Background to retrenchment in N.Z. textile industry

Press, 24 September 1980, Page 21

Background to retrenchment in N.Z. textile industry

By

GLENN HASZARD

In the last few months the textile industry has been in the news probably more than any other single industry.

Much of the news has been bad, with announcements by a number of companies of redundancies. The industry has been cutting back, retrenching, or rationalising. Firms such as Mosgiel have disappeared after a century or more of service to the country. There is talk about worse to come. What has caused this retrenchment? What are the facts behind the jargon that is bandied about by the industry and union leaders? Is the retrenchment due to Government policy on restructuring? Or are "there other factors involved? A close look at the statistics on employment, production, consumer spending, and trade shows that no one factor can be singled out. Several have

contributed to the prob- 1 lems the industry has faced and which have led to retrenchment.

The industry was comparatively “normal” until New Zealand started to feel the effects of economic recession from about 1974, when oil prices rocketed and led to a world-wide shock wave of price rises. Imported goods cost more, wages

rose, the Government cut back on spending, inefficient businesses dropped out, people lost their jobs, there was less spending power, and people began to change their buying priorities. The textile industry suffered as people began to. spend less on clothing, and on such commodities as new carpets, drapes, linen, and other .textile

items. The clothing and footwear industry’s share of the consumer dollar fell from about 13 per cent in 1965 to about 6.5 per cent in 1976.

Mr John Penney, the immediate past-president of the Textile and Garment Manufacturers Federation, attributes the decline in discretionary spending on apparel, to changes in life-style.

“An informal mode of dress has crept into our social life. How many young men would think of buying a tailored suit these days?” he asks. Mr Penney also notes the change in women’s buying patterns because of the changes in society, They are now dressing much simpler, for example, in the lingerie and underwear garments.

Apparel, too, is competing for the consumer dollar with an ever-increasing array of entertainment and new gadgets or appliances. Consumers have also resisted price increases of new clothes. Some have reacted by making do with clothes “just a wee bit longer” instead of tossing them out after a season of wear. Others have turned more to second-hand clothes to find value for money. The result of . these trends was that retailers’ stocks built up to the extent that they had to cut back on orders from manufacturers , . , and manufacturers, in turn, had to cut production. The table on production accompanying this article shows there has been a drop in production in all but three- categories — skirts, dresses, and blouses, The downturn has been as much as 35 per cent for blankets and .73 per cent for jeans. There is probably a direct link between the

drop in production of jeans and the big increases in production of dresses, skirts, and blouses, as the fashion industry moved away from jeans and into the bright-ly-coloured dresses and skirts of the last two seasons. So two inter-related factors —- economic downturn and retail sales fall-, off due to changes in consumer habits — go some way towards explaining the textile industry’s problems. But other factors have been at work. Employment in the industry held fairly well between 1973 and 1975, in spite of the country’s move into a more recessionary climate. During the period 1972 to 1975 the employment level in the industry was stable at about 43,000. Figures from the Statistics Department’s Monthly Abstract of Statistics show that employment

then actually grew by 3000 between 1975 and 1976. Again, between 1976 and 1977 it grew by another 2500 to a peak of 49,400. Then came the crash — to 40,600 in 1978, Mr Penney says that the growth in employment from 1975 to 1977 was largely due to a miniboom in exports to Australia. Encouraged by the

National Government’s string of incentives as part of its policy of e x p o r t-led economic growth, firms moved rapidly into the export field. Australian manufacturers became alarmed, pressure went on the Australian Government, and the result was that Australia enforced its quotas, restricting the amount of textiles New Zealand firms could land in Australia. One of the most controversial aspects of the whole debate is the merits of protectionism and the effect of imports on the industry’s viability. The Industries Development Commission, chaired by Mr A. E. Tarrant, says in its report on

the industry published in August, 1979, that the $290 million worth of clothing made in New Zealand could probably be imported from Asia for about $l3O million less than it costs to make. The Commission says that the savings would amount to $6BOO per person engaged in the industry. The report also says that over the last 40 years only about two per cent of apparel has been imported in each year. In the nine months to the end of March this year New Zealand imported only $12.6 million worth of made-up clothes, compared with $22.6 million worth of

exports. However, Mr Penney says that “a collosal amount of imports” have not yet reached the stat? istics, and that under the Government’s policy imports will be allowed to comprise 10 per cent of the market by value over the next two years. In terms of volume, the industry fears imports could comprise 30 per cent of the market. Traditionally, the biggest supplier of apparel to New Zealand has been the United Kingdom, which had 27' per cent of the share of the market in 1975 and 21 per cent in 1978, compared with the next largest supplier, Hong Kong, 17 per cent in 1975 and 13 per cent in 1978. Now there has been a dramatic change. It appears from the latest figures that Australia has taken over as the largest exporter to New Zealand of apparel. It had 10 per cent of the market share in 1975, 12.4 per cent in 1978, then in the six months to December 1979 it snatched 50 per cent of the market with $4 million worth of apparel for the half year, compared with less than $1 million worth in the full 1978 year.

