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Articles & White Papers Textile Manufacturing in the United States This report has been prepared by Anderson Bauman Tourtellot Vos & Company ("ABTV") for the purpose of analyzing the current condition of and trends in the textile manufacturing industry. In preparing this report we have relied on numerous sources of information including recent relevant interim management and consulting engagements conducted by the firm. HIGHLIGHTS
CRITICAL SUCCESS FACTORS The apparel and textile industry can survive and grow in the United States, but not without taking a long, hard look at the way business is conducted. This brief overview discusses successful strategies in the areas of supply chain management, branding, CAFTA, Smart Fabrics and Interactive Textiles (SFITs/SMITs), nonwovens and hybrids, and intellectual capital, it is not meant to be all inclusive: Supply Chain Management Strategy
Specifically, reliance on overseas production is becoming necessary in order to compete in high volume, price sensitive categories. This allows domestic manufacturers to concentrate more of their attention and resources on developing their distribution, product design, and product development functions. However, lead times, quality concerns, and difficulties communicating effectively detract from an otherwise positive sourcing strategy. Wilbur Ross' International Textile Group is working on "if you can't beat them, join them" strategy. Outsourcing manufacturing processes overseas whereby costs are greatly reduced, prices can remain competitive. ITG retains the relationship with its customers, continues with marketing programs, maintains support services, and by doing so, allows U.S.-based operations to concentrate on research and development for making innovative improvements to enhance functionality of textiles. In a recent interview with Daniel Gross from NewYorkMetro.com, ". . . Ross dumps water on his $65 Brooks Brothers tie. The liquid beads up and does not dampen the tie. "Feel this, it's a silk tie, and it's dry," he says, with show-and-tell pride. The tie contains a fabric made by Burlington's Nano-Tex unit, which endows natural fabrics with some of the properties of synthetics. The Gap is already using it on chinos. "It could be worth as much as the whole price we paid for Burlington!" Reviewing global supply chain practices out of the textile industry, we see Dell managing their logistics and coordinating computer components, which are manufactured all over the world, so as to accept delivery within hours of use by the assembly facility. This tight management eliminates the need for large warehouse facilities and reduces associated expenses. Branding As a result of domestic manufacturers' inability to compete on price, it is necessary for them to pursue alternate mechanisms to remain viable in the marketplace. Product differentiation via branding provides an opportunity for textile manufacturers to increase margins and profits. Differentiated products typically command higher prices and can convey a message of quality. Once established, strong brands, at whatever point in the supply chain, will give manufacturers control and leverage over their distribution channels and create customer loyalty. Branding must be at the forefront of good business strategies for developing textile products and for positioning a foothold in domestic and global sectors. Close proximity to customers and the end-user consumers must be utilized to better anticipate changes in trends and preferences. The industry has seen a major shift in consumer attitude over the last 10 years in the concept of value. Value is no longer synonymous with cheap. Consumers now find it inadequate for branded goods producers to simply offer a good quality product. Brands are expected to offer something more in terms of perceived value since quality goods are now expected and are available at all levels of the market. Branding fabric concepts or consumer benefits in terms of aesthetics or performance now appeals to consumers and satisfies their purchase criteria. Branding at this level offers even more opportunity for product innovation and differentiation. One successful example of textile branding in the apparel industry has been Gore-Tex ®. While consumers perceive Gore-Tex ® to be the completed product, in actuality it is a proprietary teflonized porous membrane bonded to synthetic fabrics. Home textile manufacturers must develop their own brand identity or collaborate with successful brands in the same way Gore-Tex has been applied to clothing, backpacks, and foot wear.
