L.A. Apparel Makers Hang by a Thread : Manufacturing: Big retailers’ woes are spreading to local garment makers, who are cutting production and laying off workers. Small contractors are hardest hit.
The ills afflicting the nation’s major retailers are also hitting the Los Angeles apparel industry hard, throwing many workers out of their jobs and apparently putting some manufacturers and contractors in jeopardy.
“It’s a very shaky situation,” said Menachem Treivush, head of a Los Angeles firm that produces apparel under the Ton Sur Ton and Bonney Strauss labels.
From 1985 to 1987, apparel and textile production boomed in Los Angeles County, and the industry cemented its position as the area’s No. 2 manufacturing employer. But now, jobs are being lost even as Los Angeles emerges as a fashion design center.
The latest figures show that the county’s apparel and textile manufacturing employment in October totaled 87,600. That number has crept up somewhat from the annual summer doldrums, but it is down 2,200 from October, 1988, and off 6,100 from October, 1987. Nationally, the job total has fallen a gradual 8% over the past five years.
Some analysts say the local employment figure has declined partly because of the movement of more apparel workers into underground sweatshops where, unreported to government authorities, illegal immigrants and other employees are paid exploitatively low wages.
But industry observers said there also has been a downturn recently in Los Angeles’ apparel industry because of the financial struggles of Campeau Corp. and other major retailers, along with rising imports and expectations of slowing sales to consumers.
Those developments have dealt another blow to a local industry that, analysts say, was stung earlier by the loss of many apparel workers because of the nation’s immigration reform law and the increase in California’s minimum wage.
Probably those hardest hit have been the hundreds of small contractors, typically employing no more than 50 or 60 people, that are the backbone of the apparel industry. Joseph Rodriguez, executive director of the Garment Contractors Assn. of Southern California, said “dozens” of firms in his association have laid off, or shortened the work weeks of, employees who sew or cut fabric.
“Some (contractors) are even considering selling,” Rodriguez said. “They’re scrambling around. Business is not good in the contracting world.”
The list of victims also includes the likes of Jody Apparel, a dress manufacturer that is scheduled to close in January after 27 years in business. As recently as two years ago, it reported annual sales of $50 million and 250 employees.
Roger Miller, the Southern California regional manager for the California Division of Labor Standards, said the downturn has sparked more complaints to his agency. For example, Miller said, there has been a big rise in the past few months in the number of apparel-sewing contractors alleging that they are not being paid by their customers, the so-called manufacturing firms that actually design and market clothing.
Other contractors, Miller said, complain that they are being put under extra pressure to hold down costs. “It’s leaving a lot of contractors in a bind,” he said.
Miller said his office also was contacted this month by two groups, each consisting of about 20 to 30 apparel workers, who claimed that they had not been paid by their employers for two or three weeks.
The most recent tremor to shake the local apparel industry has been the decision by a growing number of credit companies, known as factors, to stop approving garment makers’ shipments to Bloomingdale’s and other department stores owned by Toronto-based Campeau. Over the past week, the nation’s two biggest factors--CIT Group/Factoring and Heller Financial--have halted credit for new orders to the far-flung Campeau chains.
The factors, which collect payments for apparel makers and absorb the losses when bills are not paid, have acted out of fear that the Campeau stores are going broke. Campeau, wobbling under $10.9 billion in long-term debt mainly from takeovers, disclosed last week that its department store operations--Federated Department Stores and Allied Stores--might seek Chapter 11 bankruptcy court protection by the end of next month to work out their problems.
Many apparel manufacturers, consequently, are withholding merchandise and cutting production rather than bear the risk of shipping goods without protection from their factors.
“All the mergers that took place, we’re paying for today,” said Dina Bar-El, co-owner of Hi-Tech Fashions, a women’s sportswear maker that over the past year has cut its staff from 38 to 25 people.
Added Corky Newman, president of corporate marketing and licensing for Sunland-based Cherokee Group: “The factor allows us to ship X amount, and that’s what we ship. We’re a highly profitable company, and we’re a highly disciplined company.
“There are certain risks you take in business every day. There are other risks that, percentage-wise, never pay off,” Newman said. “And when it’s in the papers that a company is talking about bankruptcy, we’ll listen to the factors.
“What today’s business environment proves,” Newman said, “is if you’re not prudent, you won’t be in business long.”
Other firms, however, don’t have as much flexibility because they are stuck with merchandise that still needs to be sold.
Without approval from the factors, “you either ship at your own risk, or you don’t ship it. And if you don’t ship it, you still have $300,000 of merchandise to unload,” said Eletra Casadei, owner and designer for the Casadei Group women’s wear firm.
“Either way, you’re going to lose money on the deal.”
Casadei said her firm so far has been able to avoid layoffs by shifting more of its sales to specialty shops to offset the business lost with Campeau stores. But she also is continuing to make some shipments to Campeau stores.
Los Angeles’ biggest apparel maker, jeans maker Guess? Inc., said that about 15% of its $300 million in annual sales is with Campeau stores. For about three months, the company has financed that business itself, without the help of a factor.
But Maurice Marciano, president of Guess?, estimated that his firm would halt about one-third of its sales to Campeau if Federated and Allied file for Chapter 11 bankruptcy protection and come under the control of a bankruptcy judge. “I don’t think you’ll find one company doing business with Campeau whose business is not affected,” Marciano said.
For Guess?, the Campeau problems have been a “significant” setback that ultimately could lead to the layoff of a small number of the company’s roughly 1,000 employees. But things could be worse. “A lot of small firms,” Marciano said, “are not going to survive this crisis” because of their limited finances. Small firms also are being hurt by the growing tendency of retailers to buy from big manufacturers.
The future for some apparel makers could be determined at the annual market week scheduled for the second week of January in New York, where retailers meet with manufacturers to order new merchandise.
“If you’re hanging on by your fingernails, you still make it to New York in January,” said Gary Freedman, a Beverly Hills lawyer who represents a number of apparel makers.
“If there’s going to be a big shakeout--which people are predicting--it’ll happen after market week,” when firms return home without orders, he said.
