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Winds of Change

Van May

Van May

Undoubtedly the past year has been the most difficult and challenging that we have faced here at PCCA in a long, long time. We started with a huge acreage abandonment last season hurting our overall volume. Then, an unprecedented bear market dropped cotton prices by 30 cents per pound over a period of months making our pooling operation extremely difficult. Obviously, our changes to electronic marketing with the formation of The Seam have and are impacting that portion of our business as dramatically as anything since we started TELCOT in the mid 1970s. At the same time, the “Asian Flu” (detailed in another article) finally caught up with U.S. textiles and has wreaked havoc, the likes of which we have not seen before, on our domestic textile industry. Each of these considered separately would present a difficult challenge for us. Combined, they are forcing us into our first overall loss at PCCA in many, many years.

Of course, our Textile Division has suffered the worst brunt of it, as you would expect. Weakness in the Asian currencies since 1997 has allowed those textile and apparel companies to offer products in this country at prices so low that it has fundamentally changed the buying pattern of many U.S. retailers and garment people. They simply source more garments from Asia than ever before.

As I explained in the spring issue of Commentator, this has created a most difficult environment for the U.S. textile industry. It is one that many long-standing, strong textile companies in the U.S. have been unable and unwilling to weather.

Since I wrote that article several months ago, things have not gotten better; they have gotten worse. Now, the U.S. economy and consequently much of the world economy has begun to slow down, and demand at retail has been softening which exacerbates an already difficult situation. We are certainly feeling it in PCCA’s Textile Division. Instead of talking about how to allocate our profits, which we are more accustomed to, we are talking about how to handle our losses (see related story). The changes that we are making at Mission Valley help posture us for the time when the winds of fortune change. By expanding our denim capacity in converting that plant, we will be in great shape to take advantage of the market when it turns. I just can’t tell you when that is going to be.

I am so thankful to you, our members, and particularly our Board of Directors, for allowing us to build up enough financial strength in the good times to be able to weather the storm in the bad times. We do not have to face what most in U.S. textiles are currently facing in terms of restructuring. Though the changes we are making are painful and dramatic, they are certainly not life threatening to us. In fact, based on the best information that I have been able to assimilate, we are one of the two strongest remaining U.S. suppliers of denim from a financial standpoint. Thank you for allowing us to “lay by” financial strength for days such as this. I think that is going to ultimately pay big dividends to you going forward as the industry shakeout continues.

All of that being said, we will not begin feeling significant relief for several months. The denim business for the current quarter is as bad as it has been in a while. Consequently, our decision to put on more denim capacity through our changes to Mission Valley will not make us any money yet. Idle capacity costs money; it doesn’t make money.

Nonetheless, over time we will see the fruits of the painful moves that we are now making. We are fortunate to have the staying power to survive until that day arrives. Many of our friends in the business are not faring as well.

As you all know so well, I love to be the bearer of good news and am not really used to continually reminding you of the difficult circumstances that we all face. I am anxious to get back in the good news mode. I continue to believe that the current “winds of change” that we are all experiencing can ultimately make us healthier in the long term. Getting there is the challenge.

Van May