The Future in Denim Is Far From Blue

Cone Denim is the world’s largest denim producer, supplying scores of blue jeans manufacturers internationally, from Levi Strauss & Co. to Gap Inc. In recent years, the denim industry has received an economic shot in the arm as blue jeans have become a must-have fashion item. These days, customers, both male and female, barely think twice about plopping down $150 to $200 for a pair of well-made premium jeans.

John Bakane, who signed on with Cone Denim, formerly Cone Mills, in 1975, knows all about the denim industry. He has weathered its ups and downs, particularly when the company filed for bankruptcy protection in 2003. Cone Mills was acquired by turn-around specialist Wilbur Ross and merged in 2004 with bankrupt Burlington Industries to form International Textile Group Inc.

Bakane is now Cone Denim’s president and chief executive officer, overseeing the company’s expansion overseas, while maintaining its U.S. plant in Greensboro, N.C., near the company’s headquarters.

Bakane recently spoke with Deborah Belgum, senior editor of California Apparel News, about the denim industry and its future in the United States and abroad. Cone Denim is building plants in Nicaragua and China.The growth in recent years of the blue jeans industry has helped the denim industry grow along with it. Do you think the blue jeans industry has peaked?

I don’t think it has. There are several ways to slice and dice it. Globally, it certainly hasn’t peaked. If you look at blue jeans demand, it is a function of population growth, demographics, economic growth and where you are in the business cycle.

Looking at China and India, it is certainly on a growth track. And then if you look at the U.S., it is maturing. We may not have the overall explosive growth we have seen in the past, but it will still grow with population and income.

Depending on where you are in the spectrum of fashion, some areas are going to grow better than others. Right now, we are seeing a lot of strength in the $125 to $150 jeans price range. I think it is becoming a good benchmark for a broad number of people.

I am hoping that with (consumer) interest in autos and houses coming down because of interest rates, people might look at apparel as a place for their dollars.What contingency plans has Cone Denim established to weather any downturn in denim demand?

In general, we continue to grow worldwide because we want to take advantage of U.S. and global denim demand growing rapidly. The other thing is, we have probably been in a downturn domestically for the last year. If you look at the last 12 months, we have noticed there has been a liquidation of inventories, so the jeans market has been soft for the last year. But one of the things I find interesting is that if you look at valuations in the stock market for specialty retailers like Abercrombie & Fitch, American Eagle Outfitters and Guess, they are nearing 52-week highs. I don’t think there is a whole lot of risk or downturn potential when people are valuing retailers the way they are.

More important, in the last two years, the denim [fabric] industry has been downsizing in the United States. The real question is whether we are going to have enough good denim capacity in the United States for when we see the seasonal peaks in February and March next year.

Since August 2004, there has been a 50 percent reduction in denim jeans fabric capacity in the United States; that includes Swift Galey and Avondale Mills. (In May, Avondale, based in Monroe, Ga., closed its operations, laying off 4,000 workers. In early September, Swift Galey announced it would close its denim factory in Columbus, Ga., laying off 500 employees and moving production to Denim North America’s nearby facility.) I don’t think the denim jeans supply chain has fully realized the tightness that is growing for seasonal demand in February and March. Denim demand is high then as people want to put large amounts of denim pants on the floor for Back-to-School and Holiday. We haven’t gone through a complete annual cycle yet with Avondale gone and Swift’s reduced capacity. One of your recently announced expansion projects is in Nicaragua. When will it be completed and who will your clients be?

On Aug. 23, I was down there with the president of Nicaragua, and we had a groundbreaking ceremony. The plant, located outside Managua in a suburb called Sandino, should be fully operational some time in late 2007. At 100 percent capacity, we can produce 28 million yards a year.

The clients we have lined up are the best-in-class in the replenishment business, including workwear, and the best-in-class for people who want flexibility in fashion and quick response. So we have customers that are in those two classes. When the Nicaragua plant comes online, will you be reducing your capacity in the United States?

Our U.S. capacity will be around for a number of years. As we open a lot of foreign plants, they still don’t have the experience to hit the real high end in terms of the premium market. What is happening with your plant outside Shanghai, China?

I have pictures in front of me right now. The steel girders are up and the roof is being put on. We will start production in late December. hellip; Goods will be shipped in limited number in the March quarter, and in the June and September quarters, it should be building for full capacity.What other foreign ventures is Cone Denim working on?

We said philosophically there are two places that produce cotton where we would consider building plants. One is the Indian subcontinent, and the other is in South America. In South America, the big cotton-growing regions and apparel garment regions are Brazil, Argentina and Colombia.What percentage of your denim is produced in the United States now and how much overseas?

Right now, we produce 40 percent in the United States and 60 percent outside the United States. When we open our factories in China and Central America, it will be less than 20 percent in the United States.Do you see a time when Cone Denim stops producing denim in the U.S. and does all its production overseas?

I don’t see that today. I can’t see that far. I think there will be a place for our factories on the premium-denim end.Last year, Cone Denim unveiled a new design center at its White Oak Plant in Greensboro where apparel makers can brainstorm. How is that going?

We think that move by us has been working extremely well. The people who have spent time there are the better brands, and in many cases they have focused on historically authentic products.

For example, we still make some products according to dye formulations from the 1920s and 1930s. We produce it on certain equipment that was around then, and we have some limited production that is truly authentic. As a result of some of this collaboration, some of the guys have developed what is called a “black seed” collection. (In the old days, black seed was a term for long-staple cotton.) It includes products with some very aggressive weave patterns using long-staple cotton like Pima to get the kind of look that is very limited and is for an upper-end product line. It has a soft feel, but the real attraction is in the aesthetic. Visually, it is like no other denim you have ever seen. We have sold it in limited quantities for jeans that sell in the $300 price range.What new trends do you see in the blue jeans industry and/or the denim industry?

Some of the people who have come to our new design center are creating their own selvage cuffs for blue jeans. (Selvage comes from the phrase “self-edge” and denotes denim made on old-school shuttle looms.) Some are designing their own selvage. In addition to that, we are seeing an overall cleanup in both silhouettes and finishes. In silhouettes, you are seeing the cigarette jeans with tighter legs, also unwashed and dark colors. And there are fewer holes in the jeans, less distress and a cleaner, darker look.Cone Denim is the largest denim manufacturer in the world. How much denim, in yards, did the company produce in 2005? How many people do you employ?

We don’t normally disclose our production figures, but you are talking over hundreds of millions of yards every year. Cone Denim has more than 2,500 employees, including our two plants in Mexico, a plant in the U.S., and our salespeople and staff.