The "Gildanization" of its newly-acquired facility in Mexico will provide significant synergies for Gildan Activewear

The "Gildanization" of its newly-acquired facility in Mexico will provide significant synergies for Gildan Activewear

Like Hanesbrands the week before, Gildan Activewear also sees the ability to plug into its large-scale, low-cost global supply chain as the key to driving synergies from its just-agreed acquisition of Alstyle Apparel – a process it calls 'Gildanization'.

The "Gildanization" of its newly-acquired facility in Mexico will provide significant synergies and much-needed additional manufacturing capacity for Gildan Activewear, as well as taking it into new markets, the company says.

"We see this acquisition as a strong fit with our strategy and very much aligned with the criteria we set for acquisitions," CEO Glenn Chamandy says of the basic clothing maker's just-agreed deal to buy printwear rival Alstyle Apparel for US$110m.

The unit, a non-core division of business forms and printed product supplier Ennis Inc, gives Canada-based Gildan a springboard to expand into Mexico, where Alstyle operates a large-scale textile manufacturing facility and cut and sew facilities.

It will also expand Gildan's penetration into markets in the western US, where Alstyle has a strong presence. And on top of this, having manufacturing operations in Mexico will allow Gildan to take advantage of preferential trade agreements that provide duty-free access to markets in South America.

The new acquisition, which is expected to close before the end of June 2016, will be integrated into Gildan's Printwear business. It makes T-shirts and fleece products mostly sold under the Alstyle brand for screenprinters, embellishers and mass marketers in the US, Canada and Mexico, with distribution centres in the US, Canada, and Mexico.

And Gildan says "significant synergies" are expected by aligning the new production in Mexico with Gildan's standardised manufacturing processes and driving savings through the economies of scale – a process Chamandy refers to as 'Gildanizing'.

"We believe that the facility cost structure will enable us to be equal to or good as our plants in Honduras.

"As we Gildanize the facility, with the infrastructure that's in place, we can get that cost very close to our standard costs when we apply our processes, our purchasing power, our management in terms of expertise in engineering and developing the skillsets in order to get the volume to run the plant more efficiently."

Crucially, the deal also provides Gildan with much-needed additional manufacturing capabilities to support further sales growth.

The new plant "mainly makes cotton T-shirts in all different shapes, sizes, pretty much everything that we produce in Gildan," Chamandy explains, adding: "So we have a lot of flexibility here to incorporate really anything from our Gildan product line in the facility."

And it's currently running currently at about one-third of its optimal capacity. "There is idle capacity right now, so this will help us definitely to support more volume internally at Gildan once we take possession of the facility.

"We need the capacity…and this will be a big opportunity for us to maximise our sales opportunity as we go through the balance of the year."

As one of the world's leading apparel manufacturers, Gildan Activewear already owns and operates more than 25 vertically-integrated, large-scale manufacturing facilities in Central America, the Caribbean Basin, Bangladesh and the US employing more than 42,000 people.

These include yarn spinning, textile, sock and hosiery manufacturing facilities, as well as sewing plants, all of which are strategically positioned for quick replenishment in the printwear and retail markets.

The company supplies basic apparel such as T-shirts, fleece, sport shirts, underwear, socks, hosiery and shapewear under company-owned brands including the Gildan, Gold Toe, Anvil and Comfort Colors. It also has the US sock license for Under Armour, and licenses for the Mossy Oak and New Balance brands.

And another potential benefit of the Alstyle Apparel acquisition is that it will help Gildan "to really access probably the weakest part of our distribution, which is the West Coast of the United States," according to Chamandy.

"And at the same time, it also allows us to more effectively service our Mexican customers with made-in-Mexico product. We do some of it from Honduras today, but for logistics and supply chain reasons, this will allow us to increase our product offering and increase, ultimately, our sales to our printwear customers in Mexico.

"At the same time, [it] will really allow us to aggressively pursue retail in Mexico as well in all of the products categories that we currently are servicing in the US and Canada."

The deal follows a strong year for Gildan, in which net earnings surged 25% to $346.1m, and sales grew 11.7% to $2.57bn – including a 12.1% increase in printwear sales and an 11.1% rise in branded apparel.

It also coincided with a 12.9% jump in first-quarter net profit after manufacturing cost savings helped offset lower sales.  

Gildan Activewear reports solid 13% jump in Q1 profit

During the current year the apparel maker has earmarked US$200m to add new textile production capacity, complete its yarn-spinning manufacturing initiative, and expand its sewing facilities to support growth.

Among its projected investments in textile manufacturing are ongoing development of its new Rio Nance VI facility in Honduras, which "will now be a larger facility with higher textile capacity than originally planned, in order to support growth in the North American printwear and retail markets."

The company first revealed plans to add an additional textile plant at the Rio Nance complex in 2014, and at the time said the facility would enable it to relocate more fashion, polo-type products, performance apparel and printed fabrics from Asia to the western hemisphere, and manufacture them in a very short cycle time.

The expanded capacity from Rio Nance VI will also help support its requirements until new textile capacity is developed in Costa Rica, which is not expected to happen until after 2018. The Costa Rica facility will make textiles and provide the company with enough space to put in additional sock facilities, and had been due to start production in fiscal 2017.

Gildan also says it is planning further expansion of its existing facility in Bangladesh.

"We may change a little bit the mix in [the Rio Nance VI] plant, depending upon the projected capacity in the Alstyle facility, but that will be decided on in the next month or two.

"But we're definitely continuing to go forward with Costa Rica. And we're also in the process this year of expanding Bangladesh to support our Asian opportunities.

"So, we're [moving forward with] our capacity expansion plans. [However] the mix might change a little bit as we go forward."

Gildan Activewear's plans were revealed a week after Hanesbrands agreed to buy Australian rival Pacific Brands for around $800m, positioning itself as the largest basic apparel company in the world. And it too sees the power of its company-owned supply chain as the catalyst for substantial savings.

Hanesbrands in-sourcing to cut costs at Pacific Brands