Companies Strive to Conserve Energy, Fuel
Hong Yuan Industrial Co. turns on the air conditioning in its knit factory in Arcadia, Calif., only when the temperature rises above 85 degrees. Nikki Young urges the sales representatives in her Los Angeles–based Nikki & Lucy Showroom to visit at least three or four retailers at a time when they hit the road. And Robin Dunstan, co-owner of Santa Fe Finishing in Los Angeles, said his company is more thorough and organized when scheduling pickups and deliveries of orders so that it does not waste drivers’ time and fuel for the trucks.
“It’s not brain surgery here, I got to tell you,” Dunstan said.
But it is smart business. As fuel prices soar, apparel companies are trying a number of ways to slash their utility bills and conserve gasoline. They have good reason to. According to the Los Angeles County Economic Development Corp. (LAEDC), nationally natural gas prices rose about 35 percent and retail gasoline prices increased about 24 percent in April from one year ago.
Global Insight Inc., an economic research company in Lexington, Mass., reported in April that oil prices will stay about $50 for the balance of this year and are unlikely to fall much below $45 per barrel. “The longer oil prices stay high, the greater the likelihood that they will be passed through to consumers, by businesses in developed economies and by governments in emerging markets,” wrote Global Insight Chief Economist Nariman Behravesh.
Jim Diffley, managing director of regional services in Global Insight’s Philadelphia office, said that, in terms of overall electricity costs, California businesses pay 62 percent more than the U.S. average.
The LAEDC said retail gasoline prices in the Los Angeles area grew about 18 percent in April, compared with one year ago.
Energy bills do not take up the biggest chunk of a company’s budget; labor costs do. Global Insight estimated that energy makes up approximately 5 percent of overall costs in manufacturing clothes and shoes.Every bit counts for the apparel industry, however. “You’re operating in a very narrow margin industry, and you have a lot of global competitors,” said LAEDC Chief Economist Jack Kyser. “In many cases, they do not have what you call pricing power.” Pricing power is the ability to raise prices without worrying about having customers refuse the increases or having competitors undercut you.
Kyser said going overseas where costs are lower might not always be advantageous because quality might be spotty. Jet fuel prices increased about 77 percent in April from a year ago. Furthermore, in developing markets such as India and China, the demand for energy is high and the supply low.
Finding ways to save
The city of Vernon, Calif., aims to attract more businesses by constructing a new 134-megawatt power plant. Because Vernon has its own municipal utility company, its kilowatt rates are as much as 50 percent lower than those from Southern California Edison, said Marisa Olguin, executive director of the Vernon Chamber of Commerce.
A spokesperson for Edison in Rosemead, Calif., said Vernon is not regulated by the California Public Utilities Commission and has fewer customers than Edison, which has a service territory of 50,000 square miles.
Edison has offered a number of incentive programs to encourage businesses to use less electricity. For instance, one program had $26 million to give to large companies that immediately replaced older inefficient lighting systems with new better-conserving ones. David Bruder, who is responsible for energy efficiency programs at Edison, said through a spokesperson that more than 600 applications were received for that one program. The amount of power saved from the program will be the equivalent of the power used by approximately 20,000 homes, he explained.
The Los Angeles Department of Water and Power also offers different incentive packages, as well as loans through its Economic Development Group, in an effort to attract and retain businesses in Los Angeles. Economic Development Group’s John X. Chen said the city pays rebates from $5 to $75 for each new lighting fixture installed in its commercial lighting efficiency program, as well as rebates for installing ultra-low flush toilets and efficient refrigeration, heating, ventilation and air conditioning. Chen also said the Economic Development Group offers financing to business customers who want to retrofit buildings. The loan lasts from three to 10 years and has a current interest rate of about 5.5 percent.
It was the energy crisis of 2000–2001 and the economic downturn following the attacks of Sept. 11, 2001, that forced Hong Yuan to start its energy-saving agenda. “We had to put in a different strategy,” said Product Development Manager Terence Luk. “To cut costs, we have to think about power.”
Hong Yuan reduced the number of knitting machines to 50 from 200, but it runs the machines 24 hours a day. It does big panel knitting after 7 p.m. Luk estimated that the company has trimmed its monthly electricity bill by $2,000 to $3,000.
On a recent Friday morning, with the temperature at a mild 73 degrees, approximately 45 workers operated machines and trimmed olive wool jackets in front of electric fans and open doors that let in a breeze rolling off an adjacent reservoir. Sunlight streamed in from the skylights and floor-to-ceiling windows. Half of the fluorescent lights were turned off.
But some companies need plenty of light. Monica Padilla, the president of Azteca Dye & Laundry Inc., said she tried night shifts at the Los Angeles wash house. But because the lighting was dimmer in the evening, the colors were off, forcing the company to take charge-backs and spend more money in the end. “I don’t know if the employees are sleepy or what it is,” Padilla said, in explaining why nighttime operations are futile.
Azteca has approximately 60 employees and roughly $2.2 million in annual sales from clients ranging from Bella Dahl and Ben Ryan to Matix. It relies on electric fans to cool the facility and props the doors open even when it rains. Padilla said that about four months ago, the company adopted the policy of finishing as much hand-sanding, grinding and other detail work as it can before loading and starting a wash. “It’s so expensive now,” she said.
Cynthia Sakai of the Faith and More Showroom also adopted some cost-cutting measures. Rather than dropping off a line sheet personally at a store, she sends more e-mail, faxes and packages.
Despite the high gas prices, she has to take her appointments. It costs $50 to fill up the 15-gallon tank in her Mercedes SUV. And she makes the run to the gas station three times a week to fuel the dozen trips to stores in Santa Monica, Ventura, Orange County and other locales in Southern California. She said a fuel-efficient hybrid sedan such as a Toyota Prius is impractical because she cannot fit a rolling rack and garment bags in it. She said there is only one way to offset the surging fuel prices. “You just got to write more orders,” she said.
