When Joe Gorga was growing up in Paterson, N.J., his father managed a plant that supplied fabric to clothing makers in New York City’s garment district. The boy started work there at 13, sweeping floors. Later, he began delivering samples to customers and watched fickle buyers reject cloth that looked fine to his untrained eye. Back at the plant, his father often confirmed his judgment, but, even so, sent him back to the city with a new bolt and a different outlook.
“It was the customer’s perspective that counted,” he says. “It was that mindset: Do what you promised, make a quality product, and get it there on time. It’s kind of simple and corny, but it stays with you.”
As president and chief executive of Greensboro-based International Textile Group Inc., formed last July by the merger of Burlington Industries and Cone Mills, Gorga is trying to apply his father’s old-fashioned wisdom to a 21st-century problem: How can domestic textile makers survive as low-cost competitors in Asia and other foreign countries flood the United States with cheap imports? What can be done to save the textile industry, once the state’s largest employer, from slouching toward oblivion?
About 5,000 Tar Heel jobs — ITG employs more than 7,000 worldwide — depend on Gorga. What’s more, a thriving ITG would show the world that domestic companies can compete against manufacturers in places such as China, where wages are 5% of what they are in North Carolina. Not everyone believes it’s possible, at least not under the old model. “Are they going to survive here in the old form, or are they going to survive in a form where they have some mills here and some overseas?” asks Robert Connolly, a professor of finance and economics at UNC Chapel Hill’s Kenan-Flagler Business School. “I believe the latter is eminently possible. The former is extremely unlikely.”
Gorga, 52, has opened plants and created joint ventures abroad. Even so, he insists that at least a few North Carolina mills can remain part of ITG as the company develops new products and promotes its brands in a bid to recapture lost customers. It might even scoop up a few more U.S. factories.
“I think that Gorga is on the right track,” said Lanty L. Smith, a former Burlington Industries president and the chairman of Precision Fabrics Group, also based in Greensboro. “He’s looking to see where he has competitive advantage, and he’s looking to accomplish additional consolidation.”
Burlington Industries and Cone Mills have been storied names in North Carolina commerce. Burlington was founded in 1923 in the city whose name it bears after the local chamber agreed to underwrite a $250,000 stock sale. By 1961, now based in Greensboro, it was the 48th-largest corporation in the nation, with annual sales of $913 million and 62,000 employees. That made it the largest textile maker in the world. Cone, which began in 1891, was for decades the world’s largest denim maker. ITG has its headquarters in Cone’s offices. The old Burlington headquarters is being torn down.
Both companies had struggled, taking on debt in the face of increased foreign competition. Cone’s denim exports dropped 10% from 1996 to 2002. Worse still, sales slid from $910 million in 1995 to $445 million in 2002. It sought protection from creditors by filing for bankruptcy in 2003 after losing money four of the previous five years. Burlington had filed in 2001, after losing more than $500 million the year before. Sales, which topped $2 billion in 1998, sank to less than $1 billion by 2002. New York-based WL Ross & Co. bought Burlington at auction in July 2003 for $614 million. It added Cone Mills six months later for $90 million.
Bankruptcy reorganization allowed the companies to shed more than $1 billion of debt. “The interest alone on that debt was running at about $75 million a year,” says Wilbur Ross, chairman of ITG and WL Ross and Co. ITG carries only $75 million in borrowings on its balance sheet. Sales totaled about $900 million in 2004.
Still, Gorga faces a host of challenges. “There were customers lost, and there were issues that maybe were not responded to as well,” he says. Sometimes, Burlington and Cone failed to deliver fabric on time. Or they turned out second-rate goods. “We are not a company that’s going to be written up as being an excellent company today. Just having new ownership and a deleveraged balance sheet isn’t going to do it.”
Before tapping him to run ITG, Ross had considered bringing in an outsider, and he fired a clutch of other Burlington and Cone executives. Gorga had joined Burlington in 2002, almost a year after it filed for bankruptcy, as executive vice president of North American operations. “It was a leap of faith. We didn’t know that Wilbur Ross was going to win the bid for the company. But Burlington has a tremendous recognition within the industry, and we had an opportunity to wipe away a lot of the bad history.”
To Ross, Gorga’s short tenure meant he understood the business but wasn’t tarred by its failures. “He’s not a longtime Burlington person, but he has been there long enough,” Ross says.
If Gorga doesn’t embody his industry’s faults, he certainly knows its folkways. He has never strayed far from his apprenticeship with his dad. At Philadelphia College of Textile and Sciences, where he majored in textile engineering, he would return to Paterson during summers to operate dyeing machinery in his father’s plant. After graduating in 1975, he joined Spartanburg, S.C.-based Milliken & Co. as a management trainee. Soon he was running some Milliken plants. Later, he became the general manager of its automotive and elastic-fabrics businesses. “Roger Milliken had that unbelievable focus on operating excellence and customer service,” Gorga says. “A lot of his management techniques I use today.”
Milliken, for example, spent heavily on training and allowed teams of employees to schedule their own work flow and establish individual performance goals. Any Milliken worker could halt production if he found a quality or safety problem. Gorga aims to give ITG employees the same autonomy.
