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P'Tex: Suppliers dash to fill marketplace void

New York — Up for grabs and fiercely contested, as Pillowtex winds down its business and prepares to slam the doors shut on its century-old operations, are a sheet and towel business worth about $675 million in 2002 — much of which may now move off-shore no matter who ends up picking up the business.

As the business trickles down, from Pillowtex to its competitors large and small, the migration may be inevitable, especially in terry, with U.S. companies incapable of making the goods as inexpensively as foreign competitors, especially as the U.S. manufacturing base ages and foreign competitors leapfrog domestic producers in terms of equipment and technology. Even though the business may go through a U.S. supplier, it's likely to be produced abroad.

Even WestPoint Stevens, last year the nation's largest towel producer with about $550 million in sales and a lot of capacity of its own to spare, has forecasted a massive migration of the Pillowtex business to offshore manufacturers. "I'd anticipate that about 50 percent of it will go abroad and 50 percent of it will remain here," said Chip Fontenot, interim ceo.

Fontenot's estimate may be conservative; some think even more of the business — at least the manufacturing — will head abroad, to China, Pakistan, India and Brazil. Bob Gehm, president of Sheridan Home and former president of sales at WestPoint Stevens, said, "I think that 70 percent of bedding and 50 percent of the towels move offshore — at least 50 percent." And even more of the terry production would likely move, he said, except there aren't many places left to take it. "Overseas, there aren't many large producers — there's just a lot of small producers, and what limited capacity they have is already spoken for."

While much of Pillowtex bedding, and perhaps most of its towel production, move off-shore, its big basic bedding business — pillows, pads and comforters, worth about $250 million in sales, is likely to remain solidly in the United States. "Basic bedding stays here," WestPoint's Fontenot said. "You can bring in all the comforter shells you want, but you're still going to fill the product and sew it up here."

One effect of the Pillowtex demise, Fontenot opined, is that "it gets us a lot closer to the point where we finally strike the balance between domestic production and imported product. And at a certain point, it boils down to service — when do you need the goods and how long will it take to get them here, especially in an uncertain geo-political environment. I think SARS and the West Coast dock lockout raised a lot of red flags. You will always need some capacity here, close to the stores. You can always import cheap product — but the one thing you can't import is service."

Among domestic producers, Springs Industries, already the nation's dominant home fashions provider, seemed poised to pick up the bulk of the business, growing into an industry behemoth — becoming to the American home textiles business what Wal-Mart has become to retailing: a giant surrounded by a handful of smaller players of varying sizes.

"Springs gets most of it," said Rich Roman, president of Revman Industries. "Springs is getting the bulk of the business. For Springs it's not a trickle-down, it's a downpour — a thunderstorm.

Ditto, offered Jerry Hanauer, chairman of Pacific Coast Feather. "I see Springs picking up pretty much anything they want. Boy, I sure wouldn't want to be standing in their way. That's a locomotive."

Taking the long, philosophical view, Frank Foley, an industry veteran who's turned once-struggling CHF Industries into a profitable, major player, didn't see much direct impact on his own business. "I don't see much of an impact per se, because Pillowtex didn't focus on our core areas of emphasis. But this event changes the competitive landscape by making foreign suppliers more powerful than they already are now. Some U.S. suppliers will get stronger as a result, while others get weaker. The country doesn't need fewer retailers, and it certainly doesn't need fewer suppliers. It's a terrible situation for domestic manufacturing."

The Pillowtex brands, said Foley, "have significant retail value and there's tremendous retail real estate wrapped up in these brands. If anyone is able to acquire one or more of these brands, then they will benefit by gaining the tremendous amount of retail real estate that goes with it. Retailers are not in the business of replacing brands or dropping brands for no reason. The Cannon brand has a lot of value in terms of worldwide consumer recognition and is not as real estate-sensitive as Royal Velvet, for example."

While WestPoint hopes to pick up its share of the Pillowtex business, it hasn't so far, Fontenot conceded. "I wouldn't say it's significantly changed our business. We didn't wake up one morning and find a lot of orders on our doorstep."

Has the company's bankruptcy filing hurt its chances? "I don't think so. We're having a lot of conversations, as you might expect, especially as we have a lot of domestic capacity and can get a program going pretty quickly."

How fast? "For us, not long. We've turned programs around in as little as three weeks because we've got the domestic capacity. We can just add a shift or start operating weekends."

Will home fashions companies start feeling the impact now or next year? That depends, said Revman's Roman. "Some retailers prepared for this day, and they're in good shape. They have a lot of inventory, so they may not need product until next year. But some retailers didn't seem to think it was going to happen and really got caught with their pants down. Now they're scrambling trying to pick up whatever product they can."

In a surprising twist to the import situation, a lot of manufacturing may stay here, at least in the short term — in many cases, import quotas are already spoken for, especially for foreign companies selling directly to U.S. retailers. "The closing comes at a time when all our quotas were already allocated to our regular customers," said Sh. Mohammed Obaid, managing director of Towellers Ltd., Karachi, Pakistan, which in 2001 sent in about $25 million worth of its products into the United States. "We do not benefit because of the timing."

The collapse of Pillowtex, said Obaid, "teaches us one very important thing, which is that everyone should do what they are good at. Americans are great marketers. We can never do well what they are so good at, which is marketing and distribution. They should leave the dirty job of manufacturing to us while they concentrate on what they can do better than anyone else."

Pradeep Mukherjee of Bombay Dyeing, Bombay, India, which in 2001 sent $37 million in sheets into the U.S., faces the same problem — quotas. "If there were no quantitative restrictions like quota, our business in home textiles out of India would grow by 15 percent."

The big question mark, for Mukherjee as most American suppliers, is what happens to the Pillowtex brands. "The long-term impact will be known only after the brands are bought. Then consolidation may take place."

Assessing the opportunities for domestic suppliers and global importers, Mukherjee said, "Retailers continue to put pressure on suppliers to reduce price and drive volumes. Yesterday's premium product becomes tomorrow's commodity. U.S. manufacturing companies, therefore, have to be in niche products or into quick replacement cycles, or very low costs, maybe all of these, to remain in profits post-2004.

"In our view, this is the opportune time for either joint-ventures or strategic alliances."

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