Textiles & Apparel

Corporations

Product Type Distinctions

In the textile and apparel industries, other than the broad range of markets for textiles, there are two other distinctions to understand about producers and their products:

1. Production vs. Consumer Inputs - There are two product categories to classify textile firms, namely: (i) products used as inputs by the textile and apparel industry (e.g., chenille yarn or non-woven fabrics for auto interiors); and (ii) products sold directly to wholesalers and retailers for consumer use (e.g., hosiery and bedsheets).
2. Commodity vs. Unique products - Commodity products such as undyed white yarn, white cotton socks, and T-shirts are characterized by low margins and fierce competition, with many North Carolina firms exiting the markets for these products. "Unique" products are those that are characterized by higher margins and more defensible barriers to entry.

Business Strategies

Below are listed five common strategies that textile and apparel firms in North Carolina have adopted in response to global competition:1

1. Liquidate business - no longer profitable in short- or long-run.
2. "Harvest" value of productive assets as long as possible - business profitable in short-run, but not in long-run.
3. Outsource production in short-run and act as intermediary for foreign suppliers - business not profitable in short-run, but potentially in long-run.
4. Increase capital investment in order to increase profitability, improve productivity, etc.
5. Re-orient business away from products facing most competition towards those products facing least competition and greatest probability of profit (if company has portfolio of many different products).

ITG (International Textile Group)

Overview:
International Textile Group (ITG), based in Greensboro, NC, is a fairly new private company, created in August 2004 when financier W. L. Ross merged Burlington Industries and Cone Mills. In 2006, it announced plans to merge with South Carolina-based Safety Components International, a manufacturer of airbag fabrics. Through its Burlington Apparel Fabrics, Cone Denim, and Home Furnishings divisions, the company makes cotton and cotton-blend fabrics, denim, wool worsted and worsted-blend fabrics, and waterproof synthetics for the apparel industry. ITG operates Nano-Tex, which is a specialty fabrics chemical business. Its Carlisle Finishing unit also makes jacquard fabrics and offers commission finishing, including custom printing and dyeing services, to the home decorative, specialty apparel, and craft fabrics markets.

ITG announced plans in 2004 for a new, $90 million denim factory near Guatemala City, with output of 30 million yards of denim annually. ITG also hopes to expand into China in the near future, and has planned a joint venture in Jiaxing, Zhejiang Province (Cone Denim Jiaxing Limited).2

Locations:
ITG is headquartered in Greensboro, NC. Corporate and division offices will be located on Green Valley Road in Greensboro in the previous Cone Mills headquarters building and in adjacent office complex. ITG covers the globe with operations, offices and partner companies in Hong Kong, China, Japan, Korea, Australia, India, Turkey, Middle East, Europe, Central and South America, Mexico, Canada and the United States.

Product Line:
ITG makes cotton and cotton-blend fabrics, denim, wool worsted and worsted-blend fabrics, and waterproof synthetics for the apparel industry. ITG brands include Burlington House®, Reaford®, Nano-Tex, Moisture Bloc, M.C.S.®, Micromove® and White Oak.

Strategy:
ITG as a whole is somewhat vertically integrated. While it does not produce as broad of an array of textiles, it certainly produces a variety of apparel products. As is common with many textile and apparel-related companies, it focuses most of its efforts in the Textile Mills segment of the value chain. Cone Denim, for example, creates denim from yarn and then finishes it, but has a substantial presence in fiber production and end production too. It manufactures about 30% of its fabrics in-house (Parkdale invests in yarn spinning technology and sells the rest to them) and cuts and trims most of its fabrics before passing them along for their customers to brand them. It is too early to say if this strategy will succeed. The entity's combined operation includes five businesses:3, 4, 5

1. Cone Denim, the world's largest and most diversified producer of denim fabrics with operations in the United States, Mexico, Turkey, Nicaragua, India and a future operation is planned in Guatemala. Its customers include "finisher companies" like Levi Strauss and VF Companies, as well as "finisher/retailer" companies like Gap, American Eagle, Buckle and Old Navy.
2. Burlington Apparel Fabrics, one of the leading producers of apparel fabrics serving the menswear, womenswear, activewear, cotton casual, tailored, uniform and barrier markets. Facilities include operations in the United States and Mexico as well as a coordinated network of international mill partners based out of Hong Kong.
3. Home Furnishings includes the business units of Burlington House and Cone Jacquards, which produce interior fabrics serving the residential and contract upholstery, top-of-the-bed, window, mattress fabric, healthcare, corporate and hospitality markets. Operations are located in the United States, with sourcing offices located in China, Pakistan, Australia, Turkey and Lebanon.
4. Carlisle Finishing, a domestic commission dyeing, printing and finishing operation for woven and non-woven fabrics serving the apparel, special and home decorative markets.
5. Nano-Tex, LLC, an advanced materials company that develops and markets a family of nanotechnology-based textile treatments that dramatically improve the performance of everyday fabrics. Nano-Tex products are used by over 50 textile mills and sold by more than 40 leading apparel and interior furnishings brands worldwide. Nano-Tex's headquarters and R&D center are located in Emeryville, CA with regional offices in Greensboro, Milan, Istanbul, New Delhi, Hong Kong and Osaka.

