Bullish for 2021 - Textile Business Outlook Industry Survey

BULLISH FOR 2021

BIGGEST CHALLENGE IS BALANCING SUPPLY TO DEMAND

By Kim D. Shaver

Home textile industry executives have an optimistic outlook for business this year, even as they confront and seek to mitigate stresses in the supply chain such as soaring freight rates, shipping bottlenecks and higher costs for sometimes scarce raw materials.

According to Showtime Magazine’s recent Home Textile Industry Outlook Survey, 94% of the respondents are either “very optimistic” or “somewhat optimistic” about business prospects this year. One-third fall into the “very optimistic” camp, while no respondents report being pessimistic.

As home has become the center of the universe for millions of consumers during the year-pluslong pandemic, furnishings and textiles emerged as advantaged product categories early last summer, with surging demand that has shown no signs of abating.

For the first quarter of 2021, nearly 70% of executives surveyed report solid-to-robust increases in sales compared to the same period in 2020, most of which was before the pandemic economic shutdowns. Year to date, one-third report double-digit increases in the 11% to 25% range; one-quarter of respondents report increases in the 10% range and over 11% report increases in the high-double-digits and up to double their business a year ago.

Only 33% report their business is down compared to a year ago, with most of the decreases in the single-digit to low double-digit range.

DEMAND WINDS ARE AT THE INDUSTRY’S BACK; HEADWINDS ARE WITH SUPPLY

Nearly 90% of textile executives surveyed are projecting continued year-over-year growth in 2021. This growth builds on a steady spike in demand for textiles, as furnishings orders and backlogs continue to surge. High Pointbased accounting and consulting firm Smith Leonard, which tracks the residential furniture industry, recently reported new orders were up for the 8th straight month, with many furniture manufacturers and distributors experiencing very large double-digit growth in demand.

While the textile industry has the winds of demand at its back, there are several key challenges for the year ahead, according to survey participants, including:

• Converting demand and backlogs to shipments in light of supply chain strains and bottlenecks.

• Shortages of raw materials.

• Soaring transportation and raw materials costs.

• Striking a balance between investing in supply chain and inventory improvements to meet current demand, while not overbuilding capacity if demand cools off in the long-term.

WHAT’S THE TIPPING POINT? MANAGING DEMAND IS A DELICATE BALANCE

In order to improve product flow, speed delivery to customers and mitigate price increases in transportation and raw materials, two-thirds of respondents – 67% – report making investments in their supply chain management. These investments range from building finished goods and component parts inventories to expanding or building warehouses to “purchasing more looms and making other capital investments and technological advances in our mill.” Nearly one-half of respondents report they have hired additional staff in the supply chain management and distribution areas.

In order to meet a robust double-digit increase in demand, Belgian-based textile source Libeco has “invested in new looms that will be online next month, invested in more vertical integration to increase production and increased our raw materials inventory,” says vice president of sales Kathryn Richardson, noting that the raw materials inventory is an effort to “mitigate raw materials price increases with earlier investments.”

Deciding how aggressively to invest in supply chain management, inventory and increased capacity is a delicate balance, Libeco’s Richardson says. “It’s almost too much of a good thing, with the demand so far out in front of supply right now,” she said. “The challenge is addressing the short-term demand at the right level so that it is sustainable long-term. What is the tipping point of knowing how significantly to invest? That’s a difficult crystal ball,” Richardson says.

The $64,000-dollar question for industry observers is, “How sustainable will the surge in demand for home goods be?” Intuitively, demand is expected to level to some degree once competition for the consumers’ discretionary dollars increases as people begin to travel more, eat out more, attend more events and purchase more apparel.

Many executives believe that, while demand will cool from its current levels, higher levels of demand than pre-pandemic are on the horizon for the textiles industry. Business will be lifted by sustainable macroeconomic trends such as the housing boom, higher rates of mobility, more remodeling activity and an overall positive economic outlook, observers believe.

EXPECTATIONS: BUSINESS WILL SETTLE AT ABOVE PRE-PANDEMIC LEVELS

“We expect the dramatic levels of demand we are experiencing now to level off to a steadier growth that’s still higher than it was before the pandemic, as we continue to innovate with performance fabrics with a sustainability, cleanability and comfort story,” says Iv Culp, chief executive officer of upholstery and bedding textile major Culp Inc. “Safer-at-home” practices increased demand permanently for healthy, comfortable home environments, he believes. Culp is based in High Point but has manufacturing and sourcing capabilities in 6 countries: the US, Canada, Haiti, China, Vietnam and Turkey. “Having flexibility and versatility in our supply chain has been paramount during this time,” he says, noting that the company’s supply chain diversity has helped minimize disruption to product flow and kept Culp’s capacity more stable.

DOMESTIC AND VERTICALLY- INTEGRATED SUPPLIERS OFFER QUICK-SHIP PROGRAMS

Domestic textile producers like South Carolina-based Milliken have leveraged their more stable supply chain for faster fabric deliveries. “To ensure our customers receive products on time, we’ve implemented quickship programs to address the industry’s shortage issues,” said Jennifer Harmon, director of business development for Milliken & Company’s Textile Division. While the company’s supply chain is more stable, Harmon says Milliken has “experienced delays in getting raw materials, which we see as a common pain point across industries right now. We constantly work with our customers to optimize forecasting their needs, and we are building safety stock on critical raw materials.”

RAW MATERIALS & TRANSPORTATION PRICE INCREASES PRESENT CHALLENGES

Some have called the rise in ocean freight rates amidst a container shortage “shockingly high,” and raw materials such as upholstery and bedding foam and other items have also risen in price, leading 56% of the Textile Industry Outlook survey respondents to implement a price increase in the last six months.

Moreover, a vast majority, 83%, anticipate or are considering price increases in the next six months, while only 17% do not expect to implement a price increase.

Of those who have implemented price increases, 40% have implemented a 6 to 10% increase, 30% have implemented a 3 to 6% increase and the other third have implemented up to a 3% increase. Many other textile players – 61% of respondents -- are considering a surcharge to address rising costs.

Noting that De Leo Textiles is investing in order to speed up deliveries to customers, vice president of business development Ismail Arslan said that the company is “considering the possibility of a surcharge for quicker deliveries due to the dramatic escalation of (container and cargo) pricing. I hear from competitors that they are also considering surcharges,” Arslan says.

ADAPTATION TO DISRUPTION MAKES INDUSTRY STRONGER

Following at least two years of disruptions that first involved tariffs on Asian imports, followed immediately by a global pandemic and economic downturn, the textile industry remains resilient and has emerged stronger, many believe.

“Our outlook is optimistic for our business and our industry,” says Iv Culp. “Our industry has been advantaged (with the consumer) during the pandemic. While demand will level off to some degree, we will be stronger than before the pandemic because the consumer now understands in a profound new way the importance of home, comfort and a healthy lifestyle. We as an industry are providing the products and innovation and creating value to make a healthy, comfortable home possible.”