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2005 Vendor Report Card: Hurt But Still Standing

Don Hogsett -- Home Textiles Today, January 2, 2006

New York — They've been hammered by constant price deflation straining every aspect of their operations. They've been hobbled by retail customers increasingly turning their backs on U.S. home fashions suppliers in pursuit of ever-lower off-shore pricing. And if that's not enough, they've been bled dry by crushing debt loads pushing some over the edge into bankruptcy. The American textiles industry continued its downward spiral during 2004, with only two out of seven public companies making any money.

At least on paper, the sales picture improved considerably for the seven companies whose performance is measured in this year's Home Textiles Today Vendor Report Card, rising by 11.3 percent, to $10.3 billion from $9.3 billion last year.

But there's a big problem with that number: virtually all of the public industry's sales gain in 2004 was accounted for by just one company, Mohawk Industries, which perennially dominates the top of the industry leader board. Mohawk sales during 2004 jumped 17.6 percent, $880.1 million, following its buyout of a hard flooring producer, Dal-Tile. Even then, most of the gain had everything to do with flooring and little to do with home textiles.

Overall, fewer than half, only three of the seven public companies ranked in this year's Vendor Report Card, managed to drive their sales higher.

So who is doing well? Given the rapidly changing nature of the global marketplace for home fashions products, not surprisingly it's the off-shore producers who are eating the lunch of the domestic industry. This year, for the first time, Home Textiles Today begins to measure the performance of a group of global home fashions companies from China, Brazil and India. There, profits are climbing dramatically, though it's difficult to measure with any degree of precision, since home fashions accounts for only a small part of the total sales of some global companies.

But however you compute the results, their returns are dramatic. Earnings at Hong Kong's Li & Fung jumped up by 25.2 percent; at India's Reliance Group, profits soared by 46.8 percent; at Abhishek profits advanced by 18.2 percent; and at Coteminas, which now controls Springs Industries, profits advanced by 4.9 percent.

Just how are they doing it? By doing what Americans can't — high margins and low costs. Look at it this way. The strongest American producer, Mohawk, put up a gross margin of 27.6 percent, and had costs that totaled 16.8 percent of sales. Then contrast that with Brazil's Coteminas, with its much higher margin of 31.7 percent, and its remarkably lower costs of just 9.7 percent, a cost structure more than 40 percent lower. And if you think Coteminas' costs are low, consider the 6.3 percent cost performance at Li & Fung, the Hong Kong-based sourcing company. Or the Reliance Group's 1.3 percent.

Turn the clock back 11 years, to the Vendor Report of 1993. Back then, there were 15 public companies, most of them much smaller than the giants of today. Now nine of those companies, more than half of that early sample, no longer exist. Remember Thomaston? Pillowtex? Bibb? Guilford? Burlington?

Back then, the public home textiles industry controlled $10.1 billion in sales. Eleven years later, the public industry hasn't grown by as much as a single dollar — it's actually shrunk slightly, by slightly more than one percent, to $10.0 billion. And profits back then were a balmy $210.2 million. Now they're off by 29 percent, to $149.2 million.

Composite results of seven textile companies
(Figures, excluding percentages, in $000s)

(x000) 2005 2004 % change
Sales $10,308,341 $9,262,326 11.3%
Net income 149,185 587,834 -74.6
Operating income 722,510 688,563 4.9
Average gross margin 21.1% 22.0%
SG&A as a % of sales 14.1 14.6
Net debt coverage 30.5 34.9

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