BUSINESS

RICHES TO RAGS

HURT BY WEAK SALES AND RISING IMPORTS, CANADA’S GARMENT MAKERS NEED A STRONG FALL SEASON

BARBARA WICKENS,JOHN DALY September 23 1991
BUSINESS

RICHES TO RAGS

HURT BY WEAK SALES AND RISING IMPORTS, CANADA’S GARMENT MAKERS NEED A STRONG FALL SEASON

BARBARA WICKENS,JOHN DALY September 23 1991

RICHES TO RAGS

BUSINESS

HURT BY WEAK SALES AND RISING IMPORTS, CANADA’S GARMENT MAKERS NEED A STRONG FALL SEASON

Fred Abramovitch learned some brutal lessons during his brief career as a Canadian clothing magnate. In 1985, Abramovitch, a former financial adviser to Montreal billionaires Charles and Edgar Bronfman, gained control of Harvey Woods Ltd., a sock and underwear manufacturer based in Woodstock, Ont. Two years later, his privately owned holding company, T.A.G. Apparel Group Inc., also took over Montrealbased Dominion Fashion Group, makers of Penman’s underwear and work clothes. But last year, T.A.G. collapsed under a $75-million debt load. Like most Canadian garment makers, Abramovitch says, T.A.G. was badly damaged by the recession, rising taxes and increased U.S. competition resulting from the 1989 Canada-U.S. Free Trade Agreement. And even though the rest of the economy is now recovering, Abramovitch, 46, who has resumed his career as a financial adviser, says that Canada’s clothing manufacturers’ prospects are bleak. He added: “I’m certainly not advising anyone to invest in it—I predict that half the Canadian apparel manufacturers will disappear.”

Current trends appear to confirm Abramovitch’s harsh assessment of the future. In the past two years, dozens of well-established Canadian clothing manufacturers have declared bankruptcy, voluntarily closed their doors or substantially scaled down their operations. That has thrown more than 20,000 people out of work, leaving a total industry workforce of about 98,000. And there are clear signs that the shakeout is continuing. Although the recession of 1990-1991 has ended, Canadian consumers remain burdened by record high levels of personal debt. As a result, most garment makers are predicting only a modest increase in retail sales during the current fall fashion season. Squeezed by relatively weak consumer demand, a rising tide of imports and the trend towards cross-border shopping, an increasing number of Canadian garment manufacturers are transferring their labor-intensive operations to low-wage areas of the United States and Southeast Asia. At the same time, economic pressures are forcing many of the companies that remain in Canada to become more specialized, abandoning the low-margin, high-volume segment of the clothing market in favor of higher-quality fashion lines with greater potential for profit.

The key to a sustained garment industry recovery, most analysts say, is a revival of consumer spending after four years of decreasing sales. Most retailers say that they are optimistic that a sales upturn has already begun, but they caution that the majority of shoppers appear to be taking a conservative approach to renewing their wardrobes. Says Barbara Benoliel, executive vice-president of Lipton’s, a national chain of mid-priced women’s clothing stores: “People are shopping again, but they’re being very careful. Nobody has money to throw away.” Lipton’s, too, is being cautious about its finances. Last winter, the privately held company launched a costcutting drive that involved shrinking its nationwide network of stores to 40, from 64 a year earlier. Departing from a long-standing tradition in the women’s-wear business, Lipton’s has also begun to offer customers free minor alterations—part of an effort to attract shoppers whose appetite for new clothes has been dulled by the GST, increased retail prices and the weak Canadian economy.

Algo Group Inc., a Montreal-based manufacturer of women’s and children’s clothing that also owns the One-Plus-One chain of dress shops and the La Vie En Rose lingerie retail chain, has experienced many of the problems that are common to the garment industry. Algo predicts that its sales for the year ending next Dec. 31 will be $287 million, down from $305 million in 1990. “In the past few months, there has been a surge,” says senior vice-president Ben Schaffer, “but that’s always the case in the fall. People haven’t been buying as much, which is not surprising in view of the recession.” Added Schaffer: “You can’t expect a woman to buy a dress when she’s not sure if her husband is going to have a job next week.”

Another problem facing Algo, which has manufacturing plants in the United States, Hong Kong and Taiwan, is the easier access of U.S. clothes to the Canadian market as a result of the FTA. “I guess the basic problem is that the American label is a lot more important to a Canadian girl than a Canadian label is to an American girl,” Schaffer says. Indeed, the Ottawa-based Canadian Apparel Manufacturers Institute says that the value of clothing imports from the United States increased by 32 per cent in 1990 to $145 million, from $110 million in 1989.