Freudenberg (Nonwovens Business Area)

Overview:
The Freudenberg Group is a diversified family-owned manufacturing company involved in seals and vibration control technology, nonwovens, household products, chemical specialties, building systems and IT services. It is headquartered in Weinheim, Germany and operates in 53 different countries through some 434 companies. In fiscal 2006, it posted revenues of $6.9 million and totaled 33,542 employees.6

The group's decentralized management structure devolves operations to autonomous companies that are merged to form business segments. The parent company, Freudenberg & Co., is a limited partnership and is owned by 300 heirs of the founder who control, coordinate and supervise the Group's activities, as well as advise and support the sub-groups.7 Components and intermediate products account for over four-fifths of sales. Below is a chart illustrating the firm's different business sectors:

Figure 1. 2006 Sales structure by sectors in percent

Freudenberg was the first company to produce nonwovens and it has held the title of the largest nonwovens producer in the world for decades. There are two Business Groups in the Nonwovens area: Freudenberg Nonwovens and Freudenberg Politex Nonwovens. Freudenberg Nonwovens operates 17 production facilities in Argentina, Brazil, China, France, Germany, Italy, Japan, South Africa, South Korea, Spain, Taiwan, the UK, and the USA. Freudenberg Politex Nonwovens is headquartered in Italy and operates six sites across Italy, France, Poland and Georgia/USA.8 Freudenberg also owns a 22% shareholding stake in Japan Vilene, with whom it has multiple joint ventures in Asia.

Global Business Structure:
Freudenberg Nonwovens was streamlined into five divisions in 2002 in order to operate with increased customer focus. They are:

• Interlinings - for the clothing industry and consumer applications under the trademark brands of vilene® and vlieseline®.
• Filtration - for automotive interior filters, liquid filtration, ventilation and indoor climate, dust removal technology, respirator masks, vacuum cleaners, and kitchen hoods. Trademarks include viledon® and micronAir®.
• Hygiene and Medical - hygiene applications include baby's diapers, ladies' personal hygiene and incontinence products; medial applications include bandages, compresses and medical adhesive tapes; home textiles, protective clothing and upholstery products are also in this division; along with horticultural products such as crop protection sheets. Trademarks include vilmed®, Lutrasil® and Lutradur®.
• Technical Nonwovens - this division houses everything else for high value-added niche markets. It includes nonwovens for the cable industry, electrical industry, batteries, acoustics, fireblockers, composites or fiber-reinforced plastics (FRPs), shoe industry, roller covering materials, polishing disks, and window treatments. Trademarks include vildona® and viledon®.
• Tufts - nonwoven products here are used as inner carrier layers for carpet rolls, carpet tiles, and moulded automobile carpets under the same trademark brand - Lutradur® - as for nonwovens for textile and upholstered furniture.
• Evolon, Freudenberg's continuous filament spunlaced nonwoven business launched in 1999, is still kept separate from the other five divisions because the products are so different from the rest of its product portfolio. It is currently only produced on one line in Colmar, France.

Freudenberg Politex Nonwovens was previously a joint venture between Freudenberg & Co. and Politex, but in January 2004, Freudenberg purchased all remaining shares and owns it outright. Its core products are high-tenacity staple and spunbond polyester nonwovens for three major markets:9

• Roofing - used as reinforcements for bituminous roofing membranes
• Padding - high performance, high loft polyester nonwovens used in garment applications such as technical sportswear or furniture applications such as bed quilts and mattresses.
• Building - special polyesters used as reinforcements, waterproofing materials, reflecting products and thermo-acoustic insulators in the building industry.

Global Reorganization:
The migration of the apparel industry to China and Eastern Europe has hit Freudenberg hard, since its largest nonwoven market is the supply of interlinings for garments.

