California Apparel News

GUATEMALA CITY—The 15th annual Apparel Sourcing Show held here May 16–18 and attended by 4,725 people underscored the widely held belief that Central America is a region in transformation.

Take the case of Koramsa S.A., a Guatemalan firm that is the largest blue-jean maker in the region.

The vast company, whose plants sprawl across two treeshaded campuses, and at one time had so many workers it could have been classified as a small town, drastically slashed its workforce late last year after launching a reorganization plan in September.

Koramsa has whittled production down from 750,000 to 250,000 pairs of denim pants a week and now employs 7,800, a reduction of about 8,200 employees from two years ago.

“We are making sure we become more demand driven rather than supply driven,” said Carlos Arias, who recently was promoted from Koramsa’s executive vice president to president.

“We want to concentrate on value-added features and speed to market. When you are chasing product you are too vulnerable.”

The reorganization has resulted in Koramsa no longer making blue jeans for San Francisco–based Levi Strauss & Co., which at one time was Koramsa’s No. 1 client, accounting for 90 percent of the Guatemalan firm’s production. Last year, Levi’s represented about 20 percent of Koramsa’s business.

These days, San Francisco–based Gap Inc. is Koramsa’s No. 1 client, accounting for 40 percent of its business. The Guatemalan blue-jean maker is working closely with Gap to help with product design and innovation. A team of Gap designers recently traveled here from the United States to work at Koramsa’s El Naranjo campus, where studios are set up so visiting clients can work closely with the blue-jeans maker to develop a trendy product that flies off store shelves.

“The longest part of the cycle [of making blue jeans] is not production but the development of the product and its approval,” Arias said.

Koramsa also has veered toward working with some large American retailers. New Albany, Ohio–based Abercrombie & Fitch is a relatively new client that makes up 25 to 30 percent of the company’s production. Making goods for Menomonee Falls, Wis.–based Kohl’s Corp. and New York–based Calvin Klein jeans, fills in the rest of Koramsa’s business.

Koramsa, which had $230 million in revenues last year, is embarking on a new venture with Minneapolis-based Target Inc. to make blue jeans under the Mossimo label.

“We will come back in sales volumes but not unit volumes,” said Arias, who would not speculate what the company’s 2006 revenues would be.

Tackling the mountain

Like Koramsa, many firms are taking a hard look at how best to compete with the “mountain” called China, and be an essential part of U.S. companies’ sourcing needs now that the Central American Free Trade Agreement is nearly complete. Three countries—El Salvador, Nicaragua and Honduras—have implemented the necessary legislative regulations to be part of the free-trade pact. On May 18, Guatemala’s Congress approved measures to hopefully have the country join CAFTA by June 1, once the U.S. Trade Representative’s office in Washington, D.C., approves the changes. That would leave the Dominican Republic and Costa Rica as countries yet to join the CAFTA club.

With CAFTA in mind, the Apparel Sourcing Show’s theme this year was full-service supply and speed to market. There were seminars on how to get goods faster to the United States, how to employ computer software systems such as PDM and PLM and how to help with design and creativity of apparel goods.

“These are challenging times,” said Tony Ronayne, vice president of Western Hemisphere Operations at New York–based Liz Claiborne Inc. He was a speaker on a panel that addressed how to shorten cycle time.

“The overall market for apparel in the United States remains relatively flat. The department store business continues to consolidate,” Ronayne said. “Private label continues to grow in importance for all the major retailers, which is good news for Guatemala because so much private-label business is done here.”

Ronayne said Liz Claiborne’s vendors have to be flexible, fast and make quick adjustments in response to ever-changing needs. “Our vendors need to be capable of making multiple products—not necessarily at the same facilities—and deal with more styles and smaller quantities per style,” he said. “We are moving key aspects of our product-development process closer to our manufacturing facilities. So, more of our design, fabric selection, sample making and approval will be done at the factories.”

Central American factories will have to provide those services if they want to remain afloat in the competitive atmosphere of apparel manufacturing. The stakes got higher last year after apparel and textile quotas were eliminated for World Trade Organization members, which include China, the world’s largest apparel manufacturer.

The disappearance of WTO quotas cut sharply into the Central American apparel industry.

