When The Needles Went To China

North Carolina Textiles, part one: The End of an Era

by Neil Caudle

In 1995, the town of Spindale didn't know that it lay in the path of a storm. Snug in the hills of Rutherford County, N.C., Spindale basked in what locals call the isothermal belt, a region whose climate is tempered by mild air flowing down from the southeastern slopes of the Appalachian Mountains.

And for generations, the textile mills of Rutherford County had tempered the economic climate, as well. People worked their shifts and collected their paychecks believing that the mills would always be there — at the center of town, at the center of life. In 1995, Spindale was humming along like one of its namesake spinning machines. And Stonecutter, the biggest mill in town, was having its best year ever, with three shifts cranking out fabric twenty-four hours a day, seven days a week.

Then came a perfect storm, the economic equivalent of a monster hurricane fused with a vicious nor'easter. This storm was all business, and neither mountains nor companies would shelter the town.

Falling off a cliff

James Cowan walks through the cavernous spaces of Stonecutter mill. He knows his way, even in the dark. He is wearing a bow tie and seersucker pants. Stonecutter made seersucker fabric, and Cowan has always been partial to it. He leads through a two-story warehouse of huge, empty shelves. A skylight sends a shaft of dusty light straight down to the center of the aisle, as though to beam him away. "These shelves," he says, "were filled with rolls of fabric, as high as a forklift could reach." We move room to room, crossing polished maple flooring, enough for a conference of basketball courts. Overhead, heavy pipes snake along the ceiling. Once, they humidified the air to keep lint from the lungs.

Cowan stops in a room studded with yellow steel posts — the loom room. "Imagine," he says, turning to sweep his hand across the empty space, "two hundred looms worth a hundred thousand dollars apiece working twenty-four hours a day, seven days a week. And imagine all of the people running those looms. It took seventy-five years for mills like this to accumulate all of that capital, all of that knowledge, all of that value. But it sure doesn't take seventy-five years for it to go away."

He climbs a dark staircase and opens the door to a training room where Stonecutter's employees learned computerized systems for running the mill. For Cowan, Stonecutter's CEO since 1989, this room represents a stronghold of Stonecutter's values: invest in technology, invest in people, and change with the times. For decades, he says, that's what the company did. It tracked the fashions of Europe and translated their expensive fabrics into affordable polyester and cotton. When the hippy look went mainstream, Stonecutter raced to market with tie-dyed cotton and peasant cloth, which was coarse enough only after the mill began adding floor sweepings into the mix. When John Travolta danced in Saturday Night Fever, he wore a dazzling white suit made of Arnel, a fabric Stonecutter was producing. Profits danced skyward on the sales of Arnel.

"If there was a fad on Seventh Avenue in New York, we could hit it in days," Cowan says. "We reacted so fast that people would come here to work in the morning not knowing what they would be making that day."

CEO James Cowan outside an empty Stonecutter mill. The company erected the sign behind him in 1995 to observe Stonecutter's 75th anniversary. Photo by Neil Caudle. Click to enlarge.

By the mid-1990s, the company had become so fast and efficient that it was knocking out domestic competition. This should have boosted Stonecutter's revenues, but it didn't. Each time a competitor closed, Stonecutter's orders remained about the same. By 1997, Cowan could read a nasty pattern in the numbers: while his company's slice of the U.S. pie was growing, the pie itself had shrunk. In the winter of 1998, the normal seasonal pickup in orders didn't materialize. By the spring of '99, the market stopped. Orders vanished. Zip, zero.

"When you're making nine hundred and fifty thousand yards of cloth a week, you don't think you'll fall off a cliff," Cowan says. "But that's what happened."

He knew that at the end of 2004, tariffs and other protections for the U.S. textile industry were due to expire, releasing a flood of imports from China and from developing nations around the globe. "We could go to the bank and borrow money and start the death spiral," Cowan says, "or we could walk away with our heads up. So that was our decision."

North Carolina schoolkids are taught that our state stretches from Murphy to Manteo — about 560 miles. Stonecutter Mills made nearly that amount of cloth every week. Illustration by Jason Smith. Click to enlarge.

In March of 1999, Stonecutter scaled back from seven days a week to five, laying off 100 of its 772 employees. It wasn't enough. In one twenty-four-hour period in June, Cowan and his managers walked around to every shift and broke the news to workers in the Spindale plant: Stonecutter was closing its doors. The company would pay off its debts, unload a couple of spinning mills and the salable equipment, distribute more than $30 million to its employees from the company's profit-sharing fund, and wish them all good luck.

