Apparel Sourcing Intelligence - Worldwide

Fruit of the Loom Kentucky closure shows limits to benefits from new investment

When a company that’s part of a campaign called “Stop Exporting American Jobs” exports 600 of precisely the jobs the campaign says America needs desperately, it’s tempting to point out the hypocrisy. We can’t avoid the temptation in the case of Fruit of the Loom’s moving its Kentucky knitting operation to Honduras – but there are bigger lessons.

Less than a month elapsed after America’s National Organisation of Textile Organisations (NCTO) boasted on March 5 about a “massive investment surge and the creation of 1,900 much-needed manufacturing jobs” in American textile-making before Fruit of the Loom (FOL)  wiped out a third of those “much needed jobs” in just one April 3 announcement it was closing its Jamestown, Kentucky knitting plant.

Though FOL still appears a member of the NCTO-sponsored Stop Exporting American Jobs lobby group, the 600 “much-needed American” jobs in Kentucky will move to Honduras, where FOL will knit US-spun yarn into fabric for most of the garments it sells in the US.

Now FOL’s the only recognisable consumer brand among the hundred or so yarn-industry “Stop Exporting…” members, and with arch-rival Gildan, is the only significant garment maker. Both own US yarn spinners, and are among the very few significant garment importers anywhere these days to own an integrated yarn-to-final product supply chain. Owning spinning mills, they understandably want to maintain America’s “yarn forward” rule, which limits import duty concessions in trade agreements to garments made from yarn spun in the US.

Both, unusually, also own production facilities outside the Americas for their garment sales elsewhere – though VF and Hanesbrands are among the handful of other major US garment suppliers owning substantial production facilities.

Now FOL has two major preoccupations:

–          15 years ago, FOL had 45% of the US market for basic underwear, while Gildan had 9.5%. In 2012, Gildan’s share had soared to 65%, while FOL’s had fallen to around 20%, mainly because Gildan had engineered a more cost-effective supply system, knitting US-spun yarn, and sewing it into garments, in Central America. FOL is understandably fixated on matching Gildan’s efficiencies

–          Like Gildan, FOL has substantial investments tied up in US spinning mills, and needs to get adequate returns from them.

FOL’s not committed to owning its production facilities through patriotism or nineteenth-century thinking: it’s spent the past 15 years getting trounced in its key market by another North American business that owns its own production facilities – including a US-based yarn spinner.

FOL’s not really interested in stopping the export of American jobs either:  “Stop Exporting…”  is just an emotive title for a group of businesses (like FOL) who own US yarn spinning plants and wants US import duty concessions to depend on using US-spun yarn. This puts FOL and Gildan at odds with most other North American apparel importers, who campaign constantly against this protection for spinning plants: indeed most propaganda from US trade associations actually implies that all garment importers want to see the protection withdrawn.

In fact, FOL’s involvement with “Stop Exporting…” is just an enjoyable (to the rest of us) embarrassment in an episode with one far more crucial moral.

The forthcoming investment programme in the American textile industry is all about one central competitive advantage America seems likely to have: in the cost of energy and land for spinning mills. The programme creates few jobs directly: those 1,700 jobs the NCTO boats of require $700 mn of investment, or $411,000 per job.

And, on the evidence of FOL’s decision, the programme is unlikely to lead to many in other parts of the “dirt to shirt” garment production cycle.