Garment Makers Fading From L.A.

Blue-jean giant Bugle Boy Industries Inc.’s filing for Chapter 11 bankruptcy protection late last week sent ripples through the local apparel manufacturing industry, and those ripples are expected to spike higher in the months ahead. Rising energy costs are already squeezing dyers and fabric finishers who have seen natural gas bills increase sixfold in the past four months. Their only option is to pass their burgeoning energy costs on to apparel manufacturers, who are being pressured by retailers to keep costs down. How to do that in a state where the $6.25 hourly minimum wage is $1.10 higher than the federal minimum wage, labor laws are strict and environmental regulations are extremely tough, is a major question for clothing manufacturers. The answer for many, it appears, is to move out of state, transfer production overseas or close down completely. “I used to compete with a lot of better sportswear companies in Los Angeles, and I feel like the Lone Ranger out there right now,” said Lonnie Kane, president of Karen Kane Inc., a successful woman’s sportswear line started by Kane and his wife, Karen, in 1977. One of Kane’s main competitors was Carole Little, an upscale fashion house whose label could be found in just about every department store across the country. But late last year, Carole Little and its sister apparel company, Chorus Line, closed the doors at their Vernon headquarters. The two manufacturers, owned by CL Fashions, were forced into bankruptcy by vendors.

Attorney Steven Gubner, who is representing the unsecured creditors committee, said that CL Fashions owes $30 million to $40 million, or more, to hundreds of vendors. CL Fashions, which employed 300 people and had revenues in excess of $100 million last year, is expected to liquidate its assets and then license or sell off its labels to a major retailer or manufacturer, Gubner said. The company is scheduled to be in U.S. Bankruptcy Court in Los Angeles on Feb. 8 for a hearing on its financing stipulation. CL Fashion officials were not available for comment last week. Telephones at the company’s offices south of downtown Los Angeles went unanswered.

The demise of Carole Little and Chorus Line was a major blow to Southern California’s apparel industry. But so is the fall of Bugle Boy Industries, another major apparel icon whose annual sales at one time topped $500 million. William Mow, the Shanghai-born founder of the company, has been ousted and a crisis management manager has been put in at the request of Foothill Capital, a division of Wells Fargo Bank. Foothill is owed $80 million to $85 million, said attorney Mark Brutzkus, who represents eight Turkish manufacturers also owed millions of dollars. (Bugle Boy had much of its manufacturing done by Turkish and Indian contractors.) Bugle Boy is expected to liquidate its retail stores and sell its wholesale operations, Brutzkus said. However, the company could opt to sell its trademark and labels to a retailer or manufacturer.

Common path

This salvation tactic has been employed by several major Southern California apparel manufacturers that landed on hard times. Mossimo Inc., an upscale sportswear designer based in Orange County, recently avoided bankruptcy by striking a licensing arrangement with Target Stores that took effect this year. Target is now the exclusive retailer of Mossimo-branded sportswear. Mossimo, founded by Giannulli Mossimo, is guaranteed to rake in $28 million in royalties during the first three years of the deal. But it is a shell of its former self. Mossimo closed its two company-owned stores in California, reduced its workforce by 90 percent, and terminated production operations. The licensing deal was brokered by veteran apparel manufacturer Bob Margolis, chairman and chief executive of Cherokee Inc. He negotiated a similar arrangement for Cherokee, which was on the verge of extinction in 1995. But after Margolis came in and sold the company’s assets and inventories, he had only one asset left to leverage the Cherokee brand name.

Cherokee’s biggest contract is with Target Stores, which began selling Cherokee-brand women’s jeans and shoes, girls’ apparel and various accessories. It also has a licensing contract with Hudson’s Bay Co.’s Zellers division, which has about 350 stores in Canada. Cherokee’s new business strategy kept the company open but it meant hundreds of employees were shown the door. In the early 1990s, the Van Nuys-based sportswear manufacturer employed 700 people. Today, it employs 15, said Carol Gratzke, the company’s chief financial officer. Such dramatic restructuring moves have caused employment in L.A. County’s apparel industry to shrink steadily in the last few years. At its 10-year peak in 1997, approximately 111,900 people were employed by the garment industry here. Last year, that had dropped to 96,300, according to the Los Angeles County Economic Development Corp.

Companies flying south

And it will likely get worse, with big-name apparel manufacturers having a tougher time. Also, as trade barriers between Mexico and the U.S. continue to tumble, there is a bigger incentive for apparel manufacturers to move their operations out of Southern California. In 1999, the North American Free Trade Agreement, or NAFTA, removed all tariffs on garment and textile work moving between the U.S. and Mexico. With lower production costs south of the border, apparel manufacturers, ever vigilant to lower expenses, are rethinking their strategy. “Scratch any manufacturer and they will say they prefer to stay here. They don’t like doing business in Mexico. There is less infrastructure and less quality, but companies have no choice,” said Ilse Metchek, executive director of the California Fashion Association. “The labor laws here are too restrictive, and it’s only in California not in Texas or Florida.” California does have strict labor laws that result in garment manufacturers being regularly inspected to see if they are employing illegal immigrants. It also has higher workers’ compensation costs, stronger pollution regulations and occupational safety requirements. But the latest hurdle, and what for many companies could prove to be the final straw, is rising energy costs. Scott Edwards, vice president of Chris Stone & Associates/Pacific Fabric Finishing in Los Angeles, has seen his natural gas expenditures go from nearly $10,000 a month in December 1999 to almost $59,000 a month in December. He expects January’s bill to be even higher. “How do you pay that?” asked Edwards, who is president of the Association of Textile Dyers, Printers and Finishers of Southern California. Several of the association’s member companies have had to consolidate dying operations. In November, L.A. Dye and Print Works Inc., one of the largest dyers and printers in Southern California, shut down one of its two operations in Vernon. Many dyers and finishers are passing on their energy costs as “value-added costs” or “energy surcharges” to apparel manufacturers until the energy crisis is resolved. Even still, faced with mounting production costs, many of those manufacturers are wondering whether they can afford to stay in business here at all.