"The textile industry is facing a worldwide crisis… clothing consumption regressed … in Western Europe and USA… there is a dramatic worldwide over-capacity… customer demands on quality have sunk in recent years and the pressure on prices has risen enormously."10

In response, Freudenberg & Co. commenced a two to three year corporate restructuring plan, whose essential mission was to allocate full production responsibility to each division and consolidate competencies for development, production and knowledge transfer in Lead Centers.9 This involved the divestment of companies totaling sales worth €400 million, including nonwoven companies in the floppy disk, abrasives and synthetic leather markets.11 The nonwoven segment was streamlined into the above five divisions, and a "factory concept" was implemented.

There were two facets to this "factory concept." Firstly, over €40 million was invested into the modernization and restructuring of Freudenberg's US and Western European factories. New machine lines would be installed, with about half destined for Freudenberg's Weinheim, Germany location. Secondly, individual production facilities would specialize in certain products and no longer cover the complete product range. Production capacities for each product would be consolidated at certain sites for maximum efficiency and flexible worker schedules would be employed.12

U.S. Presence and Strategy:
Consistent with Freudenberg's global reorganization strategy, the US headquarters have been shifted to its site at Durham, North Carolina with production lines being transferred from its Lowell, MA plant. The Durham, North Carolina facility makes mainly spunbond polyester products targeted at the home furnishings and automotive markets with three production lines that produce more than 290 million square yards of material per year as of 2002. The Lowell plant now houses the Group's research and development departments as well as production lines making semiconductor polishing pads and select converting14 capabilities. The Group's third US plant is in Hopkinsville, KY, where the Group's filtration business for automotive and industrial applications is now concentrated.

Of note is Freudenberg's recent joint venture established in July 2003 with Pneumafil Corporation, in Charlotte, North Carolina to supply inlet filtration systems to the gas turbine market.15 This partnership is representative of Freudenberg's global strategy to consistently ally itself with leading companies to leverage their sales and technical capabilities. It is also an exercise in understanding the customer better, as Pneumafil is a complementary supplier designing and manufacturing inlet filtration systems for the gas turbine power market, while Freudenberg provides air filtration nonwoven products.

Summary:
Freudenberg is an example of an in-sourcing company with operations in North Carolina for the purpose of serving the huge US market. Unlike many North Carolina textile companies, it is doing very well, despite its relatively lackluster performance during the recent 2001-02 recession. Although it is a very large company, there are instructive lessons to be gleaned from Freudenberg's experience. Like many, its stated strategy was to focus on core profitable businesses, divest unprofitable ones, stay away from commoditized markets, diversify into different markets for more balanced growth, and emphasize constant reinvention and innovation. Unlike many, though, it has succeeded in executing these strategies.

This ability to execute has consistently manifested itself throughout Freudenberg's history. From its humble origins as a tannery in 1849, it successfully reinvented itself starting in 1929 and developed synthetic leather and rubber soles, floor coverings and finally nonwovens in 1948. In 1995, it reorganized into its current decentralized structure to enable it to act and react better to a new world of changing technology and geo-political shifts. While there are multiple reasons for why and how it managed to do this, one element that has remained constant has been its commitment to innovation. It became one of the biggest tanneries in Europe when the founder's son invented a tanning process using chrome liquor instead of vegetable dyes. It was the first to develop nonwovens; in 2004, Freudenberg spent €173 million, or 3.9% of sales, on R&D, engaging 2,138 employees worldwide. Most of its senior management holds Ph.D.s and there is a high premium placed on technical ability within the company. It is still a private company, though, and emphasizes its family origins, structure and culture very strongly, yet Freudenberg remains very open to diverse influences, as evidenced by its long-standing cooperation with Japan Vilene and Japan NOK.

Hanesbrand

Overview:
Hanesbrands was created in September 2006 as a spin-off of Sara Lee Branded Apparel, a division of the major Illinois-based Sara Lee Corporation. At the end of the fourth quarter of 2006, Sara Lee announced that its board of directions approved the spin-off of its apparel business into a separate, publicly traded company called Hanesbrands, Inc. Prior to the split, Hanesbrands had been Branded Apparel division of Sara Lee, responsible for 34% of Sara Lee's revenue. Sara Lee received a one-time payment of $2.4 billion from Hanesbrands and Sara Lee shareholders received one share of Hanesbrands common stock for every eight shares of Sara Lee common stock.16

Product Line:
The newly created company produces a broad range of apparel products, including brass, boxer shorts, socks, hosiery, and lingerie, as well as activewear products (T-shirts, sport shirts, and fleeces). Key brands including Hanes, Hanes Her Way, L'eggs, Bali, DIM, Just My Size, Playtex, and Wonderbra. It also produces legwear products, using the brand names Donna Karan and DkNY (both licenced). It is a market in many of these areas -- for example, Hanesbrands retains the top spot by sales in bras, T-shirts, fleece, socks, men's underwear, sheer hosiery and children's underwear in the US; it ranks second in bras and panties. According to their website, Hanesbrands can be found in eight of ten American households.17

