Blog: Leonie BarrieHanesbrands restructuring moves hurt

Leonie Barrie | 25 September 2008

Consolidating its production into fewer and larger low-cost plants in Asia and the western hemisphere is certainly helping underwear and T-shirt maker Hanesbrands to reap the financial rewards. Its full year operating profit rose 6.1% to US$388.6m on sales up 1.6% to $4.47bn, and this momentum has continued into its most recent second quarter where profit jumped 125% to $57.3m in the three months to 28 June.

But the search for a balance between lower production costs, economies of scale and speed of delivery doesn’t come without a price. Yesterday the Winston-Salem, North Carolina based company, which makes brands including Champion, Wonderbra, Playtex and Bali, said it will close nine plants and cut 8,100 jobs in its latest restructuring move. A quick calculation shows that’s about 16% of its 50,000 strong workforce.

The moves mark a number of milestones for Hanesbrands, not least of which is the end of its knit-fabric textile production in the US. But it is not just the US that falls foul of its cost-cutting moves; some plants in Central America will be shuttered too. The beneficiaries are its new Asian facilities in Thailand and Vietnam where the workforce will be increased by one-third to 6,000.

The company says the action is simply a matter of survival. "Our supply chain globalisation is necessary to strengthen our overall company and keep us competitive around the world," said Gerald Evans, Hanesbrands' president and chief global supply-chain officer.

Some of the pressures the business faces are due to the fact that it sells basic apparel items such as T-shirts, socks and underwear – among the most price-sensitive and low profit margin product categories around – which are also up against stiff competition from lower cost brands and cheaper private-label merchandise sourced in Asia or other low-cost areas.

And here the ‘If you can’t beat them, join them’ adage applies. By centralising its manufacturing operations in areas with the lowest labour costs, and aligning its sewing operations with a strong local fabric supply (Hanesbrands is currently building a textile fabric plant in Nanjing, China), the company hopes to reduce overheads, offset rises in global commodity prices and soaring shipping and logistics costs, and increase its operating margins.

Since spinning off from Sara Lee Corp in September 2006, Hanesbrands has brought the axe down on at least 28 plants worldwide employing around 16,300 workers.

The cost of the latest restructuring move isn't cheap, incurring charges of $76m. This will have taken $204m out of the $250m in restructuring charges the company projected in the three years after the spinoff. Which just leaves around $46m to go. Workers will no doubt be waiting with baited breath to see where the axe falls next.

 


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