When Gorga ran the dyeing plant in Blacksburg, S.C., it almost always turned out top-quality fabric, Milliken says. “It was the ultimate test in manufacturing in our industry. When you’re putting color and chemicals on fabrics and not just dealing with white yarn, you have to be absolutely perfect. The human eye can see the difference between a thousand shades of color.”
Gorga left Milliken in 1991 to become president of Greensboro-based Elastic Fabrics of America, part of Clinton Mills, now CMI Industries. In 2001, a group of CMI note holders tried to force the company into bankruptcy. Gorga negotiated a deal in which CMI sold all of its plants except Elastic Fabrics to pay the notes. The other plants were losing money, unable to compete with Asian textile makers.
ITG is more likely to be a buyer, Gorga says. In December, it paid an undisclosed amount for Cleyn & Tinker, Canada’s largest worsted-wool manufacturer. “But if it makes sense [to sell], we would.” He already has, peddling the Lees Carpets division to Mohawk Industries for $352 million shortly after ITG was formed. Connolly, the UNC professor, believes that acquisitions could help ITG if they’re done smartly — which to him means abroad. “If 90% of the sewing is in Southeast Asia, it makes no sense to buy the fabric here, ship it over there, sew it and then ship it back.”
With or without acquisitions, Gorga needs results soon because the timeline for his turnaround is likely to be short. He won’t disclose the financial goals that he has set for his division heads nor those that Ross has set for him. But Ross’ company answers to unsentimental institutional investors such as pension funds, which expect prompt returns.
The deals that created ITG were typical of Ross, who spent much of his career as an investment banker for London-based Rothschild Group. He specialized in turnarounds, buying businesses in out-of-favor industries and cutting costs by closing plants, laying off people and restructuring debt. In March, he placed the top bid for another bankrupt textile maker, Georgia-based WestPoint Stevens. He hasn’t said what he plans to do with it when the deal closes at the end of July. His fans, typically investors enjoying double-digit returns, call him a whiz. Detractors, often the unemployed from companies he has bought, call him a vulture.
Ross developed the blueprint for ITG in the steel industry, where he cobbled together International Steel Group in 2002 and 2003 through acquisition of steel makers such as Bethlehem Steel and LTV. ISG went public in December 2003 and reported $421.4 million profit for the first nine months of 2004. Last October, the company announced that its board had agreed to sell it for $4.5 billion to Dutch-based Mittal Steel, the world’s largest steel company. Shareholders were to vote on the deal in April. Ross owns 33% of International Steel.
He typically buys debt in distressed companies and, when they file bankruptcy, purchases their assets cheaply. His maneuvers rankled some Cone investors, who noted that he was on both sides of the deal, as a bondholder and a bidder for the assets.
To show results quickly, Ross and Gorga are betting partly on the development of new products. One idea is premium denim for jeans that would sell for as much as $250 to $300 a pair. The idea is to turn Cone’s utilitarian denim into a fabric as desirable as cashmere or high-quality silk. If it seems far-fetched, remember that just two decades ago, Ralph Lauren and Calvin Klein turned jeans — originally utilitarian pants for cowboys, farmers and miners — into designer apparel.
Other fabrics are central to Gorga’s plans, too. “We call them smart fabrics,” says Ken Kunberger, president of Burlington Worldwide. One contains a chemical that kills bacteria that cause odors. ITG has begun using it in sports clothing. Another would absorb heat, from the wearer’s body and the sun, which in theory would improve blood circulation and reduce muscle fatigue. The company hopes to produce it commercially this year. ITG also owns a majority stake in Nano-Tex, a California-based company that develops improvements for fabric. Its Nano-Care stain repellent is used in clothing sold by Gap, Old Navy and others. Gorga and Ross believe that Nano-Tex can help ITG make new products.
But high-end products alone won’t enable ITG to compete with foreign producers. It also has to keep lowering costs. To that end, it has developed partnerships with about a dozen mills in Thailand, Taiwan, mainland China and Hong Kong. ITG is sharing its know-how, then selling the mills’ fabrics in the United States. In the case of the partnership with the China Ting Group, based in Hong Kong, ITG hopes to create a Burlington brand of home furnishings and other products to sell in China.
If those relationships work, ITG will invest in the plants. It already has joint ventures in India, Turkey and Mexico. Last year, ITG announced plans for a plant in Guatemala that would produce 30 million yards of denim annually.
“That’s a new business model,” Connolly says. “It’s no longer all going to be, ‘Made in the U.S.’ Why would we want that? Clothes would be so much more expensive.”
Regardless, the company hopes to continue expanding its foreign sales. Before the merger, Burlington had a Hong Kong office with about 20 employees. In the second half of 2003, the office began farming out work for foreign-owned mills. Sales reached $30 million in 2004 and could climb to $100 million by the end of 2006, Kunberger says.
The fear of Tar Heel employees, of course, is that ITG’s move to boost its international operations will lead to the shuttering of U.S. plants, including Cone’s White Oak plant in Greensboro, which has about 1,000 workers. After their bankruptcy filings, the companies cut 3,000 jobs, Gorga estimates. He says employment has been stable since ITG was formed.
The question is, can Gorga’s expertise in textiles keep the resurrected company viable? Connolly says it won’t be easy, given the continued foreign competition. “Unless you’ve got a business proposition that is better or unique, then you get yourself in tough territory. A product that is not unique — that’s where low labor costs start to rear its ugly head.”