The 10 Most Significant Events of 2005
December 19, 2005,
1. The End of Quotas…Kinda
The new era of free trade that was to kick off on Jan. 1, 2005 — the industry's first fully quota-free day — instead begat months of uncertainty as free trade lobbyists squared off against importer lobbyists regarding imports from China.
The dust finally settled in mid-November when the U.S. and Chinese governments agreed to re-impose quotas on 34 categories of goods.
2. Retail Merger Mania
Like a neutron star collapsing in upon itself toward black-hole status, the consolidated retail industry in 2005 became even denser.
Hedge fund impresario Edward Lampert sealed the deal in March on his $11 billion merger of Sears, Roebuck & Co. and Kmart. The resulting Sears Holding Corp. operates roughly 3,900 full-line and specialty stores with a hefty $55 billion in sales. Next year's agenda: Acquiring full ownership of Sears Canada.
In early July, regional department store Belk Inc. acquired Saks Inc.'s Proffitt's/McRae's division in a cash transaction for $622 million, plus the assumption of $1 million in capitalized lease obligations. The addition of 22 Proffitt's stores and 25 McRae's made Belk a 275-store company with $1.5 billion in sales.
The following month, Federated completed its acquisition of rival May Department Stores Co. in a $17 billion transaction. The combination of the country's two largest department store companies made Federated a $30 billion retailer with more than 950 department stores and 700 bridal stores.
Finally, regional department store retailer The Bon-Ton Stores purchased Saks Inc.'s Northern Department Store Group for $1.1 billion in cash plus the assumption of approximately $85 million of liabilities. The transaction created a 280-store company with sales of $3.5 billion.
3. The Battle for WestPoint Stevens
Skeptics wondered at the beginning of the year whether WestPoint Stevens would survive long enough to pull itself out of bankruptcy. Instead a battle erupted between financier Carl Icahn, owner of a sizeable portion of WestPoint's debt, and the steering committee of first lien debt holders, who aligned with financier Wilbur Ross.
Ultimately, the day went to Icahn, and the company emerged from bankruptcy with a new owner, $150 million in cash, a clean balance sheet and a new name: WestPoint International. The plan now: create a global company through off-shore sourcing alliances, joint ventures and potential acquisitions.
4. The Springs/Coteminas Marriage
While all eyes were fastened on WestPoint, rival Springs Industries, the country's largest supplier, quietly negotiated a “merger” with its Brazilian joint venture partner, Coteminas.
The resulting company — Springs Global — will become the world's largest home textiles producer with global sales in the range of $2.4 billion, headquartered in Brazil. What really made the deal a stunner was the fact that a major off-shore manufacturer was taking ownership of a major U.S. company. More deals of the same stripe are expected to hit the industry next year.
5. Hoffman Mills Hangs It Up
After 78 years in business, the venerable Hoffman Mills announced in early 2005 that it was through battling low-cost Chinese imports and would turn out the lights.
News that the $50 million fabric producer was calling it quits sewed confusion among its customers in the home textiles, furniture and retailing industries. It also impacted Hoffman Mills' suppliers, who scrambled to reforecast their 2005 business.
In the end, however, even some of the Mills' most loyal customers conceded the closure was probably a smart move and praised the owners for frankly assessing the future.
6. Capacity Build-Outs
Even as U.S. mills shuttered manufacturing facilities, off-shore manufacturers continued to invest in expanded production facilities. Across Asia, towel makers added sheeting capacity. Sheet makers added cut-and-sew units. Spinners added weaving machines. Weavers added finishing plants.
And more is expected to come on line next year.
The upshot: The global glut of capacity will not only continue in the face of U.S. plant shutdowns, it will grow.
7. LNT finds a buyer
After several quarters of declining profit performance, it came as no surprise when Linens 'n Things last fall put itself on the block.
LNT now has to meet a tough set of performance metrics to unleash financing for its $1.3 billion acquisition by an investment group led by Apollo Management. Not only will it have to hit an EBITDA target above any it has achieved in the past few years, but the company will also have to make up for a pitiful comp store performance in October, in order to hold fourth-quarter comps to a 6 percent decline.
Most in the industry believe some sort of deal will get done. The question is what the terms of that deal will ultimately turn out to be.
8. Retailers Boot “The Middleman”
The nation's largest retailers showed little love for traditional suppliers this year as they moved to more aggressively self-source their own merchandise.
Wal-Mart warned suppliers that unless they owned off-shore bricks-and-mortar they would drop from the Wal-Mart constellation within 36 months or so. Target launched whole programs on its own, using suppliers to fill a few holes it couldn't.
Traditional suppliers have begun looking for ways to remain relevant, such as forging joint ventures and exclusive production contracts with off-shore manufacturers.
A few are exploring off-shore acquisitions. A few more are quietly shopping for an off-shore buyer.
9. A Raw Deal on Materials
As petroleum prices escalated sharply during the year, the nation's drivers weren't the only ones howling in pain. Suppliers and manufacturers employing petroleum-based raw materials were clobbered with serial price hikes from their suppliers. From resin buyers to polyester filament fiber producers, one cry arose: We need pricing relief.
And in most cases, their customers agreed to share the pain. Furthermore, no retailer cited slightly higher product prices as a factor in their sales performance — for good or ill.
10. Shifting Show Dates
Trade show producers across the home furnishings industry in the United States and abroad bowed to exhibitor complaints about their timing and shifted long-established show dates forward.
Rather than elicit a sigh of relief, the changes elicited still more complaints. The timing of some old-line events could be altered yet again.
Related Content By Author
The Countdown to the ICON Honors Continues featuring Christophe Pourny