Strategy:
Prior to Hanesbrands' spinoff, Sara Lee -- under the leadership of then Chairman and CEO Steven McMillan -- had begun to adjust its business strategies to adjust to the new global environment. Beginning in 1997, Sara Lee sold off its "non-core" businesses and increased outsourcing to lower-cost countries such as China. From 1997 until 2005, approximately 40% of Sara Lee's apparel sales were derived from outsourced products. It sold off many of its manufacturing facilities and terminated nearly 10,000 employees.

Shortly after the spin-off, Hanesbrands began an aggressive restructuring of its supply chain, seeking to shutter older, less competitive plants in favor of newer international operations. In September 2006, Hanesbrands announced the closure of three plants (located in Monclova, Mexico, Lumberton, NC and Marion, SC) and the elimination of 2,185 jobs.18 In June 2007, Hanesbrands announced plans to close several plants and lay off more than 5,000 jobs. The plants closed were not exclusively in North Carolina or in the US, and include factories in Canada, the Dominican Republic, Mexico and Puerto Rico.19 Announcements stated that the jobs would be shifted to newer locations in Asia and Central America. Hanesbrands also closed factories or distribution centers in October and November 2006, as well as March and May 2007 -- all in the name of streamlining its global value chain.20,21 In the process, Hanesbrands also sold off its European operations to Sun Capital Partners.22

So far, the effect of the new strategy has been modest. Though Hanesbrands has yet to complete a full year as an independent company, the results of its six-month transition period (ending December 30, 2006) showed a slight decrease in sales from the year before, with Hanesbrands posting sales of $1.13 billion, or a 4.3% decrease year-on-year. Results from the first and second quarters of 2007 showed a $9 million increase in sales over the previous year, or $2.16 billion.23

Sales Structure:
Before the spinoff, Sara Lee Branded Apparel made up 33% of Sara Lee's total sales and 27% of its operating segment income in 2004. Over half (56%) of its sales are within the United States, which also provides 44% of its income. 49% of its sales are in knit products, 30% are intimates and 21% are legwear. For 2004, Sara Lee Apparel sales grew 9% to $6.3 billion.

Suppliers:
Hanesbrands uses both synthetic and natural fibers and fabrics, and relies on a wide variety of suppliers, as the largest supplier provides only 15% of Sara Lee's manufacturing needs.

Customers:
Hanesbrands sells mainly to the US market, as 67% of its sales were in US dollars prior to the spin-off to Hanesbrands. Approximately 58% of its sales were to their top 20 customers, with 22% to Wal-Mart alone. The company sells to departments and specialty stores as well as outlets.23

Strategic Partnerships:
Sara Lee recognizes the importance of partnerships. The company has recently made a partnership with Target to distribute one of its most successful brands, Champion.

Culp24,25

Overview:
Founded in 1972 by R.G. Culp, Culp is one of the world's largest makers of furniture and mattress fabrics, otherwise known as ticking. Its products include upholstery fabrics, decorative, velvets and prints, yarns and mattress ticking. Bassett, Furniture, International, La-Z-Boy, Sealy and Serta all are listed as customers of Culp. Culp's main competitors include Joan Fabrics and Quaker Fabric. Culp makes every major fabric cover except for leather, and ships its products directly to the customer from distribution centers. North Carolina is its main base for distribution and manufacturing.

The company's 2006 yearly sales were $261.1 million, down from $286.5 million in 2006. 64% of its sales are in upholstery fabrics and 36% in mattress ticking. Culp currently employs 1,300 people nationwide.

Locations:
Headquartered in High Point, NC, Culp also has other facilities in North Carolina, South Carolina, China and Canada. Culp has distribution centers across the United States.

Product Line:
Culp produces a wide variety of fabrics and designs for its upholstery and ticking products, ranging from wovens, prints, velvets and decoratives. Its upholstery fabrics are used in both the residential and office markets and its ticking fabrics are also used for recliners and sofas.

Strategy:
Starting in 1991, Culp pursued a horizontal acquisition strategy by purchasing various fabric manufacturers. In 1998, to combat the slump of the upholstery market, Culp shifted focus upstream and purchased Artee Industries, a yarn manufacturer. In 2000, the company closed plants and laid off numerous employees, including 64 in North Carolina. In 2002 the company was forced to make additional cuts when it ended its wet printed flock upholstery fabrics. Culp is also an active participant in outsourcing, creating manufacturing and distribution centers in China where labor and cost of product are cheaper. This is useful as 10% of its sales are overseas.

