that was a boom time for most of the U.S. economy — the current period of economic slowdown and uncertainty has proven to be too much for many mills to bear. Job cuts, plant closings and bankruptcy filings over the last six months are evidence of this.
Major mills such as Dyersburg, Cone Mills, National Textiles, Mission Valley Fabrics and Fab Industries together eliminated almost 2,500 positions. JPS Apparel Fabrics filed for bankruptcy and said it would cut 579 jobs, more than half its workforce. Thomaston Mills, which in recent years had slashed its textile operations, also declared itself insolvent, cutting over 500 jobs and warning that if it can’t find a buyer, it’ll start winding down its operations. In the South, gray-fabrics makers, including Spartan Mills, simply threw in the towel, as did a number of West Coast mills and finishers, who were overwhelmed by the runup in energy prices.
By the end of June, U.S. textile employment had dropped to 471,000, marking a loss of 39,000 jobs since the start of the year, according to the Labor Department. For perspective, that means the textile industry today employs fewer people than live within the city limits of Charlotte, N.C. — excluding the heavily populated suburbs. If the decline keeps up at its current rate through the end of the year, the industry would employ about as many people as live in the city of Virginia Beach, Va.
It’s not only the layoffs that tell the story of the first-half decline. A WWD survey of ten top publicly traded textile companies showed that group wrapping up the first quarter $64.3 million in the red, after squeaking out a $25.5 million profit a year earlier. Sales for the group were down to $1.79 billion, off 9.8 percent.
Results for the recently ended second quarter, which companies are expected to report over the next month, may not be any better. Late last month, Dan River Inc. warned that sluggish demand had hurt its May and June sales and that, as a result, it would likely report a second-quarter loss of 25 to 30 cents a share. In the prior year, it had reported a profit of 20 cents a share, or $4.4 million on a net basis.
Keith Hull, president of marketing and sales at Graniteville, S.C.-based Avondale Mills, said: “The first half of the year has been one of the toughest textile environments that I’ve ever participated in. The apparel segment has just been dismal.”
In this bleak environment, many executives’ primary focus is keeping their companies afloat — adopting goals such as cutting debt and maintaining cash flow as more attainable than achieving significant profits.
At Burlington Industries, based in Greensboro, N.C., chairman, president and chief executive officer George Henderson said: “We have experienced challenging economic and market conditions. The economy in general and textile markets in particular have softened since the start of our fiscal year,” which began in October.
“Despite this,” he added, “we met expectations for the first half of the year and remain on track to meet working capital and debt-reduction goals, our primary focus for the year.”
The continuing pressures of low-priced foreign imports, dwindling domestic apparel manufacturing and, in many cases, high debt loads this year have been amplified by a surge in energy costs and an uncertain retail environment.
Executives at several top textile companies said there is no doubt that the market for U.S.-made fabrics is declining, but held out hope that some survivors will last out this dismal cycle.
“We’re in a brutal environment,” acknowledged John Heldrich, president and ceo of the Atlanta-based Swift Denim division of Galey & Lord. “There will be a continued shakeout as time goes on. The strong will ultimately end up stronger as a result and the weak will get shaken out.”
The slowdown in consumer spending has led retailers and apparel vendors to trim inventories. As they lowered their order levels, merchandise backed up along the supply chain, allowing rolls of fabric to pile up in many mills’ warehouses.
Textile executives are divided on the current state of the apparel supply chain. Some expressed the hope that retailers have succeeded in quickly lowering their inventories to match current demand, which would mean that any pickup in spending will boost demand for fabric. Others see signs that retailers and vendors are still tightening their orders.
Burlington’s Henderson said that while many of the mill’s customers were trimming their inventories early in the year, he is seeing less of that currently.
Avondale’s Hull feared that inventories remained too high throughout the supply chain.
“In the replenishment business, when the consumer is not in the store and buying, the inventory just stops right there and backs up through the chain,” he said.
Another pressure that mills have faced this year is rising fuel and electricity costs.
“Energy took us by surprise,” said Swift’s Heldrich. “We were not prepared for the magnitude of the energy [price] increases.”
