NEW YORK — For textile suppliers, the coming year will bring the biggest change to their competitive model that most living executives have ever seen.
The looming end of the three-decades-old quota system is the cause of great uncertainty, particularly in the domestic industry.
“It’s as unclear as I’ve ever seen it,” said Jim Chesnutt, president and chief executive officer of National Spinning Co., a Washington, N.C.-based yarn mill that primarily produces acrylic yarns for the sweater trade. “We have polled every one of our major customers and they simply don’t know what these retailers are going to do when it comes to sourcing.”
So far this year, Chesnutt said, his sales have been steady and he sees no major macroeconomic blips on the radar screen suggesting that ordering will be off. But he is unsure what degree of changes retailers will make in their sourcing patterns after the 148 nations of the World Trade Organization drop their apparel and textile quotas next month.
Many retail and importer executives have said they don’t plan to make any major immediate changes in their buying patterns right after the restrictions are dropped. That’s because most major importers don’t want to destabilize reliable suppliers and because they still expect Chinese exports to be limited by safeguard quotas.
But Chesnutt isn’t just sitting still. His firm has started a sweater-manufacturing operation in La Paz, El Salvador, which he said is starting to run smoothly. Taking advantage of lower manufacturing costs in that country should allow his firm to maintain sales even after quotas are lifted, he reasoned.
“We had to do like everyone has to do: pay the price of entry,” he said. “It’s not easy to start an operation in a new country, but we’re getting there.”
International Textile Group, the $800 million fabric giant created by Wilbur L. Ross through the acquisition of Burlington Industries and Cone Mills, also is expanding abroad. ITG plans to open a denim mill in Guatemala City and has set its sights on having an extensive manufacturing presence in China.
That doesn’t mean, however, that the firm is planning to pull out of the U.S. anytime soon, said Ross, who serves as chairman.
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“We intend to manufacture here as long as it is economically feasible,” he said.
Galey & Lord Inc., which recently was acquired by Patriarch Partners LLC, is considering overseas expansion, as well.
On the denim front, firms reported a more even outlook on 2005. Demand has been high for the fabric throughout the year, bringing strong sales to domestic mills, even in the final months of the year, which is typically a slack time.
“Our shipments for this time of year, November and December, are probably the strongest they’ve been in five or six years,” said Keith Hull, president of marketing and sales for Graniteville, S.C.-based Avondale Mills Inc.
Hull attributed that to the strength of jeans production in Latin America.
“It’s one of those categories that really favors this hemisphere — the quick response, the different washes, the innovative products — that garment manufacturers still exist here,” he said.
Consumer willingness to pay extra for more stylish products also has helped domestic denim suppliers hang on to market share. As a result, he predicted his sales would continue to rise next year.
That has dulled some of the pricing pressures felt in other segments, though he noted that this year’s high energy costs have still taken a toll on margins.
Chris Glynn, a partner in Edwardia Sales, which represents the Mexican denim mill Grupo Romano, agreed that there was still strong potential for Western Hemisphere denim and jeans firms.
“Our customers still want to be replenishing inventory in a reasonably good period of time,” he said. “It’s a lot easier to do that from this region than to bring it in from China.”
Foreign textile suppliers also are watching to see how the coming change will affect them. Hüseyin Ünver, president of the New York office of Turkish textile mill Holsa Inc., said his firm hopes its focus on premium products will keep it above the initial post-quota price skirmishes.
“We will be watching it very carefully,” he said. “Most of our product lines are on the high-end side, so we should be somewhat immune from the expected competition from the Far East, especially China. I think the initial impact will be more on China’s neighboring countries.”