Strong successful branding programs out of the textile industry include Intel's Pentium computer process-sor and Microsoft's Windows computer opera-ting systems. These two brands are not exclusive of their kind, and some believe they are not the best, yet both are the most widely-recognized by con-sumers, and have contributed significantly to successful computer sales. Both brands require continuous research and development to create next-generation products that meet the growing demands of consumers. We strongly believe that a significant investment and long-term commitment in R&D and technology in all facets of the textile industry is needed to develop a brand management program that offers customers perceived value and helps to insure a viable and sustainable future that generates profits. CAFTA Congress will soon decide whether to approve the Central American Free Trade Agreement ("CAFTA"). The agreement, as currently proposed, would eliminate tariffs on apparel produced in Costa Rica, Guatemala, Honduras, El Salvador, Nicaragua, and the Dominican Republic as long as the finished goods utilized U.S.-made fabric or yarn. In total, these countries currently import $2.3 billion in U.S.-made yarn and fabric, although we expect that if CAFTA is not approved this number will decline significantly for two reasons. First, the relative cost of U.S.-produced fabrics and yarns will be high vis-à-vis competing products made in Asia and, second, to the extent U.S.-produced raw materials are too expensive for Central American firms, apparel manufacturers in Asia will have an additional cost advantage. In either case, U.S. yarn and fabric makers will experience a shrinking Central American opportunity. Since passage of the Caribbean Basin Trade Partnership Act and the Andean Trade Preference Act, similar trade agreements to CAFTA, UNIFI's yarn exports to these regions have tripled. Among others, CAFTA is supported by Parkdale Mills, National Textiles, VF Corp, and International Textiles Group (ITG). CAFTA may prove to be a key in sourcing for home goods. Purely domestic companies may not see the benefits, but they will still face the impending pressure from lower-cost imports, whether from Central America or Asia. Companies that have not positioned themselves to compete globally at this point have simply waited too late to join the game. Partnerships and consolidation have shrunk the number of major players in the textile market. Extended quotas will not save them and trade agreements will not seal their fate anymore than their own complacency has at this point. Smart Fabrics and Interactive Textiles (SFITs, aka SMITs) The segment known as "smart textiles" or "technical textiles" is developed from nanotechnology. Coating traditional fibers and fabrics with nanometer fibers forms a whisker-type coating. This technology allows fabric to be protected without altering its aesthetic quality while still achieving improved performance and functionality. Wilbur Ross and Masters Capital Management LLC, have teamed to invest in early-, middle-, and late-stage companies that use nanotechnology-enabled products and solutions (Greensboro 05/23/05). A recent report by the Business Communications Company Inc. estimates the U.S. market for SFITs to increase from today's sales of $64.4 million to $299.3 million in 2009, an average annual growth rate of 36 percent. Military, biomedical, and automotive are expected to be the fastest growing segments. SFITs have their own control and response mechanisms to sense electrical, thermal, chemical, magnetic, or other stimuli from the environment. They respond to conditions using functionalities integrated into the textile structure. Growing concerns over national security, as well as current military actions, indicate a positive outlook for companies that produce military uniforms and equipment. The U.S. government plans to spend nearly $1 billion to fund R&D in nanotechnology, the science behind SFITs. The government is particularly interested in the development of better body armor, fabrics that detect exposure to chemical agents, physiological monitoring, and monitoring movement and location. The commercial sector has advanced the technology and accelerated its applications to clothing, medical devices, and safety products. Heat and fire resistant fabrics for linens and apparel, heart valves and sutures that leave less scarring, filtration systems and detection for chemical and biological agents are only a few of the products that use the new technology. SFITs require advanced technologies and are capital intensive, reducing the threat of foreign competition. The automotive sector uses nanotechnology to improve durability of hoses and filters, as well as upholstery. This industry is just beginning to uncover its possibilities. While traditional manufacturing jobs may be disappearing, the textile industry can continue to grow in the U.S. These manufacturing techniques are less labor intensive, but will provide jobs in sales, marketing, logistics, research, and administration, in addition to manufacturing. Nonwovens and hybrids