Acres of bed sheets and towels

Patrick Conway, professor of economics, knows the story well. Across North Carolina, there are many dead mills, many sad stories. Conway and his colleagues, Alfred Field from economics and Robert Connolly of the Kenan-Flagler Business School, have been examining the North Carolina textiles industry, interviewing industry executives and analyzing trends. The picture that emerges is one of swift, wrenching change. There will be survivors, Conway says. But the old-style textile mill cranking out acres of towels or bed sheets is probably a thing of the past.

"Some of the older mills like Stonecutter were set up to run large quantities of a basic product," Conway says, "and those basic products are now coming from overseas."

Stonecutter is neither the biggest nor the most dramatic textile-mill closing in North Carolina. That distinction belongs to Pillowtex Corporation, which declared bankruptcy for the third and final time in July of 2003, shutting down its sixteen plants, including a large operation in Kannapolis. The company laid off 7,650 workers, 4,800 of them in North Carolina. For Kannapolis and its neighboring communities, the closing was catastrophic. As of March 2004, only about five hundred of those laid-off workers had found work, and for-sale signs still stand in picket rows along the city's streets.

But as notorious as the Pillowtex story has become, it is not the typical case, if we're trying to understand what's happening to North Carolina's textile industry. Pillowtex piled up enormous debt when it acquired Fieldcrest-Cannon and then Leshner Corporation. So the company was vulnerable when the price of textiles fell in global markets and the U.S. economy hit the skids. Pillowtex couldn't pay its bills.

Stonecutter was different. Except during the 1970s, when Stonecutter's management borrowed heavily to buy out its original owners, the Tanner family, the company avoided risky ventures. And Stonecutter's employees were not fighting management over labor-union elections, as the workers in Kannapolis had done. But despite its investment in technology and its speed to market, Stonecutter could not alter decades of history: it was most definitely a big mill turning out large quantities of cloth.

As James Cowan saw it, the market was no longer buying what his company was equipped to produce. "What happened to us is that the needles went to China," he says. "With their labor costs so low, it became impractical for people to run sweat shops in New York, cutting and sewing. As long as the needles were in New York, we could deliver fabric to the cutters and sewers fast enough to compete. But when they left, that was the end."

Who to blame

Not every mill is in Stonecutter's fix, but many are, and it's tempting to blame foreign countries. Mills in China, the Philippines, and developing nations around the globe produce goods at roughly half the cost of domestic mills, mainly because people in those countries work for less money than Americans do. Especially when money is tight, we Americans like to buy our towels and T-shirts on the cheap. And we don't look too close at the label to see where that bargain was made.

The cumulative economic force of our individual buying decisions has been so relentless that the only thing standing between many U.S. textile mills and bankruptcy may be the import quotas of a 1995 international agreement on clothing and textiles. And those quotas are set to expire on December 31 of this year. For some of the textile-company executives Conway has interviewed, that date represents a kind of Armageddon. Without the quotas, they say, China and other powerhouse producers will accelerate exports of cheap textiles and apparel. And U.S. mills aren't the only ones that will suffer. Conway's colleague, Al Field, adds that developing nations with textile quotas may watch their markets vanish as the big mills in China take charge.

The politics of protecting U.S. industries from foreign competition are fraught with contradictions. In 2003, when the U.S. moved to stem imports of inexpensive brassieres, retailers and domestic manufacturers with foreign suppliers complained that the restrictions would cut consumer spending and do more harm than good. Some analysts point out that the textiles and apparel sector, which includes various interest groups and agendas, has lacked the unified political clout of industries such as steel. As a result, they say, the U.S. has tended to negotiate gradually less trade protection for textiles in exchange for more protection elsewhere.

The North Atlantic Free Trade Agreement (NAFTA) often gets the blame for the loss of U.S. textile jobs. But Robert Connolly, associate professor of international finance and economics, says that "NAFTA was nowhere near the disaster most folks think it was." He points out that many domestic companies exploited NAFTA's advantages, at first. "They could ship cut fabric offshore for sewing and bring it back as finished garments at a very advantageous tariff rate," he says.

The arrangement was so lucrative that many firms, including Stonecutter, rushed to set up shop in Mexico, sometimes borrowing heavily to do so. It was that debt and declining returns on investment that exposed many firms to losses when the needles went to China.

"When the apparel business moved to Asia, the foundation of the textile industry moved with it," Connolly says. "That's because the Asian producers could source the fabric locally, sew it into garments locally, and do all of this at such a low cost that they could pay U.S. tariffs and still beat the U.S. producers on price." Connolly recalls a conversation with a CEO in Gastonia, N.C. who said that his company could run "lights out" — with computers and no human operators — and still not compete with Asian imports.

NEXT: "Children would bring a lunch pail to a man on his shift and run the loom while he ate."

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