California Apparel News

In early January, Thomas McKenna took over the helm of Cone Denim, one of the largest denim makers in the world. Cone Denim supplies blue-jean makers such as Levi Strauss & Co. and Gap Inc. with millions of yards of fabric every year.

As the new president of the Greensboro, N.C., company, McKenna brings years of experience to the job, previously held by John Bakane, who retired in December after more than 30 years with the company.

McKenna’s background is in international sales, a skill that is particularly relevant in this day and age of global production and marketing. Cone Denim has plants in Turkey, Mexico and China. It is opening a plant soon in Nicaragua and recently signed a commercial and marketing partnership in India.

The University of Maryland grad joined Cone Mills, the predecessor to Cone Denim, in 1981 as a New York sales representative, later opening the company’s first international sales office in Brussels, Belgium. In 1995, he moved to Singapore as director of marketing for the Asia/Pacific region. Before being named president of Cone Denim, a division of International Textile Group Inc., he was president of sales and marketing for the denim group.

McKenna takes over at a rather challenging time. The economy is dragging, and retail sales of everything from sweaters to pants is weaker than in recent years. The new Cone Denim president’s goal is make the company even more of a global entity than it is now.

MeKenna spoke recently with Deborah Belgum, senior editor of the California Apparel News, about his company and the state of the industry.What is the state of the denim industry in 2008, particularly with the downturn in the economy?

The denim industry continues to be in a state of transformation. When you look at the business globally, it is still a very viable business. There are a lot of excellent opportunities around the world in emerging consumer markets, like India and China. There is a growing jeans business there that will require more supply.

In the more mature marketsshy;—such as Western Europe, the United States and Japan—there are some exciting things going on, but you won’t have the unit growth that the emerging markets have.

From a product standpoint in the United States, you’ve had the premium-jeans market emerge over the past few years. It has been a very exciting category that showcases what quality denim is, even for consumers who aren’t buying premium jeans. They can see how great jeans can look, and it puts pressure on everyone to put a better product out there. What is Cone Denim doing to weather the soft economy?

We feel fortunate that denim as a category is proving to be very resilient and is counter to general economic trends. However, we think there is a stronger sensitivity in the discount channel. It is affecting consumers who are being influenced by the price of gas and home heating costs. So there is some concern around that. In that segment, we are talking with our customers to provide them with value.

Denim jeans are seen by consumers as something that has good value, and we are doing everything we can to be tremendously competitive and partner with our customers to bring unmatched values to consumers.

The other thing is we are trying to stay in touch with customers about their business activity to keep our inventories in line.

We operate in many supply chains, having several platforms from which to do business. So we are not subject to one consumer marketplace or supply chain. What new trends do you see in the denim industry and the blue-jeans market that might help this sector grow?

We think stretch denim will be tremendously important in the women’s category. We are excited that we have had a breakthrough with our products in the S-Gene collection.

We have been able to provide stretch denim that performs more consistently from a growth and recovery standpoint that looks as good as anything in the marketplace. The S-Gene came to market in the last two to three months. Once you have a jean that fits and performs well, our customers will have a competitive advantage. It is positioned now as a premium product, but over time we will apply the technology to more popular price points. But that will be at least another year. We need to build the capacity for it and invest in machinery in some of our factories to produce the yarn.

As far as other trends, denim still remains strong for consumers. There are brands that continue to look at new ways to use denim, such as tailored looks and slacks that look fantastic or sportswear done with lightweight denim.

The average weight of our denim has dropped substantially in the last five years. The average weight is probably just over 10 ounces or so per square yard, and five years ago it was 13 ounces.What’s the status of your Nicaragua plant, which will have the capability of eventually producing 28 million yards a year? When will it come online?

We began dyeing fabric there around Jan. 20. We were weaving prior to that. We will be finishing denim beginning next week [Feb. 11] and shipping product later this month. So it is full speed ahead. There are 500 employees now, and by June there should be 850.

There is some sensitivity about who is getting what first. Right now it is our established customers who use Central America as a key sourcing platform.

What other overseas factoryprojects is Cone Denim working on?

We have been producing for several months in China. It started up in October. [It’s a joint venture, with Cone Denim owning 51 percent and a subsidiary of Novel Holdings Ltd. in China owning 49 percent.] We brought Cone Denim to China, but we are not making Chinese denim. We havea mill that can make worldclass premium denim. It is similar to the makeup of our Nicaragua plant with 638,000 square feet. We have basically tried to do what we know about making denim and build it into our facility.

Just two weeks ago, we signed an agreement with the LNJ Bhilwara Group for a commercial and marketing partnership. We see the Indian subcontinent region from a consumption point of view and as a supplier to the United States and Europe.

We were looking for an appropriate partner to work with in India, and we foundLNJ. They have built a plant in northwest India, like what we have in China and Nicaragua. It is a vertical operation. We are co-branding a line of products, and we will do some technical and marketing sharing.

We also have a commercial venture in Turkey, which supplies part of the European marketplace.

What kind of denim is being produced at the White Oak plant in North Carolina?

We have made a select investment there. It is a large facility and allows us to move quickly and develop our newest products. It is the center of our product-development efforts, and the products developed there end up running out of our other facilities.White Oak is the mother ship of Cone Denim.

Currently, what percentage of your denim is produced in the United States and what percentage is produced overseas? How will this change in the next five years?

Now it is 15 percent domestically and 85 percent overseas. Down the road it might be 10 percent domestically and 90 percent overseas due to growth in our overseas facilities rather than contractions.

How many employees work with Cone Denim domestically versus overseas?

There are about 600 to 700 employees in the United States and 3,500 to 4,000 overseas.