Most Canadian garment industry spokesmen, such as Peter Nygard, the flamboyant Finnish-born chairman of one of Canada’s largest clothing manufacturers, Toronto-based Nygard International, insist that the FTA is discriminatory. Nygard, 48, was once a strong proponent of unrestricted bilateral trade. But he now says that the FTA’s complicated rules on clothing exports have made it impossible for Canadians to compete with their U.S. rivals on an equal footing. The agreement allows both countries to retain their tariffs on fabrics from third countries, and Canada’s duties are twice as high as U.S. levies. As well, Canadian garments that are made from imported textiles are often subjected to higher duties than those made with domestic fabrics. Nygard, for his part, says that Canadian firms can overcome U.S. cost advantages only by producing more stylish clothes, and to do that they must use highquality imported fabrics. “You have to use the best raw materials or you don’t stand a chance,” he says.

The array of pressures on the Canadian garment industry is dramatically altering the structure of Nygard’s company, which he founded in 1967 after acquiring control of Winnipeg-based Jacob Fashion. For most of its history, the company’s primary focus has been on inexpensive, off-the-rack sportswear aimed at women over 40. It remains an important manufacturer in that segment of the market, but in the past few years Nygard has also tried to enter the higher end of the business, designing stylish jackets and skirts that sell for as much as $400 each. Because of the larger profit margins in more expensive clothes, Nygard says, he can continue to pay the additional costs that result from manufacturing in Canada.

At the same time, however, the company is shifting production of some of its lower-priced clothing lines to the United States. Nygard, who once employed 1,500 people in Canada, now has only 1,200 employees in Winnipeg, Saskatoon and Toronto. “Canada just can’t compete with southern U.S. labor,” he says, “and it’s going to get worse once we have a free trade deal with Mexico.”

Another company that has struggled recently is Mr. Jax Fashions Inc., a money-losing Vancouver-based women’s-wear manufacturer. Chairman Joseph Segal founded the company in 1979 to fill his spare time after he sold the Zellers Inc. discount department store chain to the Hudson’s Bay Co. But his company overextended itself in the late 1980s by acquiring several divisions that failed to perform as expected. Last winter, the company closed one money-losing division and consolidated two of its Winnipeg operations.

Segal currently is trying to streamline his remaining facilities. For one thing, he plans to introduce a new, lower-priced women’s-wear line for the spring of 1992 that will be made at the company’s existing Vancouver factory. Meanwhile, Segal says that some of the merchants who carry his lines have placed second orders for fall merchandise, which began appearing in stores in July. “That’s an excellent sign of confidence,” he adds.

Although most Canadian garment makers are still angered by the FTA, a few say that the agreement has actually helped them to increase their exports. Among them is Montreal’s Peerless Clothing Inc., which claims that its sales have risen by 40 per cent over the past year. The privately held company, which produces a broad range of men’s coats, pants and other garments, does not publish its financial results, but company officials say that all of that new business has come from one source—the United States. “The FTA opened up that huge market for us and the results have been amazing,” says Joel Segal, Peerless’s vice-president. “You take a place like Kentucky, where there might be a guy with a chain of 10 stores. He’s small potatoes in the United States, but he’d be a major player in Canada. We’ve had a lot of success selling to customers like that.”

According to Peerless’s Segal, the key to success in the U.S. market is hiring local sales representatives who already know the market and have a wide range of contacts within the industry. He added: “I think that’s where some Canadian companies have made a mistake.

They’ve assumed they could do business in the States by flying down there occasionally. It just does not work.” Segal predicts that there will be even more changes in the garment industry in the future, especially if a new free trade agreement involving Mexico is negotiated. “The whole industry is consolidating right now,” he says. “There is a shaking-out process, tied to the fact that the industry is becoming more global. If you want to succeed, you can no longer sit in your own backyard.”

Saul Mimran, for one, takes a similar approach. In 1979, he and his brother Joseph teamed up with Alfred Sung, then a littleknown designer who operated his own retail outlet in Toronto. Now, Sung is one of Canada’s best-known designers. His name is featured on products ranging from watches to luggage to perfume, as well as his mainstay women’s clothing lines. The three partners are now trying to duplicate their success in Europe. “We’re using the perfume as the calling card,” says Mimran. He says that when the Sung name becomes widely recognized in Europe, sales of women’s wear will follow. According to Mimran, Sung perfume is currently available in 250 stores throughout Italy, as well as from retailers in Britain, Belgium, the Netherlands and Luxembourg.

But if Mimran appears confident about his personal prospects, he offers little hope for the Canadian clothing-manufacturing industry as a whole. He notes that a growing number of Canadian retailers are stocking their stores with garments from well-known U.S. manufacturers, including Liz Claiborne and Jones New York. That makes it harder for Canadian manufacturers to sell their goods, he says. At the same time, many Canadian garment companies are struggling because of high manufacturing costs and duties on imported textiles. In the future, Mimran says, manufacturing of Sung’s clothing will likely be moved offshore. He added: “It’s over for the Canadian clothing manufacturer.” Some of Mimran’s colleagues may dispute that assessment, but few of them express any doubt that the obstacles to their survival are huge.

BARBARA WICKENS and JOHN DALY with BARRY CAME in Montreal

BARBARA WICKENS

JOHN DALY

BARRY CAME