Dan River President Talks Post-Bankruptcy Future

Don Hogsett, Staff Staff, November 8, 2004

New York — On target to exit Chapter 11 in roughly 60 days time, the Dan River that emerges from the sheltering cocoon of bankruptcy will be a radically transformed company, said president Tom Muscalino, one working off a fresh business model that adapts it to a new global playing field.

"The company will be different in lots and lots of ways," said Muscalino. "The industry has changed tremendously in just the past few years, and we have had to adapt to all those changes and do it in a remarkably brief period of time."

Key among those changes is a shift from domestic production to stepped-up global sourcing — a radical shift for a company that has prided itself on its U.S. manufacturing prowess. "It used to be, and, not all that long ago, that everything we sold we made ourselves. But the world out there has changed, and we've had to adapt."

Now, said Muscalino, the company is working rapidly to develop its internal sourcing expertise, and, "Where it makes sense, we'll bring the product in. The reality is that we can still make some product here for less than it costs to bring it in from Asia. It's a matter of finding the proper mix, the proper balance."

And coming out of sweeping, sometimes acutely painful restructuring, Dan River will be a leaner company, with far fewer employees. "We will have a lot less manufacturing, though we will still have a significant amount here. And we will have a lot fewer employees. We have reduced our overhead dramatically. We have shifted from a 100 percent manufacturing company to a hybrid, where we will source from all over the world, where it makes sense."

And in another radical shift, "We will have a much cleaner balance sheet, and that will be a significant advantage when 2005 rolls around," Muscalino added.

Dan River has already realigned much of its U.S. production, shutting plants and shifting production, at a cost of hundreds of jobs. Will we see more?

"You might. It depends on a lot of factors," said Muscalino. "Right now, we think we have a solid business model, but who knows what changes there might be in the business that would require us to take more action. If we have to source more and reduce more manufacturing, we will. I don't have a crystal ball."

If his crystal ball is clouded, said Muscalino, it's because a big question mark is hanging over an entire domestic industry. "Nobody knows what's going to happen to pricing when quotas are lifted."

And that's not the only issue, he notes. One factor that plays into the hands of U.S. suppliers is the rapidly rising cost of moving offshore goods into this country. "Transportation costs are going crazy. Six months ago, it cost $3,400 to bring a container in. Now it's $4,000. And a lot of people are forecasting that in another six months, it could cost $6,000."

While Dan River is necessarily stepping up its sourcing, it still sees critical advantages to U.S. bricks and mortar. A big one, said Muscalino, is speed to market. "That's a significant advantage for a U.S. manufacturer. We can go from greige to finished product to shipping in about four weeks. It can take three to four months to complete the same cycle for goods coming in from Asia."

Amidst tumultuous change, one thing will remain a constant, said Muscalino — Dan River's commitment to the bed-in-a-bag product it pioneered. Once its core product, bringing in scores of millions of dollars a year, the product has been devalued and footballed — knocked about by retailers hacking away at price and suppliers all too happy to produce a less costly product.

"Our goal is to redefine the concept and re-engineer the product so that retailers can refine and redevelop the business. We're not giving up on it at all," he said.

Instead of backing away, said Muscalino, Dan River has tried to breathe fresh life into the business, and get prices and margins back up, through "significant introductions of lifestyle brands. "We have Lily Pulitzer, we added Caribbean Joe, we have Country Living. Our goal is to bring a compelling product to the marketplace that marries the quality of the product to the value of the brand. We really believe that compelling product and greater value are ultimately more important that just one more low-cost product."

Among the many problems facing the industry, said Muscalino, "is that we make a terrific product. It doesn't wear out. Consumers don't need to replace anything for two or three or four years. So if people don't need to replace the product, we have to give them a reason to want the product. And you need a better reason than price alone.

"In today's economy, mid- and lower-income families have less and less to spend, especially with gas taking more and more out of their pockets. So you have to give them great product, not just cheap product. So we will always focus on the value-added."

Muscalino insists, "If we don't say anything else, we have to say this — we really have to thank all of our associates for their hard work and diligence under extremely challenging circumstances as we went through a very painful process of restructuring the company. And we have to thank our creditors, licensors and suppliers for all their support. Without them, our associates and our suppliers and all of those who've been working with us, there's no company, no Dan River. But with them, and they've been with us all the way, we have a very bright future ahead of us."

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