California Apparel News

Texas co-op buys stake in Guatemalan jeans factory.

Carlos Arias recalls the first major downturn in orders to his blue-jeans factory in Guatemala hit hard last fall.

“From August to October, things went south very quickly,” said the president of Koramsa, which has made blue jeans for such labels as Levi’s, Abercrombie & Fitch, Gap and Banana Republic.

As head of one of the largest factories in Central America, the experienced apparel maker was amazed with the swiftness that orders from the United States declined, tumbling as much as 50 percent.

Just months earlier, the sprawling jeans factory in Guatemala City was making as many as 250,000 pairs of pants a week. At one point in 2008, it employed 9,000 workers. But with retailers putting the brakes on their denim-pant orders, waves of layoffs occurred at the factory. It was 2,000 here, 2,500 there.

The factory’s owners, the Klose family, have sold the operations to the Plains Cotton Cooperative Association in Lubbock, Texas. Only a handful of workers remains.

The deal was announced on Feb. 23, with the cooperative buying Koramsa’s cutting, sewing and industrial laundry equipment for an undisclosed price. Blue-jeans production will resume at the site under the company’s new name, Denimatrix, with orders from two major brands in hand.

The cotton cooperative owns a denim mill that will provide fabric to Denimatrix.

“The new company will start hiring the first week of March with 200 people,” said Arias, now president of Denimatrix. “By the end of the year, we hope to have 1,500 workers. The idea is to grow as the orders allow.”

By next year, Denimatrix hopes to be making 150,000 pairs of blue jeans a week with 3,500 workers.

The demise of Koramsa, founded in 1988, is a lesson in how intertwined the U.S. consumer is with the apparel and textile industry in Central America. It became even more so after the Dominican Republic–Central American Free Trade Agreement went into effect a few years ago. This gave Central American–made clothing fashioned from regional inputs free access to the U.S. market. In some Central American countries, nearly 100 percent of their apparel exports are sent to U.S. stores.

Brands such as Hanesbrands Inc., Fruit of the Loom, Jockey and Gildan set up factories there to make everything from socks and underwear to T-shirts and pajamas.

But as consumers have slashed their apparel consumption and other economic factors have impacted the industry, Central American factories are being stunned with a slowdown in orders.

In Nicaragua, at least 19,000 apparel and textile workers lost their jobs last year, according to the Nicaraguan Apparel and Textile Association.

Most of those were in a free-trade zone dominated by the Taiwanese denim and blue-jeans maker Nien Hsing, which closed four factories last summer after producing in Nicaragua for years. The closures resulted in 14,839 workers losing their jobs. Late last year, the Mexican company C & C announced it would buy three of Nien Hsing’s factories. But initially, it will only employ about 3,000 people.

U.S. investors in Nicaragua have been hit hard, too. Last spring, Cone Denim opened a denim mill outside the capital city of Managua with the idea of supplying many of the area’s blue-jeans factories with fabric. The plant’s total capacity is 28 million yards of denim a year.

But a few weeks ago, International Textile Group Inc., the parent company of Cone Denim, announced that in the fourth quarter of 2008 it would take a $50 million to $60 million charge related to certain “long-lived denim-production assets.”

The charge was caused in part by the continued slowdown at retail and the weak demand for ITG’s apparel-related products, combined with a further deterioration of the Central American supply chain. Calls to Cone Denim’s new chief executive, Ken Kunberger, were not returned.

El Salvador has also been feeling the reverberations of the U.S. retail downturn. In late November, four apparel factories closed their doors, and another 10 were cutting their staffs to accommodate the drop in orders. The result was 4,000 people lost their jobs, and more are expected to be in the unemployment line soon.Credit crunch

Retailers’ reluctance to place orders is just one reason for the Central American apparel industry’s woes. Tight credit is another.

In Guatemala, Polar Industrial, which for nearly 15 years made polo shirts for the golf crowd as well as knitted sportswear and uniforms, ceased operations in July after the owners had a bank call in the group’s debt on a related textile mill and yarn spinner.

John Peden, one of the founders of Polar, said the company laid off 700 workers. Peden and other investors have reorganized the company under the name Patmos Distributors Inc. and are making the same products, just fewer of them, leaving only 200 workers in the factory.

“Customers have been forthright about cutting back on orders,” Peden said. “We have had some good weeks and some bad weeks. It is going to be a rough 2009, but we’re positive.”Trickle down

As orders drop at Central American apparel factories, so does business for the American yarn spinners and textile companies that supply much of the yarn, thread and fabric that goes into those apparel and textile products.

Again, the lack of credit is having a dire effect. David Sasso, vice president of international sales at Buhler Quality Yarns Corp. in Atherton, Ga., has seen sales dip 20 percent to the region. “People are buying less yarn. Part of the reason is because there is such a delay and resistance from the retail side to place orders,” he said. “The other issue is the credit crunch that is affecting everybody’s ability to purchase the yarn they need to have on hand to react quickly [to orders].”

Tuscarora Yarns Inc. in Mt. Pleasant, N.C., derives 35 percent to 40 percent of its business from exports. Most of that is from Central America, said company Chief Executive and President Peter Hegarty.

“We are seeing a dramatic downturn in that business,” he said. “We are probably off about 20 percent from our business this time last year, and most of that is coming from our export business.”

The one silver lining to all this is Central America’s proximity to the United States and its ability to get smaller orders to stores quickly. “If retailers are going to order less quantity and require it quickly, that favors the CAFTA region,” Hegarty said.

One factory in El Salvador is already seeing that. At Confecciones del Valle—which makes sportswear, sleepwear and bedding products—the labor force has held steady at 1,500 workers, with seasonal goods keeping the electricity on at the factory.

“Our capacity is full from here until June,” said Salvador Llort, the company’s executive vice president. “Some products have come down in volume, such as basic T-shirts and replenishment-type goods. But we have seen seasonal goods go up.

“The way I interpret it is that retailers are trying to keep their inventories as low as possible. So the stores are stocking seasonal goods, but they are not committing to long-term orders. They need it really fast. I guess this is the region where they are finding it.”