California Apparel News

The swine flu outbreak in Mexico is costing California companies making clothing in that country millions of dollars to cover the expense of government-mandated factory closings and a high-rate of absenteeism.

With Mexican factories ordered to close between May 1 and May 5 to thwart the flu’s spread, many U.S. clothing companies now expect to fall anywhere between three to seven days behind on deliveries to retailers, many of whom are prone to take chargeback money for late deliveries.

“It did hurt us financially,” said Daniel Barcenas, international sales director for Fortune Fashions Industries Inc. in Vernon, Calif. “Fortunately, this was so well-publicized that we have gone to our customers to explain what happened.”

Last year, Fortune Fashions, founded in 1991, moved almost all of its screen-printing operations from Los Angeles to San Juan del Rio, Quereacute;taro, about two hours northeast of Mexico City. The company now employs 400 workers there, who pump out 400,000 pieces of screen-printed items a week. The idea is to eventually ramp up to 1 million items a week.

Fortune Fashions sells private-label and licensed T-shirts, sweatshirts and accessories to Wal-Mart, Target and Kmart, among others, using licenses such as Disney, The Muppets, The Simpsons, Hello Kitty, OP and Sesame Street.

But the big discounters can be tough on delivery times. “Some of them don’t understand or don’t care or are using it as leverage [for lower prices]. There’s not much we can do in those cases,” Barcenas said.

For some retailers, Fortune Fashions is offering markdown money (or discounts) so retailers take delivery of the goods.

“We’ve lost money from paying individuals not to work during those five days to falling behind on orders. There are no acts of God in Mexico,” noted the sales executive, who still hasn’t calculated how much the swine flu outbreak will cost the company. “I’m having to give my [Mexican] customers a discount even though they were closed and couldn’t take the order.”

Fortune Fashions isn’t alone in shouldering the burden of forced factory closings and employees not showing up for work.

Just for Wraps Inc.—a company in Commerce, Calif., that makes juniors, misses and childrenswear apparel under such labels as Wrapper, Love Squared and A-List—now does about 50 percent of its production in Mexico with contract factories.

“The bigger impact in the factories was that the schools and nurseries in Mexico have been closed. A lot of mothers have been unable to come to work because they can’t find childcare,” said Rakesh Lal, the company’s executive vice president. “I would say the best-case scenario is that the factories are operating with 35 to 40 percent fewer employees. When you are running an assembly line and the line is broken, there goes your production.”

Lal said his company—which sells to Dillard’s, Macy’s, Kohl’s and T.J. Maxx—is working with each customer to explain that deliveries may be late. “Hopefully they will recognize what is going on and have a bit of heart,” Lal said. He is still tabulating the cost of the work slowdown.

Andy Calogero, vice president of Branded Bull in San Marcos, Calif., said his factory, which makes knit tops in Tultitlaacute;n, near Mexico City, had been working with a 50 percent skeleton crew before the government-mandated five-day closure. “If I had a shipment that had to get out soon, I would be in trouble,” he said, noting production may be off by one week.

Neal Flaster, senior vice president of Ameri-Tech Distributing Inc., with offices in El Paso, Texas, and Pasadena, Calif., said his company lost 40 percent of one week’s production. The company’s three factories near Torreon make mostly men’s private-label blue jeans sold at Costco for $12.99. However, making on-time deliveries probably won’t be a problem because the company keeps enough inventory to ship goods immediately.Panicked caution

The swine flu epidemic, which has now claimed 42 lives and infected more than 850 people in Mexico, is reminiscent of the SARS outbreak in China, which paralyzed that country in late 2002 and the first part of 2003. Garment factories shut down then, Chinese apparel agents quarantined themselves for 10 days before visiting clients in the United States and people donned face masks in China to stymie the virus’s spread, which killed around 350 people.

While the swine flu epidemic has turned out to be less severe than the SARS epidemic, the Mexican government and business leaders have proceeded aggressively to stamp out the disease.

Restaurants, museums, libraries and churches were ordered to close their doors in late April and early May. Students were kept out of school, and the streets of Mexico City, the epicenter of the outbreak, were deserted for days. Ordering businesses to shutter is expected to cost the country $2.2 billion.

When news of the swine flu broke in April, many U.S. apparel companies either brought back U.S. personnel or told them not to visit the country.

Fortune Fashions had eight U.S. trainers and managers return to Los Angeles on April 29. They were asked to stay at home for three or four days before returning to work. “When we spoke to them, they said that no one was dropping like flies down there,” Barcenas said. “But we just didn’t want to expose them to anything. We are responsible and wanted to do the right thing and make sure their families were not worried.”

Bobby Ahn, owner of New Fashion Products Inc. in Los Angeles, which has a blue-jeans factory with 1,200 workers in Aguascalientes, Mexico, said all nonessential travel to Mexico was put on hold. But his three U.S. managers decided to stay in Aguascalientes even though five deaths attributed to swine flu occurred in the state of Aguascalientes.

It seems the further away from the Mexican capital, the less impact the outbreak had on travel. Bruce Fetter, president of Irvine, Calif.–based St. John, said the manager of the company’s Tijuana factory, with 700 workers, was traveling between San Diego and the Mexican border town every day.

The one bump in the road for production was having workers stay at home to care for their school-age children.

“We can gain back some of the capacity by enabling employees to come in and work on Saturdays,” Fetter said of the factory, which makes hardware for some of St. John’s collections and sews much of the line’s casual apparel.

With Mexican factories, offices, restaurants, museums, schools and libraries reopening after May 6, business was expected to gradually return to normal.

No one was complaining that the Mexican government employed rash measures to squash the flu.

“I think they took drastic measures, but who is to know,” said Fortune Fashions’ Barcenas. “Better to be drastic than not do anything at all.”