Nonwoven processes, such as hydroentangling, can also be used to enhance traditional textile products during the finishing process. Equipment that once processed traditional textiles can be utilized to dye, print, and finish durable nonwovens. Because of the many similarities, the experience and knowledge developed in more traditional textile manufacturing processes are transferable to nonwoven manufacturing. The U.S. has many years of experience in textile manufacturing that, with research and investment in new technologies, will not be wasted. Manufacturers must focus on products and markets that will prosper and generate growth, rather than seek protection for outdated methods. Personal hygiene and medical supplies are predicted to be the fastest growing segments of the North American nonwoven industry. Many of the same processes used for disposable nonwovens can be applied to filament creating stronger, more durable products. The potential use of this segment is still being explored. There are segments within home textiles that are new to the U.S. consumer and provide opportunities for growth. For example, the waffle-weave towel and robe products are very popular in Europe and Japan and are slowly gaining popularity with high-end spas and hotels in the U.S. The towels are priced much higher than traditional terry towels, perhaps due to the fact that they have primarily been produced in Europe and Japan. European towel manufacturing is more traditional and labor intensive. There remains a lot of room for growth in this segment within the U.S. Price points are high and would provide strong margins if technologies that are more efficient could be developed and properly utilized. Manufacturers that are looking for higher margins must find ways to add value to their offerings. They cannot ignore volume while chasing profits. Under utilization of capacity and shrinking brand awareness will eventually erode profits as well. Protecting Intellectual Capital A reliance on innovative ideas and technological advancements increases the need for manufacturers to protect their intellectual capital. Companies must focus more on protection of trade secrets than acquiring new patents. Product lifecycles are becoming even shorter and processes must undergo continuous evaluation and improvement. The real benefit of protecting trade secrets is in achieving first mover advantages. INDUSTRY ANALYSIS Non-apparel textiles account for 25 percent of the $282.25 billion U.S. apparel and textiles market. The common perspective has been to treat the textile and apparel industries as a single, cohesive entity, but that no longer makes sense given that the two industries are pursuing different strategies with respect to surviving in a post-quota environment. The U.S. has 30.2 percent of the global textile markets. It is estimated that textiles are second, only to the automotive industry, in terms of its contribution to the gross national product. The news media has focused on plant closings and lost jobs in the apparel industry. The American Manufacturing Trade Action Coalition reported 17,500 textile jobs lost in the first quarter of 2005. Since January 2001, textile employment has declined 36.4 percent. Far less attention is given to the advances that have been made in other areas of textile manufacturing. This section of the report examines key segments of the apparel industry, non-apparel textile industry, cotton, man-made fibers, and non-woven fabrics. Manufacturing for the Apparel Market Furniture Today in January reported the apparel industry as having been a major importer for several years. It was noted that apparel manufacturers had adapted their operations to manage the current threats. Several companies have restructured and/or merged after filing for bankruptcy protection. Textile manufacturing for the apparel industry can continue to develop competitive advantages based on design, service, or technology as is demonstrated by the following:
Domestic manufacturers must add value to their products through functionality and design, in addition to superior customer service. Logistics is very important to manufacturers concerned about inventory levels and availability of product. Keeping apparel manufacturing in this hemisphere could greatly benefit domestic fabric manufacturers by allowing them to compete with shorter delivery times and quicker response to customer demand. Home Textiles
Manufacturers feel pressed between low-cost foreign suppliers and mass merchants demanding low-cost products. Springs Industries and WestPoint Stevens benefited short-term from the sudden exit of Pillowtex, but each have announced plant closings and layoffs due to increased sourcing from lower-cost suppliers. Springs Industries' imports rose 12.7 percent while WestPoint Stevens' imports rose 27.4 percent over 2003. Wilbur Ross & Co., LLC, has submitted a bid to purchase WestPoint Stevens (deadline was June 10th), which will be opened on June 21st. The winning bid will be approved by bankruptcy court, and is scheduled to be heard on June 24th. Management must continue to re-evaluate their supply chains and dissect their operations to eliminate non-core, profit-losing product lines. Profit margins by segment should be on the dashboard of every executive. At the same time that management is watching margins, they cannot ignore volume and market share. Mohawk is opting for profits over volume. This may be wise if resources are being wasted on non-core business segments. Market share and visibility also factor into repeat sales and brand extensions. Every time a domestic manufacturer exits a category it allows foreign producers to gain market share and increase brand awareness. Cotton