While Heldrich and others would not disclose how much his company’s energy bills had risen, he said they have stopped rising, but stabilized at a high level. That has left executives looking for ways to cut costs to offset those higher prices.
“We’re having to cut costs in other areas,” said Avondale’s Hull. “One thing that the current environment is not tolerating is price increases.”
While most textile officials had not expected 2001 to be a banner year, many had hoped to see a pickup in demand for U.S.-made fabrics in the Caribbean Basin, as a result of last year’s granting of duty and quota breaks to garments made in that region of U.S. fabric.
That demand has not grown as quickly as some had hoped.
Henderson of Burlington said: “We have seen minimal impact at this point, but are encouraged by the initiatives taking place to increase the infrastructure and sewing capacity in the region, which must occur before significant benefits are realized.”
While many executives said they’re still waiting to see the Caribbean Basin Initiative demand pick up, some mill officials said they have seen sales rise significantly as a result of the new trade environment.
“We’re pretty optimistic about it. We’ve seen a couple of major programs that have switched from Asia to the Caribbean,” said Andrew Parise, chairman and ceo of New York-based Texfi Industries, which has been operating under Chapter 11 bankruptcy court protection since February 2000.
He said Texfi has hired two sales representatives to call on Caribbean garment makers and has been in contact with several major retailers who are looking to see if they can take advantage of the region’s new duty-free status.
More than half of the synthetic and wool fabric Texfi sells is made into garments in the Caribbean, he said, adding that much of that goes to men’s apparel makers who have long worked in the region.
“More and more of the women’s wear people are finally starting to source out of the Caribbean,” said Parise, who estimated that his sales of fabric into the region have risen 15 percent since the trade benefits went into effect in October.
However, even with the duty breaks for U.S. fabrics, some executives have said they’re still finding it cheaper to import Asian goods, which don’t qualify for duty-free status, into the region.
“There is still a problem with some of the synthetic products, but it’s narrowed down quite a bit,” he said. “We’re starting to see some of those Asian prices going up slightly.”
Another growth area that more textile companies are trying their hand at is full-package garment production.
New York converter Pressman-Gutman has started contracting out of Guatemalan factories.
“That’s one of the major focal points of our strategy, to offer more services to our customers and hope to overcome the diminishing [fabric] sales volume,” said president Jim Gutman.
While he said the full-package business is not currently a large portion of the company’s overall revenue, he said he believed it could represent 25 percent of the business within 18 months. About 20 percent of his converting sales are of U.S. fabrics, but Gutman said so far, his garment-packaging business has largely used Asian fabrics because of the lower prices.
A growing number of fabric mills are trying their hands at garments — including Galey & Lord, Burlington, Glen Raven Mills and a host of smaller converters. However, despite the growing demand for that service — executives from apparel companies including Liz Claiborne have loudly voiced their support for the concept — many mill executives are still reluctant to publicly say they are making garments.
Parise acknowledged that it remains a sticky issue.
“It’s a fine line with our customers,” he said. “The branded guys who don’t have manufacturing want it. The traditional guys don’t want you to supply packages.”
Texfi is not currently producing garments on its own.
Regardless of their new ventures, most textile executives said the fate of the industry in the second half will largely be dictated by whether apparel shopping picks up.
“The first half of the year was what you would expect, which we would describe in our business as recessionary,” Gutman said. “We made big cuts in overhead and expenses. We expect the rest of the year to be off compared with last year.”
Several mill executives expressed the hope that, if retailers keep their inventories under control, they’ll start to order aggressively again as soon as consumer spending picks up, something that could be triggered by President Bush’s federal tax refund.
“You could paint the scenario that the refund checks would boost things,” said Avondale’s Hull. “I’m hopeful that we will see some pickup in the next few months, as we get into the holiday season. If the consumer starts to spend, it will benefit domestic facilities because we are close to the market. If that’s a forecast or a hope, I don’t know.”
Summing up the overall mood, Burlington’s Henderson said: “We are waiting for the economy to pick up some momentum.”