THE GOOD the Bad & the Under performers

taken as a whole, home textiles manufacturers had a fairly good 1999. Total sales were up about 4 percent, and the $20-billion bed and bath sector is expected to sail through 2000 at the same level -- as long as the economy remains steady and consumers continue to have a carefree attitude toward purchases. However, at the company level, healthy performance was not spread evenly across the board.

In manufacturing, for example, there were winners and losers last year -- no question. And as the makers jockeyed for position, some weren't agile enough to gauge trends or capable of executing the strategies necessary to enjoy the fruits of a healthy market in an industry in which 60 percent of the retail volume is in the hands of Wal-Mart, JCPenney, Kmart, Target and Sears.

The picture was rosier on the retail front. According to the Soft Goods [Outlook.sup.SM] -- 2000, an annual publication from Kurt Salmon Associates (KSA), new decorative textiles and top-of-the-bed products, the availability of new designer names in the bed and bath market and the success of retail brands such as Martha Stewart all have helped to stimulate interest -- and purchases -- in the market.

Also emphasizing the importance of emerging brands, another report from Banc of America Securities notes that in 1998 -- after only two years in retail and distributed in only one of the three mass merchants (Kmart) -- the Martha Stewart brand captured a 16.4 percent share of the entire mass merchant bed and bath category. In 1999, sales of Martha Stewart's "Everyday" products, including bed and bath, passed the $1 billion mark.

Commenting on the trends, KSA principal Mac Ryland states: "From the consumer side, the market for home textiles is very healthy. And we anticipate that it will continue to be extremely good at the retail level. [However, retail] does continue to consolidate, and there is still some significant restructuring taking place at the manufacturing level. Certain players are doing very well, and others are having difficulties."

The continued roiling contributed to the subtext of what is occurring to public companies in the entire textile business: a bearish stock market evaluation. In other words, no matter how successful public textile companies were last year, the stock market didn't reflect that confidence. As one analyst puts it: "We have two extremes in shareholders' minds: dot-coin stocks represent the future; textiles and apparel stocks represent the past."

The Winners

Consequently, even a winner such as WestPoint Stevens, which the industry has applauded for its recent performance -- with sales at an all-time high -- is trading at sub-market multiples. One industry watcher reports that the firm's management team became so frustrated by the suffering stock value that it retained Merrill Lynch to analyze strategic and financial alternatives. (At press time, WestPoint executives weren't available for comment.)

Clearly, another victor in the market is Dan River, which has been very successful in rebuilding its sheet business. Overall, the company has been performing exceptionally under the direction of Joe Lanier, who bought it five years ago.

Thomas Muscalino, president of Dan River's Home Fashion Division, emphasizes that 1999 was "an interesting year" for the organization. During the period, it rationalized the facilities of The Bibb Co., which it acquired at the end of '98, and at the same time implemented a "far-reaching, total-enterprise-management SAP system that has been very successful."

With the system, all information is available in real time to all functional areas, whereas the company's predecessor system, an AS/400, ran primarily from a report base. Muscalino adds: "There is a huge amount of value [in terms of information] that we will be extracting. ... That's the task ahead of us for the next 12 to 24 months. You have to keep reinvesting in your businesses, and we think technology is the next horizon for competitive advantage."

Looking at the industry, Muscalino offers some insightful observations: "In the textile world, there is very little growth on the consumption side in the U.S., and you can't really export very much. You [also] have excess capacity, plus imports are coming in at a growing rate. When you put that together, you have a situation where -- unless you are running your business at an extraordinarily high level of expertise -- it's really hard to make money. ... Any way you want to look at it, we're still under a deflationary price scenario."

If the division president had to pick the outstanding performer in his line, it would be "bed-in-a-hag" ensembles, which continue to be an explosive category for the textile giant. Dan River also has had success with a stable of children's bed licenses acquired through the purchase of Bibb, including such names as Barbie, Tweety Bird and Batman. And there's an emerging business based on kids' game shows through a deal with Nickelodeon, plus a large sports market through licenses for Major League Baseball, the National Football League and World Wrestling.

Although Dan River is now a market leader in the children's niche, and Muscalino believes there is tremendous growth potential in the sector for iconic names, he isn't so sure that these licenses are the be-all for adult textile products. For example, on the designer side, Dan River's Alexander Julian brand continues to grow. There also are profitable Jessica McClintock products and a recently signed deal with Di Lewis.

However, Dan River dropped Nautica. And Muscalino asserts that while U.S. consumers are "brand conscious," they aren't "brand dependent." He amplifies: "My belief was that Nautica was going to be able to provide design that would speak to the customer in a way that no one else would. So we were very aggressive with it, and it was sold in a lot of places. But ultimately the consumer voted 'no.' And it wasn't an issue of quality or price point: They just didn't react to the design. This confirms to me that people expect great design, great quality and great pricing. If you have that, you win. If you don't have any one of these things, you fail."

One company that is hearing a resounding "yes" to its products is Pacific Coast Feather Co., which saw increases of 40 percent and 30 percent in 1998 and 1999, respectively. The privately held firm, which is one of the largest suppliers of natural bedding in North America, is receiving excellent response to offerings including its "Four Star" down comforters and pillows.

This type of success is hard earned in today's market, says Tim Clothier, vice president, who points out that conditions were less-than-favorable for many companies in 1999. As he sums up the general situation: "The industry is in turmoil."

Troubled Waters

Among those home textiles firms that didn't fare well last year is Pillowtex Corp., which acquired Fieldcrest Cannon Inc. -- a company twice its size -- in December 1997 for an estimated $700 million. (See "Retailers Duel for Consumer Dollars," Bobbin, January 1999.) With Fieldcrest Cannon's famous towel brands in its possession (Royal Velvet upstairs and Cannon at discount), Pillowtex expected to give WestPoint a run for the money. But performance was a disappointment, according to several analysts.

