Financial Crisis Affects Spinners

he dwindling number of US spinners has had to learn on-the-fly about competition in a
global market and the provision of superior customer service and delivery to offset basic pricing
inequities with manufacturers in developing and subsisted economies.

Those either unwilling or unable to attempt a transformation have fallen by the wayside –
and that accounts for the majority of US spinning operations over the last quarter century.

But those that diligently sought new markets, new points of differentiation, and new
products – and who steadfastly sought to deliver enhanced value to their customers – found a niche.
They reduced spindles, increased automation and productivity, and developed specialized and
environmentally friendly products. They discovered the meaning of the word “service,” and applied
the definition attentively in their day-to-day interactions with customers. In short, they
survived, albeit in a different fashion than was the traditional industry standard.

After weathering one storm after another, overcoming improbable odds and constantly
reinventing themselves to meet the expectations of a constantly changing customer base, US yarn
spinners – especially the smaller ones – are at a crisis point again, this time as a result of a
faltering global financial industry.

Consider the case of a small North Carolina spinner that had done everything “by the book.”
The company specialized in environmentally friendly products, catered to a diverse array of
customers, ranging from apparel to automotive to high-tech industry, and generally enjoyed a solid
service reputation among its customers. 

Yet, in late September, employees came to work for what they thought was another routine day
only to find the company was shutting down immediately.

“The company just ran out of money,” said one former employee. “We came to work and were
told it was over, that there was no money and no opportunity to get any.”

Lack Of Sources For Capital

Textile manufacturers have long been among the high-risk industries that often have had to
look beyond traditional banking for sources of capital to either expand or get through lean times.
But the global banking crisis has suddenly put a stop to the trickle of credit available to all but
the largest yarn spinners.

“It’s going to get worse for a lot of traditional industry before it gets better,” a
financial analyst told

Textile World
. “Regardless of how or whether the $700-billion bailout bill works, the flow of credit to
mid-to-high-risk companies is likely to significantly diminish. This doesn’t just apply to
manufacturers, but to their customers as well. Smaller retailers, for example, that depend upon
short-term credit to increase merchandise stocks for the holidays may have a difficult time
financing those purchases. That affects their ability to place orders and precipitates a decline in
business at a time when most companies were anticipating an increase. That, in turn, increases the
likelihood of job losses, which, along with tightening credit standards, serves to decrease
consumer spending. It is a vicious circle, and one that has the potential to have a lasting effect
on small and marginal businesses.”

“Many textile companies that have tried to meet their capital requirements through
traditional banking circles have had difficulty for quite some time,” said one well-placed industry
executive. Asset-based lenders have been the answer for many smaller companies that have performed
well, make good on their promises and generate cash flow. But these sources are likely to dry up
for a while now, as well. Asset-based lenders tend to look for security – and the value of the
equipment we have in place is steadily decreasing. If you are in this industry and need money,
there are no easy answers right now.”

Said one industry observer: “The next 60 to 90 days are going to be critical. The only thing
we can do for now is to wait and see how this all shakes out. It’s certainly possible that a
meltdown can be averted at the 11th hour. But it is also possible things will get worse – much

Stay tuned to Yarn Market and

Textile World
for continuing updates on the impact of the global financial crisis on yarn spinners and the
textile industry as a whole.

October 2008