A bit of my past dies this week as Pillowtex (Ticker: PWTX.PK) enters into Chapter 11 bankruptcy for the second time in as many years. A private group in line to buy most of the company's assets plans to sell them in turn to other buyers, threatening more than 7,000 jobs nationwide, including 4,800 in North Carolina alone.
Pillowtex is the successor to Cannon Mills, where my grandfather worked his entire career. The first stock that I ever owned was Cannon Mills (long since sold), and now it's gone. Pillowtex brands, including Cannon Mills and Fieldcrest, could conceivably survive, but in decidedly stripped-down form. While this is a sad circumstance, Pillowtex was neither the canary in the coalmine nor the last man standing in the American textile industry. It is but another casualty in a dying industry.
So while Chief Executive Michael Gannaway chokes hard and takes the blame for the collapse of the 116-year-old Pillowtex, his efforts to keep the company going using American manufacturing were ultimately in vain. The reality is that Pillowtex, like many of its brethren, could not earn enough to cover the expense of keeping its American mills open, for the simple reason that the price points where consumers demand their products are too low for these companies to retain their operations in the United States.
They cannot compete with foreign mills, where expenses are substantially less, and no amount of protectionist legislation can change this. The market has spoken, and it is a ruthless arbiter. So while the regional representative for UNITE is willing to blame Washington for "undercut[ting] their industry, the standards on their job, and their capacity to compete in the global market," the reality is that U.S. textile businesses have been allowed to compete and have failed miserably.
In the past few years several similar textile companies took the same walk down to bankruptcy court, Westpoint Stevens (OTC: WSPTE), Fruit of the Loom, Burlington Industries (OTC: BRLG), and Malden Mills among them. Others with substantial textile facilities in the U.S., including Cone Mills
My vote is for "never, unless." The American textile industry is in decline because it is an economically unsustainable business when dependent upon high-cost American labor. The level of demand at prices that would sustain these businesses no longer exists. Until the time that these companies make the tough decisions to transform themselves into models that are more responsive to the realities of global economics, they will largely continue to wither away, destroying invested capital as they go.
Cheap companies often have valid reasons for being so. Pillowtex's attempt to keep its manufacturing in the U.S. came at the price of every penny of shareholders' money. Companies with deep economic flaws such as these simply need to be avoided.