Double Trouble for the Industry
April 21, 2008,
The twin implosions of Linens 'n Things and Dan River are likely to make what was already a tough year even more difficult.
The end came much more swiftly for Dan River last week. The majority of its North American staff was abruptly let go, its vendors and retail customers notified that it would liquidate. The pain from that action is already radiating out, especially for several vendors in Pakistan from whom Dan River sourced. The news arrived just as Pakistan's Federal Ministry of Textile reported that textiles as a share of the country's total exports fell to 48.6% this past February from 64.5% in February 2007.
Some of those vendors — and indeed Dan River itself — reportedly have a lot of goods in the pipeline, some on the water and some already in port. The fire sale to unload that merchandise has already begun and undoubtedly will impact competitors in the same sphere until it's digested. The digesting itself will be difficult at a time when soaring food and gas prices have robbed consumers of their appetite for non-essential goods.
The retail system will also have to work through some excess Linens 'n Things merchandise if the 589-unit retailer shutters some of its unprofitable stores. No hard number had been announced as this page was going to print, but the New York Post reported that LNT is looking to unload its 40 Canadian locations. It's hard to imagine the number of U.S. locations going dark will be smaller in number, and easy to speculate the figure would be double.
The LNT and Dan River actions were said to be spurred by the banks, which are wrestling with their own crises. So now the home textiles world, after several years of steadily lowering costs and rising margins (at least for retailers) finds itself enmeshed in the downside of globalism.
There's enough pain to go around for everybody.
India's government last week estimated a 5.9% inflation rate for 2008. China's export rebate, which had fallen from 17% three years ago to 7% this year, is expected to be zero by the end of 2008. This is taking place even as wages have risen from 10% to 17% over last year, depending upon the area.
There will be fallout from all of this — everywhere.