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Yarn Market

Financial Crisis Affects Spinners

Jim Phillips, Contributing Editor

T 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 worse."

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



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