How can Australia compete when it has to pay for extras such as freight and tariffs? Mr Penney says that the Australian manufacturers have the advantage of a large domestic market, enabling them to cut costs dramatically for exports, with the added incentive of assistance from the Australian Government. “They can come here and undercut us substantially,” he adds. It is a question of "economies of scale.’’ New Zealand manufacturers cannot produce longer runs on the hopes that they will export them. Exports have to be planned and long-term contracts are not available. “Anyone who bases future profitability on the fickle prospects of overseas markets being available on a continuous basis is laying the future on the line,” Mr Penney says. “In my opinion a viable operation for an apparel manufacturer is one where 80 per cent of the production is reserved for the domestic market if there is to be a sensible growth pattern, and an orderly employment and profit situation.” The Government agrees with a recommendation in the Industries Development Commission’s report that certain areas of the textile industry need to be opened up to more competition from imports. Already there has been a liberalisation of import tariffs on certain lines, such as synthetic yarns, and this has directly affected finps such as

Fibremakers (N.Z.), Ltd, which was forced to close its plant at Shannon.’ The Commission states in its report that competition from imports would assist in reorganising the industry “by encouraging .'the least efficient producers to become more efficient.” The report says that the trading conditions brought about by the policy of almost complete protection of the clothing market had permitted a proliferation of factories or workshops in the makingup sector.

“Many of these units have under-utilised plant, and the least efficient is protected against competition from any other source other than domes-

tic producers operating in the same protected environment,” it adds. Several firms have retrenched in anticipation of stiff competition from cheap imports as the Government lifts the lid off import barriers in line with this policy. Lane Walker Rudkin announced in July that 43 workers at its Hokitika

factory would be made redundant over a period of about 10 weeks. The company said that the underwear made in the factory was particularly susceptible to competition from imports. Mr Penney points to another factor in the failure of some textile firms. “In my opinion the reason for certain large businesses failing appears to have

been an error of judgment’ in costing in order to keep production units going in a decreasing market.” In fact, although Mr Penney does not name any firm affected in this way, Mr W. Fels. the chairman of Mosgiel. said that prices of Mosgiefs goods last year were too low “and did not return in many instances much more than the cost of the product at the mill gate.” “If Mosgiel did not supply at that low price then its competitors were prepared to do so,” he added. Mr Fels said that the catalyst in the Mosgiel collapse was the action of the Bank of New Zealand in withdrawing overdraft facilities virtually overnight.

Thus it is too simplistic to assert that the Government’s restructuring is to blame for the recent partial demise of the textile industry. Other factors have been at work and the industry had begun to rationalise well before the Government took up the recommendations of the Industries Development Commission.

Textile anrl Hnfhinri nmriuMlnn ItHfi 10*70 /U.. i i ' ■ w * iozv - inti vuy vuiume/ Woollen and worsted yarn (tonnes) 1S76 1977 1978 1979 % chance ’7S - '79 21,586 18776 17685 18199 2.7m 138,000 9.2m 4610 -1A Piece goods (sq. metres) Blankets (pairs) Carpets (sq. metres) 2.8m 215,000 11.3m 2.6m 200,000 10m 2.4m 152,000 8.5m ’ I o -3 -35 Knitted fabrics (tonnes) . 5378 5016 4599 - IO -14 Jerseys Underwear and nightwear (pairs) Socks (pairs) Pantyhose (pairs) 4.3m 16.3m 7.1m 11.9m 4.4m 15.5m 7.2m 12.4m 3.9m 13.3 6m 10.9m 3.8m 13.8m 6.5m 10.7m -11.8 -15.3 -7.8 •9.8 Women's overcoats Skirts Slacks and jeans Dresses Blouses Men's suits Trousers Shorts Shirts 214,200 695,300 1.5m 1.1m 1.7m 206,100 3.1m 1.6m 6.3m 220,100 699.900 1.3m 1.1m 1,9m 217.900 3.3m 1.5m ' 4.9m 183.400 724.400 755,900 1.2m 1.6m 167,000 2.7m 1.5m 4.7 m 209,300 1.1m 423,600 1.6m 1.9m 132,800 2.8m 1.6m 5m -2-2 +40 ' -73 +31 +8.5 -35 - 9.6 0 -20