CAFTA could provide cotton producers additional time to strengthen export markets and relationships with their customers. It will not however be a protection long-term for domestic mill production. Sixty percent of all cotton is spun in China, Pakistan, and India. This value is expected to increase post quotas. Cotton is a commodity and price will continue to be the single most important competitive factor. The cotton industry also had a major stake in the passage of the Farm Policy Bill of 2002. Restoration of U.S. cotton's health hinges on the U.S. Farm Policy as it continues to play a critical role in the cotton industry's economic recovery. It provides the U.S. cotton industry with an improved level of income protection by establishing a safety net with fixed payment pricing for cotton growers. Parkdale Mills believes that they can produce cotton as cheap as anyone, but plant location is a primary concern. If the customer base moves, they cannot overcome freight and shipping charges. The company is in favor of keeping production in this hemisphere. Parkdale and others may have to focus on new products and marketing blended fabrics. Man-Made Fibers Man-made fiber imports have increased 17.5 percent since 2004. Domestic production continues to decline, but at much slower rates. For the third year demand for man-made fibers has exceeded cotton.
UNIFI has struggled for the past few years, but appear to be turning things around. The company realized they needed to eliminate barriers and rely on the knowledge and creativity of their employees. The company's sales rose 17.8 percent in the first half of fiscal year 2005. They have eliminated half of their layers of management and about 15 percent of the manufacturing workforce. The goal is to eliminate waste and reduce the time it takes to take new products to market. The company has launched more than 20 products in the last three years. Despite its growing presence in Asia, UNIFI supports legislation that provides incentives for regional producers to buy U.S. products, i.e. CAFTA. Since passage of the Caribbean Basin Trade Partnership Act and the Andean Trade Preference Act, the company's sales have tripled to these regions. Nonwovens The U.S. is the largest producer of nonwovens and will likely continue to be so for the short and intermediate terms. In 2003, the U.S. exported 214,500 tons of nonwovens, compared with 127,600 tons imported.
The U.S. Association of the Nonwoven Fabrics Industry estimates the disposable wipes segment to grow at 5.6 percent. This is a $2.1 billion industry. Polymer Group Inc. (PGI) and Kimberly Clark have both seen revenues increase since 2002. PGI, which is headquartered in Charleston, SC, has over 21 manufacturing facilities around the world. They have focused on global expansion, perhaps costing South Carolina manufacturing jobs but creating sales and marketing positions. Kimberly Clarke is investing $200 million to expand its Aiken County facility, but with few jobs added. South Carolina has failed to attract additional nonwoven manufacturers as rapidly as North Carolina. Results from a 2003 Monitor Competitiveness Survey reported that the lack of top-tier research universities, combined with weaker educational systems, are only two of the challenges. South Carolina was identified as a difficult environment for start-ups and small firms. The majority of nonwoven manufacturers are small, with an average of 75 employees and $7.5 million in annual sales. The carpet industry is an example of a cluster that South Carolina has failed to identify successfully. Georgia has succeeded in efforts to link education, research, and economic development. It is the second largest textile employment state, behind North Carolina. Public and private economic leaders cooperate through the Georgia Allies group to attract new industry and capital investment. The strength in size and influence supports efforts to attract suppliers to an area, as well as a superior workforce. Investing in new technologies for existing industries has resulted in growth within the carpet and rug sectors. The government must cooperate with industry leaders to overcome these weaknesses. Investment in education and infrastructure are as important as economic incentives for long-term growth. The projected growth in nonwovens for the automotive industry, which is expected to remain strong in South Carolina, provides an opportunity to attract new companies. The state will find it difficult to compete with Georgia and