2009: A Year To Remember Or A Year To Forget?

pinners began the year with official confirmation of what they had known for months —
that the US economy was in recession and had been since December 2007. Bad enough news on its own,
the near collapse of the global financial services industry added insult to injury and had many
spinners wondering if this was, indeed, the year in which the United States would cease to be a
viable player in the global yarn market.

Signs of serious trouble emerged when orders for the 2008 holiday season did not materialize
as expected. As one spinner noted at the time, “The signs of a recession appeared for us when we
didn’t get the spike in sales we would normally expect for the holiday season. Retailers stopped
replenishing inventory, and they aren’t buying anything now if they absolutely don’t have to. We
had hoped to see a little bit of a surge early in the year as stores restocked. But it hasn’t

Throughout 2008, the industry noted the passing of smaller, previously robust companies,
including Spectrum Yarns, Burke Mills and Grover Industries. Then, in January, a bombshell: R.L.
Stowe announced it would end more than 100 years of continuous operation in March. Orders for
others continued to spiral downward, often precipitously. Spikes here and there sent waves of
optimism, but, for the most part, the first half of the year finished well below projections. 

Business was conducted literally on a day-to-day basis by a number of spinners. Order
pipelines that had stretched from six weeks to a year fell to only days for some. Those orders that
did materialize were usually very short and required aggressive turnaround times.

Further complications arose as a global credit crisis meant that many companies, particularly
those in Central and South America, could no longer secure financing for their orders. And several
US spinners suffered several months of severe cash flow issues as a result of carrying the debt of
their customers. It was, as one spinner said, a no-win scenario for all involved.

Yet, despite the overall gloomy outlook, some companies continued to thrive. In April,
Tuscarora Yarns, Inc., and CloverTex LLC, both successful specialty spinners, brought their
complementary offerings together to create a single spinner with a broader, more diverse product

Looking back, the Tuscarora/CloverTex merger was one of the few bright spots of the year.
Another, perhaps, could be summed up by this observation from a major spinner: “It has been worse
than we expected, but not as bad as we feared.”

In fact, it looked for some time like the deepest US recession in 75 years might plunge the
world into a global depression. But after the declines of the first quarter, many spinners found
business stabilizing mid-year. Cotton prices, which had plummeted from their 2008 highs, began to
inch back up as spinners began buying in anticipation of recovery.

Business Picks Up,

And Spinners Wonder “What If?”

The combination of increased consumer confidence and fewer spindles available saw many
spinners ramping up production in June and encountering significant backlogs for the first time all
year. Companies that were running with two-week order pipelines in March found themselves with six,
eight or more weeks of business on the books. Some spinners, having downsized to remain
competitive, even found themselves in the position of having to turn down business.

And suddenly, for the first time in a long time, spinners started wondering if enough
production capacity was in place to handle the business that could come their way.

As is often the case with innovative companies in demanding markets, many of America’s most
successful spinners had reinvented themselves in the wake of intense competition from low-wage
counties. With reduced capacity, streamlined operations, innovative product development and
quick-response capability, these spinners tailored their offerings to serve domestic and Central
American markets with quality, value and turnaround that foreign competitors could not match.

But, with a weakened US dollar and numerous quality issues arising from some foreign
suppliers, domestic spinners found themselves operating flat-out by year’s end — and with some
concerns about how they might handle additional business increases.

One spinner observed: “We’ve seen so much constriction in spinning, that if business returns
to three-quarters of what it was in 2008, there won’t be enough yarn, particularly in ring. You’ve
got R.L. Stowe gone, Ramtex gone and others that have shut down some capacity. That’s a lot of
spinning gone. If business comes back, we’re going to be under some real pressure. Prices are going
to go up, customers are going to have to wait on some deliveries, and relationships are going to be
more important than they ever have been.”

In the darkest hours of the first quarter, few spinners would have projected that business
would be so robust by year’s end. For a few companies, 2009 was the end of the line and, as such,
was a year to forget.

But for others, it will be the year in which disaster was averted and prosperity restored.
That makes it one definitely to remember.

In January, Yarn Market will take a look ahead at what to expect for 2010.

December 2009