Muses one who tracks the business closely: "Pillowtex is having some pretty severe financial difficulties. Blame it on one thing and another, but sales are off and profits went way down. Chuck Hansen [chairman and CEO], who has been with Pillowtex for many years, knows a lot about running an 'apparel' type of operation, which is what the company really was. It was making mattress pads and some bedding accessories, but didn't really understand the intricacies of a huge capital asset business like the textile business, especially in sheet and towel weaving, and dyeing and finishing. [I think] they underestimated the horsepower that was required to drive it."

In another analyst's opinion, when Hansen bought Fieldcrest, he should have sold the towel weaving operations to Springs Industries, cherry picked the sheet weaving to supply Pillowtex's accessory operation and then closed the rest. "That would have made it much healthier because there's an overcapacity of sheet weaving." (Pillowtex did not return Bobbin's calls.)

One official who is up front and available is Neil Hightower, CEO of Thomaston Mills Inc., which also has seen less-than-sparkling performance recently. The 100-year-old firm had a lot of assets focused on the manufacture of throws, which were hot as a firecracker for several years, then completely sunk, taking the throw makers down with them. Plus, Thomaston invested a lot of money three or four years ago to increase its denim capacity but didn't account for a changing market.

Having said that, the analysts give the company high marks for serving the home textiles side of the business, upgrading its sheet line, building a new comforter facility, having good distribution, upgrading its systems and bringing in seasoned talent, such as Bob Dale, who was president of Fieldcrest Cannon, to head up marketing.

Hightower accepts both the criticism and the praise graciously. He says: "The comments are mostly on target. We added about 20 percent to our denim capacity, then made the decision to exit the business because we didn't view it long-term as a good investment. We have a very modern home textiles operation with spinning and weaving, and a brand-new, highly automated, comforter sewing facility. And we are doing a lot in the area of supply chain management.

"Our goal is to be 100 percent on time and to concentrate on customer service," he continues. "What we're doing is honing down the businesses that have a future."

Acknowledging that "1999 wasn't great," Hightower labels the year "a period of change, refocusing and rebuilding." Looking ahead in 2000, the CEO sees both the apparel business, which accounts for one-third of the mill's activity, and the consumer products business increasing in the second half of the fiscal year, which is January through June. He adds, "We still have a way to go, but we're in the rebuilding phase."

Crown Crafts Inc., another poor performer last year, had a 27 percent decline in throws in the second quarter, according to its report for the fiscal 2000 second quarter and first half, which ended Sept. 26, 1999. The statement, however, which was issued in November 1999, places part of the blame on the installation and implementation of an enterprise resource planning (ERP) system in its Woven Division, which went on-line at the beginning of the fiscal 2000 second quarter. Crown Crafts estimates that approximately $10 million in sales were lost during the quarter as a result of the system's negative impact on shipping logistics. Moreover, expenses associated with the system compounded the situation.

In a November press announcement, Michael H. Bernstein, president and CEO, stated, "It is important to note that the setback we experienced during the quarter was driven not by a decline in overall demand, which remains strong, but rather by an information system project to improve our operational efficiency in the future. Woven Division shipping rates have steadily improved, but the new system still will not let us match prior-year shipping rates."

To bolster its position, Crown Crafts improved capacity utilization and enhanced efficiency by bringing outsourced items into its Roxboro, NC, facility. It also has made progress in its ongoing inventory-reduction efforts. As Bernstein also announced: "While we expect the current period to be a transition quarter, we anticipate realizing positive results from our efforts by the end of the second half."

Other suppliers to the home market also are optimistic that there is a light at the end of the supply chain tunnel. The consumers are buying, and those companies turning the tide on market turmoil are anticipating a healthy year overall.

Jules Abend is a Bobbin contributing editor and editor in chief of Clarion Inc., a Howell, NJ-based international news gathering organization.

MARKET UP PRICING DOWN

Revman's Roman Talks Business

Despite the generally positive outlook for home fashions in 2000, Rich Roman, president and CEO of Revman Industries, emphasizes: "Profitability is an elusive thing. No one seems to be making money, even though the economy is good the stock market is up home sales are good an retail sales in general are OK."

Roman hangs the profit problem on pricing, saying: "Pressure continues to be put on pricing, which continues to go down. That lowers everybody's opportunity to make more money."

Another problem that he sees is the continuing consolidation among retailers: "We lost five in 1999, including Eaton's in Canada and Boston Bed & Bath in Boston. It's hard to replace customers like that."

But don't get him wrong. Roman's zest is still evident. He says customers are responding to designer brands. "They know and trust these brands that fit a certain lifestyle, and as a manufacturing/marketing company you're able to get somewhat of a premium. Tommy Hilfiger is doing great, and while Laura Ashley has been flat this year, it's still a big business and new management is turning the company around. In an [industry brand name] recognition survey, Ashley was [ranked] number one and Hilfiger number seven," he reports. "So I'm very optimistic."

on-line.exclusive

Finishing Touches

Performance characteristics are becoming more important in home textiles, and major chemical companies are responding with new finishes, treatments and fibers that offer stain resistant, antimicrobial, allergen-reducing and easy-care properties. Here's a sampling of new developments featured in an exclusive on-line article this month at www.bobbin.com.

* DuPont's new Teflon Hydrophilic finish combines stain release and moisture transport properties.

* American Textile Co. expands its Aller-Ease line of allergen barrier products.

* Microban Products Co., which recently merged with Microban International Ltd., offers new antimicrobial products for sheets and towels.

COPYRIGHT 2000 Miller Freeman, Inc.
COPYRIGHT 2000 Gale Group