MANUFACTURING: Clothiers Pick Up The Threads
Recent Western Cape Business News
AT last count around 25 factories in the Western Cape clothing and textile sector had closed their doors this year.
Recent reports have quoted both representatives of labour and business as saying that more factory closures are expected. And the strike – at the time of writing – across the clothing and textile sector is certainly not helping matters either – especially at a time when consumer demand has waned markedly.
The fragile industry has seen two huge blows to its psyche in the form of the proposed closing down of Cape Town’s SBH Cotton Mills (which was a significant supplier to Woolworths) and AECI owned Sans Fibres.
In the cases of SBH and Sans Fibres it would seem pretty much everything was done to ensure the operations achieved a vestige of viability against the unchecked flow of cheaper imports (mainly from the Far East and China).
SBH MD Walter Berndörfler told the Cape Times in August that the company had tried various programmes - including lean manufacturing practices, quality and efficiency projects in a unsuccessful bid to stem operational losses.
The fact that a corporate with clout like AECI could also not find sustainable levels of viability for Sans Fibres – a sizeable operation with a number of niches – also underlines the brittle trading conditions across the broader ‘rag’ trade.
Naturally, attention will now be focussed on endeavours of the last two large Cape Town clothing and textile operations – Seardel and House of Monatic – which are controlled respectively by empowerment giants Hosken Consolidated Investments (HCI) and Brimstone.
The news from Seardel in the nine months to end March 2009 was nothing short of scary. Turnover of R2.8 billion was turned into an operating loss of over R130 million. When interest charges and impairments are added in, Seardel’s bottom line loss bloated to R285 million. The only comfort here is that a chunk of Seardel’s costs could be considered once off in nature.
The textile division – which is seeing major shut-downs in the Frame group – notched up a R137 million loss from turnover of R1.8 billion, while the Seardel’s mainly Cape-based clothing manufacturing divisions recorded a shock R102 million loss from turnover of R1.3 billion.
What is worrying is that the clothing division – which holds Seardel’s best known brands – only slightly reduced its losses (from R105 million in the year to end June 2008) despite markedly reducing turnover from R1.7 billion in financial 2008.
HCI has, however, reported significant changes since taking control of Seardel – including at senior management level where Stuart Queen now holds the CEO rank.
There seems to be a determination to grasp the nettle – something that might have been lacking in Seardel’s previous executive management team.
Queen has gone on record saying: “Those (businesses) with little prospect of making sustainable profits will be restructured or closed.”
Testimony to a new no-frills approach is the re-location of the Seardel HQ from the edges of Constantia’s leafy office parks to a company plant in rough and ready Epping.
Perhaps more important is that Queen looks determined to eliminate low margin turnover by setting margin hurdle rates. This, almost without question, will see further right-sizing across the clothing and remaining textile operations.
Queen, though, cautions that the clothing and textile sector is characterised by long lead times – which means benefits of such initiatives will take time to materialise.
But Queen seems to be getting to grips with the business. In his commentary on the recent results he notes that increasing production flexibility to enable quicker turnaround times and shorter runs will require factory layouts to be redesigned and refining supply chain management practices.
Then there is the shift to move Seardel from a decentralised strategy to a more centralised approach, which will go hand-in-hand with efforts to unlock economies of scale through factory consolidations.
Already Seardel’s textile division has been realigned around product – resulting in Romatex Home Textiles, Desire Quilted Products and Frame Manchester now falling under a household textile cluster.
This has also entailed the company investing some R6 million in an automated duvet and pillow line, which should raise capacity by a hefty 65%.
Another R26 million was invested in the non-woven cluster, which included replacing ‘inefficient’ production lines in the Western Cape.
Local eyes will be keenly focussed, however, on the consolidation of the Cape-based Charmfit, Cygnet and Cape Underwear divisions into a “composite lingerie and swimwear division”.
Queen reckons this consolidation will allow the group to smooth out the production peaks and troughs due to seasonality (especially in swimwear), and enables Seardel to eliminate lower margin turnover (which was being used to fill the factories in low demand periods). The consolidated division has been renamed to the quaint Intimate Apparel SA.
CBN understands that plans are also in place to merge two other Cape Town-based operations – the Bonwit and Bibette ladies formal wear divisions.
Although much smaller than the sprawling Seardel group, it is also probably worth noting developments at 100-year-old House of Monatic (HoM) as well.
The Brimstone controlled clothing manufacturer showed some signs of encouragement in the period ending June this year with losses of R8 million significantly down on the previous year’s R33.4 million loss.
The stemmed losses were mainly due to the closure of Fifth Element, which was liquidated at the beginning of the year after Brimstone uncovered irregularities at the business.
The closure of HoM’s loss-making factory in Atlantis also helped. This factory alone accounted for over R3 million of HoM’s losses. Monatic Sportswear also incurred a R2.4 million loss.
It would not be surprising if Brimstone’s enthusiasm and determination to build a profitable clothing cluster wane following the setbacks at Fifth Element. But there have been no official indications that the group is ready to throw in the towel.
For HoM – going forward - much might depend on Brimstone using its influence over its fashion retailing investment in Rex Trueform, which holds nearly 50 Queenspark outlets.
If HoM can manufacture on order for Rex Trueform it may help to fill factory capacity and offer reliable lines of cash flow. Possibly a (much) weaker rand could also help HoM re-establish itself as a major export player – something at which the business excelled in the nineties.
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