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Jennifer Marks

Throwing in the towel

Here's the good news. Things are looking up for towel makers.

The amount of capacity available from the cadre of global producers capable of manufacturing mass quantities of replenishable goods is super tight. Some overseas mills report their looms are already booked up for the year.

Once again, the boon to suppliers can be credited to the abrupt departure of Pillowtex from the scene. In its last fully functioning year, Pillowtex was the second largest supplier of towels in the United States, cranking out $455 million worth of terry.

Even better — from a supplier's standpoint — is the fact that capacity is expected to remain tight until at least May or June. That's when the last wave of the Pillowtex "replacement" business begins rolling into stores.

For the first time in many a long year, towel suppliers have some leverage with retailers. The baton drops into suppliers' hands not a moment too soon given the spike in cotton prices.

Towel makers in the United States and abroad are reporting some incremental pricing increases for in-line programs. Several expect to land even better prices on new programs. So three cheers for towel manufacturers. They might actually make a little money this year.

For at least five minutes or so.

Here's the bad news: just as the narrowing of volume capacity has handed them the gift of leverage, the international community of towel manufacturers is preparing to foul its own nest.

From Karachi to Mumbai to Shanghai, the mission is the same: more looms, expanded facilities, fatter capacity. They're chasing the market share opportunity afforded by Pillowtex's disappearance and girding themselves for the evaporation of quota restrictions 11 months from now.

They're also singing from the American songbook: bring on the volume. Many are neither interested in, nor capable of, dealing with retailers directly, but they're keenly interested in their proxies: large-volume suppliers.

Capacity boosts will start coming on line at mid-year, about the same time the current pinch eases up. All of which means that by the close of 2004, the global community could be absolutely rolling in capacity — and so back to the usual price-point pounding routine.

Towel manufacturers aren't alone in this folly. The same scenario is unfurling in the international sheet market as well.

Chasing market share and attempting to establish category dominance has since 2000 reduced the number U.S. players that manufacture sheets or towels or both from eight out of the top 10 sales leaders to just three.

The cycle is now set to play out on the global stage. You could say that they're going from zero to 60, if it didn't look so much like they're racing from 60 to zero.

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