California Apparel News

David Gren used to travel all over the world to buy fabrics and find factories that could convert them into stylish clothing for teenagers and younger children.

These days, the Los Angeles–based apparel maker has cut down on his frequent-flier miles by recently buying a factory in Honduras. The shop has about 400 employees who earn $8 to $9 a day when benefits are factored in.

“About three years ago I decided to stick to Central America,” said Gren, an affable businessman who cut his teeth in the industry by working as a salesman for Omega Textiles, a New York fabric converter.

“Through my travels I realized it was an easier way to do business by being in my own back yard. The language barrier is not there and the two-day’s difference to travel there and the constant pressure for letters of credit are not there. I like doing business down in Central America. It’s a handshake business.”

Gren, whose company started in 1999 under the name Indosheen, is representative of scores of apparel and textile manufacturers taking a second look at Central America now that the Central American Free Trade Agreement is almost fully operational.

In the last two months, El Salvador, Nicaragua and Honduras have implemented the treaty. Guatemala was expected to be formally part of CAFTA in May. And the Dominican Republic was hoping to be on board by July 1. Costa Rica is still waiting for its Congress to ratify the treaty after being caught up in February’s presidential elections.

Many industry officials believe the Central American countries that were the first to implement the treaty have been winners.

“There has been much more interest in Honduras lately now that CAFTA has passed,” said Jorge Roberto Interiano, president of the Honduras Manufacturers’ Association. “Not only in apparel, but in thread and textiles.”

A little more than two weeks after Nicaragua signed on with CAFTA, Wilbur Ross, the buyout king who injected new life into the U.S. textile industry by taking over ailing Burlington Industries and Cone Mills, said he planned to open a $100 million denim plant in Nicaragua that should be operational by 2007 and have the capacity to produce 28 million yards of denim and employ 750 workers.

The billionaire businessman had been planning to install a plant in Guatemala, but Nicaragua showed it was more efficient by quickly supporting CAFTA, which eliminates most trade barriers between the United States, Central America and the Dominican Republic.

Advantage Honduras

When Gren first started using Central American factories five years ago, Guatemala was his first stop because his production orders weren’t as high as they are now. Two years later, when his business with L.E.I. bumped his orders up to 300,000 units a month, he moved his production to El Salvador and Honduras, which have bigger factories that could accommodate his production in one place instead of spreading it out all over Guatemala City, he said.

Production increased even more in 2004, when Gren started doing work for Jerry Leigh Inc., the Van Nuys, Calif.–based company that has a license to produce apparel for Walt Disney Co. and other companies. With Jerry Leigh on board, Indosheen was making as many as 600,000 to 800,000 units a month, which meant Gren was spending more time in the two Central American countries.

But Honduras was his favorite.

“I just fell in love with Honduras,” Gren said.

Honduras’ lack of Los Angeles–style traffic is one reason.

“It is only a 40-minute drive from my factory [in San Pedro Sula] to the port,” Gren said. “I can send goods out of the warehouse two hours before the ship embarks and still make it.”

Gren is not the only American clothing maker who has fallen in love with Honduras, a major apparel supplier to the United States.

Big-name U.S. manufacturers such as Fruit of the Loom, Sara Lee Corp., Jockey and Wrangler have been making apparel in the country for years. They were spurred in the late 1980s by the Caribbean Basin Initiative, which allowed Central American–made apparel to return to the U.S. duty and quota free if made with U.S. yarn or textiles.

Apparel exports to the United States have grown in volume every year since 2002 even though the dollar amount dropped in 2005 for the first time since 2001. Honduras is the third largest supplier of apparel to the United States after China and Mexico. Last year, Honduras exported $2.66 billion worth of apparel to the United States.

Gren is now doing all of his production in Honduras after he slowly moved his cutting and sewing needs there by 2004.

Then late last year, Gren jumped at the opportunity to buy the 170,000-square-foot Industrias Yang factory in San Pedro Sula from South Korean businessman Nam Jae Im.

So did his recently acquired partners, Paul Buxbaum and David Ellis, principals in the Buxbaum Group, a Calabasas, Calif.–based liquidator and appraiser of retail inventory that has invested in several Southern California manufacturers such as Rampage Clothing Co., Gramicci sportswear and Richter Furniture.

Buxbuam and Ellis invested in Indosheen in September, when Gren sought their advice on how to run his operation more efficiently. Indosheen was generating $25 million in revenues but was structured like a company that could only accommodate $15 million a year in revenues, Gren said.

Buxbaum and Ellis bought 51 percent of Indosheen, and have started overhauling the operations so it runs smoother. The Indosheen name is being changed to Maya Apparel Group Inc. Gren remains the company’s president.

Buxbuam and Ellis were keen on owning a factory to add some predictability to Indosheen’s production capacity and get goods quickly to the U.S. market.

“So much of the apparel business has moved over to Asia,” Ellis said. “For us, Central America served the purpose of being able to respond to customers quickly. You are always going to have that need, especially with reorders.”

By using his own factory, Gren said he can deliver goods in 45 to 60 days once they have been ordered.

“Sixty to 75 days is more comfortable,” he said. “After 75 days, they start looking to Asia and don’t need us anymore.”

The factory, which has been renamed Industrias Sol, has the capability to cut and sew up to 700,000 units per month. Currently, it is sewing 500,000 units each month, Gren said, with additional orders being sent to other Honduran factories.

Currently, Gren’s company is producing 1 million to 1.2 million tops and bottoms a month.

About 35 percent of Gren’s business is done with juniorwear maker Fortune Fashion Industries of Vernon, Calif.; 10 percent with Evy of California in Los Angeles, which has the license to Hello Kitty and Scooby Doo; 10 percent with Los Angeles juniorwear maker Self Esteem and the remainder with various California apparel makers. The goods are sold mostly at Wal-Mart, Target and Kohl’s.

Gren said the idea is to grow the company slowly and possibly buy another factory in Honduras.

“We’ll stay at about $25 million in revenues this year,” Gren said. “Then we’ll shoot for $30 million to $35 million in 2007. And in 2008 we’ll open the faucet to $40 to $45 million.”