North Carolina in other segments. CONCLUSION The domestic textile industry faces some new growth opportunities amidst many challenges. Textile manufacturing as we have known it will continue to disappear. The companies and the brands do not have to disappear with the processes. Companies that realize they must compete in the global arena, rather than seek protection will prosper. Realistic analysis and long-range planning are necessary for survival. Manufacturers that focus on their core strengths, as opposed to trying to diversify product lines away from textile manufacturing to reduce risk, will perform much stronger. Company success is essential to saving jobs in the United States. If the companies cannot adapt their operations, not only will the manufacturing jobs be lost, but with them will go positions in marketing, finance, sales, and other support functions. Research and development is essential to innovation. Processes and products are easily imitated and textiles will continue to be a competitive industry. Companies must identify markets and focus their resources. The textiles of the future will continue to be capital-intensive enterprises. It requires a clear strategy, commitment to the future, and a willingness to change. Looking back will result in being left behind. 1 - Charles Dickinson, VP Marketing, Parkdale Mills, Gastonia, N.C. |
For many years U.S. textile manufacturers have faced increasing competition from foreign imports. Now, though, the additional challenges associated with rising raw material, human resource, and energy costs; continued price compression, and the January 2005 expiration of quotas on textile and apparel goods have served as significant new impediments to the success of the domestic industry. In partial response, market participants have formed several lobbying groups seeking government sponsored protection from low-cost Chinese imports. In our opinion, government protectionism will provide very little relief to the industry. Rather, long-term viability will require, among other things, fundamental supply-chain changes.
Dupont's Stainmaster ® product had been one of the most successful branding efforts in home goods, which met specific functionality requirements of consumers. A recent Market Trends survey expects the carpet industry to grow at 19 percent in the next few years. The 2004 National Floor Trends survey revealed that 46 percent of retailers expect the highest growth in the residential replacement segment (Exhibit 2). According to Carpet and Rug Institute, the United States supplies 40 percent of the world's carpet, with accent and scatter rugs in the fastest growing segment.
Economists predict that the U.S. will continue to see declines in textile production jobs. The nonwoven textile industry, in addition to carpets, has been one of the few segments to add textile jobs. Foreign investors are adding jobs at current facilities, as well as opening new manufacturing and distribution facilities in the U.S.
The outlook for domestic manufacturing in home textiles is very poor. Exhibit 4 reveals that sales were down at four of the top 10 home textile suppliers (*), three experienced minimum growth, two moderate, and Sleep Innovations, with a highly focused product line, was the clear winner.
World cotton production is outpacing demand and prices are falling. Domestic mill use of cotton has declined for the past seven years. The greatest threat to cotton is continued increases in demand for manmade fibers. Cotton producers are more reliant on the export market. Caribbean Basin countries receive 54.1 percent of U.S. cotton exports. Mexico and Canada account for 39.5 percent.
One of the most successful U.S. man-made fiber manufacturing has been the carpeting industry. DuPont recently sold its textile unit to Koch Industries. Despite the name change to INVISTA, customers still refer to it as DuPont. Bob Schantz, apparel production manager at INVISTA, said the company wants to build individual brand identity, not the INVISTA name. The company is shifting from a scientific driven focus, based on what they can create, to a customer-driven focus, based on what the customer needs.
North Carolina is very attractive to nonwoven manufacturers. The nonwoven industry is growing at an annual rate of 8 percent and generates about $3 billion in economic activity each year for North Carolina. There are currently 33 companies making nonwovens in North Carolina and 70 support companies, with more planned. As traditional manufacturers are moving production overseas, companies from Israel, Japan, and Switzerland are opening and expanding facilities in North Carolina. North Carolina State University is one of a handful of colleges offering a degreed program devoted to textile research in the U.S. Innovated companies will be attracted to an area committed to becoming an industry leading research center. NC State's teaching and research activities encompass manufacturing technology of textile and apparel materials as well as the management of people, information, and materials from fibers to fashion in a fast-changing industry.