Last year in Guatemala, 51 factories closed while 27 factories opened, said Carla Caballeros, manager of Vestex, a trade group representing the Guatemalan apparel and textile industry. The reduction in the number of factories translates to 126,000 Guatemalans being employed in the apparel and textile industry, down from 150,000 in 2004.

MBS Internacional S.A., a 22-year-old cut-and-sew manufacturer that makes women’s pants, skirts and shorts for New York–based Jones Apparel Group’s New York & Co. label, was one Guatemalan company that was affected. In the last year alone, the company’s work force has shrunk from 1,200 workers, who each earn about $215 a month for a 44- hour workweek, to 800 workers. “The loss is leveling off,” said Oscar Alvarado, human resources director at MBS. “But it has cost us.”

El Salvador also has been hit hard. It had 90,000 workers in the apparel and textile sector in 2004, but only 75,000 workers last year. “We are hoping to hold steady and increase 5 percent a year with CAFTA,” said Claudia Riasco, executive director of the El Salvadoran Apparel and Textile Chamber.

More manufacturers in El Salvador are transforming themselves into full-package operations to capture lost business. In 2004, only 30 percent of apparel makers had full-package capabilities. This year, that figure jumped to 60 percent.

Honduras has not been hit as hard. About 127,000 were employed in the textiles sector last year, which was about 3,000 less than in 2004.

Nicaragua has emerged as the focal point for apparel and textile investments from outside the region. Several apparel factories and textile mills are planned to open in the near future.

Recently, Greensboro, N.C.–based Cone Denim LLC said it would invest $100 million to open a denim mill in Nicaragua that has the capability to annually produce 28 million yards of denim. Sae-A Trading Group, a Korean company, said it is investing $100 million to install a textile mill and sewing facility in a Nicaraguan free trade zone. And Montreal-based Gildan Activewear Inc. purchased land and buildings in Nicaragua in 2004 to build a $60 million facility to make fleece that could be used in its apparel factories.

Nicaragua is also becoming popular with apparel factories because the country was granted a special concession under CAFTA that will let it import 100 million square meters of fabric a year from outside the region and still have the goods enter the United States free of duty and quota.

The CAFTA concession was one of the reasons Cone Denim opted to establish its mill in Nicaragua rather than Guatemala. John Bakane, Cone’s chief executive officer and president, said his company could bring in denim from its mills in China or India if it didn’t sell in Asia.

Getting closer

With CAFTA almost fully implemented, the region is looking more attractive to apparel makers having to deal with quotas on goods made in China.

Mark D’Sa, senior director of production at Gap International Sourcing, a subsidiary of Gap Inc., said about $1 billion of Gap’s sourcing is done in the Western Hemisphere, from Canada to Brazil, which translates into $2.5 billion in retail sales.

D’Sa said Central America’s proximity to the United States saves Gap transportation costs and time. If the region gets more textile mills, he noted, it would eliminate the time it takes to send fabric to the region.

Rodrigo Jativa, sourcing director for National Stores Inc., a Gardena, Calif.–based company that has more than 200 stores operating under the Factory 2-U and Fallas-Paredes nameplates, was looking for factories to produce missy and plus-size knit tops that would retail from $3.99 to $7.99. National Stores has relied heavily on buying closeouts, but, Jativa said, “We are serious about doing our own production. With CAFTA, we feel we can take advantage of duty-free and quota-free goods. And the freight is a lot cheaper.”

CAFTA has opened up a lot of doors for U.S. textile manufacturers. One of those is Los Angeles–based Antex Knitting Mills. Aaron Tavdi, vice president of sales, said 60 percent of Antex’s production is destined for Central America. Two years ago, only 30 percent of Antex’s production went there.

“CAFTA and its predecessor, CBI (Caribbean Basin Initiative), have really opened up a lot of doors,” he said.

Swisstex California Inc. is finding new markets in Central America, too. The Los Angeles–based dye house plans to open in August a knit factory and dye house in El Salvador that will supply fabric to Orion Industries—a Salvadoran apparel maker that produces underwear, loungewear and activewear— and other apparel companies. “We decided to put in a mill because there is an overwhelming migration of money to this region because of CAFTA,” said Keith Dartley, of Swisstex Direct, the company’s marketing arm. “It’s a lot more cost efficient than Mexico.”