Operations Remain Strong, But Orders And Backlog Down

he US government has finally confirmed what many in the textile industry have known for
some time – that the economy has been in a recession since December 2007. And yarn spinners are
beginning to feel the effects, as retailers have begun to dramatically slash inventories and
curtail new orders.


“We’re still running a full schedule,” said one North Carolina spinner. “But our backlog is
shrinking fast. We should be fine through the holidays, but I expect the first half of the new year
to be very difficult.”


Said another: “Our operations are still steady and full, but we’ve started to see orders
dwindle. That doesn’t really surprise us this time of year. It’s business as usual. The real test
is going to be whether they pick up again after the holidays. We’re not concerned yet. But, come
January, we will start having some concerns if we don’t start seeing some business come our way.”


Spinners seem to be of different mindsets about business prospects in the first quarter. “I
don’t think you are going to see retailers order anything they don’t think they can move in a
hurry,” said one spinner. “They will maintain low inventories and stock only what they need. If all
the forecasts  I’ve seen are correct, I don’t know that we will see any real positive moves in
the market until June, maybe later.”


However, another spinner said reduced retailer confidence may work in favor of spinners,
particularly those in the Western Hemisphere. “With the poor environment at retail, we know a lot
of retailers are cancelling current orders and diverting shipments already on the water – they’re
not taking any inventory – and there won’t be anything left on the shelves post-holiday. After the
holidays, the retailers are going to need product, and it’s going to benefit spinners in this
hemisphere, just from a quick supply standpoint. So I believe there will be opportunities the first
half of the year, especially for those spinners that can be nimble in their response.”


Pricing Pressures


The price of cotton has been on a roller coaster ride this year, spiking to near 80 cents per
pound in midyear. Many spinners, after struggling mightily with the issue, were finally able to
pass some of those increased raw material costs along to customers. Since June, however, the price
of cotton has plummeted – all the way to 43 cents per pound in early December. As a result, many
customers are now looking for across-the-board cuts in yarn prices.


“There’s a lot of pressure on pricing right now,” said a specialty spinner, “because
everybody has become a cotton expert. It seems customers think yarn  prices should be
specifically congruent with raw material costs. It’s funny, though, that they didn’t see it that
way when prices were going in the other direction. We have not instituted rate cuts, but consider
each order individually.”


Supply Chain Integration


One spinner noted that business often is lost as a result of not keeping up with changes in
the supply chain. “US manufacturers are challenged in dealing with the constantly shifting supply
chain structure in the Western Hemisphere,” he said. “With all of the consolidations, plant
closures and relocation of plants to Central America, it’s difficult for US manufacturers to stay
involved in that supply chain. For example, if we are involved with a US garment manufacturer and
they make a decision to close US production and source in Central America, the customer may rely
upon the Central American vendor to do the full package, including sourcing the yarn.


“We want to be very much involved in that yarn sourcing, so we have to constantly watch the
market and make sure we integrate ourselves into our customer’s sourcing strategy.”

December 9, 2008