Customers:
Culp is not a branded company, instead playing an original equipment manufacturing (OEM) role in manufacturing and selling its products to furniture brands.

Sales Structure:
Culp's total sales for 2006 were $261.1 million. Sales of upholstery fabrics produced outside the United States, predominantly in their China facility, increased by 89% in 2006 and accounted for 35% of their upholstery fabric sales for 2006. The company sees this development as a growth opportunity for the future.

References

1. Patrick Conway, Robert Connolly, Alfred Field and Douglas Longman, "The North Carolina Textiles Project: An Initial Report," Journal of Textile and Apparel, Technology and Management, Vol. 3, Issue 3, Fall 2003. Last accessed August 13, 2007. [http://www.unc.edu/~pconway/Textiles/nctp_tatm_rev.pdf]
2. Chris Roush,"Feature: The Fixer," Business North Carolina (Charlotte), May 2005; ITG Corporate Web site, Last accessed March 24, 2006.
3. ITG website - Hoovers.com profile of International Textile Group.
4. International Textile Group (ITG), "ITG Corporate Website." Last accessed August 14, 2007. [http://www.itg-global.com/]; Hoover's. "ITG: Company Profile." Last accessed August 14, 2007.
5. ITG, Annual Report 2006. Last accessed August 15, 2007. [http://www.sec.gov/Archives/edgar/data/918964/000119312507087820/0001193125-07-087820-index.htm]
6. Market Line, "Freudenberg & Co." Last accessed August 14, 2007.
7. "The International Top 40," Nonwovens Industry, September 2005. pp. 32-103.
8. Freudenberg, Annual Report 2003. Last accessed August 14, 2007. [http://www.freudenberg.com/ANNUALREPORT2003/content/]
9. Freudenberg Politex, "Freudenberg Politex Group," Website. Last accessed August 14, 2007. [http://www.freudenbergpolitex.com/]
10. Freudenberg, "Freudenberg to invest over 40 million Euro in modernization of nonwovens production," Press Release, April 2002.
11. Freudenberg, "New Organizational Structure Should Strengthen The Group Globally," Press Release, March 2002.
12. Freudenberg, "Freudenberg to invest..." (fn. 10).
13. Vicki Lee Parker, "Spinning success as rivals fall away," News & Observer (Raleigh), March 22, 2006.
14. Converting is defined as the final step in manufacturing nonwoven products from roll goods. The process of changing a nonwoven fabric in a final, finished product, generally involves changing fabric's physical configuration and combining the fabric with other materials.
15. Freudenberg, "Freudenberg Group," Corporate Website. Last accessed August 16, 2007. [http://www.freudenberg.com]
16. Hoover's, "Hanesbrands: Company Profile." Last accessed August 14, 2007.
17. Ibid.
18. Hanesbrands, "Hanesbrands Inc. Will Increase Its Supply Chain Cost Competitiveness and Flexibility with the Closure of Three Manufacturing Facilities," Press Release, September 13, 2006. Last accessed August 15, 2007. [http://phx.corporate-ir.net/phoenix.zhtml?c=200600&p=irol-newsArticle&ID=904774&highlight=]
19. Hanesbrands, "Hanesbrands Inc. Advances Planned Consolidation and Globalization Strategy to Further Improve Cost Competitiveness," Press Release, June 27, 2007. Last accessed August 15, 2007. [http://phx.corporate-ir.net/phoenix.zhtml?c=200600&p=irol-newsArticle&ID=1020125&highlight=]
20. Hanesbrands, "2007 Press Releases," Website. Last accessed August 15, 2007. [http://phx.corporate-ir.net/phoenix.zhtml?c=200600&p=irol-newsArticle&ID=1020125&highlight=]
21. Hanesbrands, "2006 Press Releases," Website. Last accessed August 15, 2007. [http://phx.corporate-ir.net/phoenix.zhtml?c=200600&p=irol-news&nyo=1]
22. Hoover's, "Hanesbrands: Company Profile," Last accessed August 14, 2007.
23. Hoover's, "Sara Lee." Last accessed August 8, 2007.
24. Culp, Various Pages, Corporate Website. Last accessed August 14, 2007. [http://www.culpinc.com]
25. Culp, Culp 2006 Annual Report. Last accessed August 14, 2007. [http://library.corporate-ir.net/library/62/621/62145/items/235211/CULP06.pdf]