Dan St. Louis may never grace the cover of BusinessWeek magazine or dash off to board meetings in a Gulfstream jet. He works in a cramped, windowless office in a former Nickel's department store that is now home to a branch of Catawba Valley Community College in Hickory, N.C. But he is a man on a mission to save an entire industry. Specifically, socks.
For many of Hickory's residents, the hosiery industry has provided good hourly wages -- today, $12 or more -- as well as health insurance, paid vacations and retirement benefits for three generations of workers. Nestled in the foothills of the Blue Ridge Mountains, the Catawba Valley is responsible for roughly a third of the hosiery produced in the United States. But its share is shrinking fast.
What has made it possible to keep those jobs in the United States for so long while similar apparel textile jobs are exported to cheaper labor markets? For one thing, unlike other textiles, labor fees make up only about 30 percent of the cost of production -- machines do more of the work. What's more, hosiery firms have historically benefited from a geographic concentration of mills in the South, competitors often collaborate to fill a large order and labor costs are lower in southern states. But according to Rachel A. Willis, a labor economist at the University of North Carolina at Chapel Hill, another quality sets hosiery manufacturers apart: a willingness to change. Willis has studied the industry extensively since the early 1990s and is the author of an upcoming book titled Knitting the Social Fabric: The Survival of Work and Family Balance in a Global Economy. In an article for the newsletter Hosiery News, she wrote, "The most fascinating aspect of this industry is the fact that these competitive individuals and firms continue to have the desire and willingness to cooperatively learn new ways of improving manufacturing, training, and marketing in their industry; it is unlike any other industry I have studied."
And this brings us back to Dan St. Louis, a leader in the movement to help small- and medium-sized manufacturers stay competitive in the face of globalization. He directs the Hosiery Technology Center (HTC), which functions as a manufacturing consultancy, research-and-development firm, training facility and advertising agency for hosiery manufacturers. Often the center offers these services for free. "Our mission is short and sweet," says St. Louis. "To help the hosiery manufacturers compete in a global environment. We are focused on the bottom line: If our work doesn't improve quality and efficiency, and help the industry sell more socks and sheers, then we don't do it."
Last year the American economy shed more than half a million manufacturing jobs; losses in textiles and apparel accounted for 17 percent of those. Southern states have been hit hard: North Carolina, for example, lost 114,000 factory jobs between 2000 and 2002. So far, in the past two years, 18 of North Carolina's hosiery mills have locked their doors, leaving nearly 1,400 people without work.
A large part of the problem is China. In 2001, China's entrance into the World Trade Organization took the American hosiery industry by storm; within one year, the value of that country's exports of non-cotton socks to the United States soared by 462 percent. This occurred despite import restrictions set by an international pact called the Multifiber Arrangement (due to expire in 2005) that uses quotas to regulate the $350 billion world trade in garments. Those numbers continue to climb rapidly, due in significant measure to the dominance of big-box discount stores, whose numbers have ballooned over the past decade. Today stores such as Wal-Mart, Target and Kmart dominate the U.S. hosiery market. Consequently, a decision by Wal-Mart to award, say, a single large order to China allows that nation to capture a considerable share of the U.S. market through the chain's 3,200 stores nationwide. Such a transaction also radically alters the balance of trade -- in a single day.
Industry insiders also criticize China for violations of environmental and quality standards. The hosiery-testing lab at the Hosiery Technology Center has performed fiber analyses on hundreds of socks imported from China, and the results have been wildly varied. In one example, a shipment submitted for testing as containing cotton and spandex was actually made of polyester and rubber -- vastly cheaper materials. "In the sock industry," says St. Louis, "it would be like selling someone a Ferrari with a Yugo engine. Sure, you could sell that Ferrari a whole lot cheaper." But overworked customs officials, now housed in the Department of Homeland Security, are focused on threats to national security, not dishonest manufacturing practices. No one is enforcing the law.
Over the past five years, the HTC's mission has evolved to face these pressures head-on. The center receives nearly a third of its funding from the Manufacturing Extension Partnership (MEP), a nationwide system of services and support provided through the Department of Commerce's National Institute of Standards and Technology. There are some 400 MEP locations around the country that help manufacturers cut costs and improve productivity through modernization and reorganization. For hosiery manufacturers, increases in productivity are often the result of "lean" manufacturing processes that reduce lag time between the placement of an order and its shipment to a store. In one instance, efforts by the HTC reduced the lead time for a firm from six days to only 4 minutes.
By manufacturing standards, the achievements of the HTC and the industry as a whole are pretty remarkable. In their research for the Russell Sage report, Willis and her colleagues Rachel Connelly and Deborah S. DeGraff, both labor economists at Bowdoin College, chronicle the innovation and cooperation that has helped to preserve North Carolina's hosiery production. Says Willis, "Fifteen years ago they started talking about meeting the industry's needs in the face of a changing global market. And they have done everything right."
But without political intervention, the leanest of American hosiery manufacturers are still no match for China, which boasts a huge labor force and an undervalued currency. These days, Dan St. Louis is turning his attention to the politics of free trade: At the end of next year, quotas on Chinese imports will be lifted, giving China unlimited access to U.S. markets. St. Louis is assisting manufacturers in drafting a safeguard petition to the Committee for Implementation of Textile Agreements to extend the quotas. "I realized that no matter what I do and no matter how efficient our people are, we are going to lose a majority of our industry if we don't do something about China," he says. "We feel like we've been sold out."
Exiting off of Interstate 40 into Hickory (pop. 37,222), a driver is met with myriad fast-food opportunities. Beyond the ubiquitous burger joints are southern favorites: Bojangles' fried chicken, Krispy Kreme doughnuts and a Waffle House restaurant are lit nearly round-the-clock. Postprandial shopping opportunities abound, too, as Home Depot, Wal-Mart, Target, JC Penney's, Sears and Sam's Club line this strip of highway. And rising above it all is a sleek glass office building, home to the regional headquarters of Alcatel, the world's top supplier of telecommunication systems. This is the new Hickory, a city that has hitched its star to the promise of well-paying jobs in fiber optics and the service sector.
But a drive down Lenoir-Rhyne Boulevard, across the railroad tracks, reveals the vestiges of old industry. Loading docks face the street, awaiting the empty trucks that will roll into town and depart filled with socks or fabric. Catawba Valley also unofficially regards itself as the "Furniture Capital of the World," and some of Hickory's largest manufacturers still churn out bedroom sets and dining-room tables in antiquated red brick factories topped with belching smokestacks. This is the old Hickory.
"Around here," explained Larry Clark, assistant editor of the Hickory Daily Record, "[t]hey often said that textiles built towns and put money in people's pockets. Furniture just put money in people's pockets." Textile mills in the Catawba Valley were agents of modernization for the region, pouring money into the creation of municipal sewage systems, electrical distribution networks and telephone lines in order to remain competitive. Company owners continually upgraded education and social services in mill villages as well, in the hope of retaining the best and the brightest generations of workers. In the 1940s and '50s, they were joined by hosiery manufacturers from northern states like Pennsylvania who migrated south looking for cheaper labor and proximity to yarn suppliers. These manufacturers settled in Catawba Valley, as well as other scattered sites in Alabama and Tennessee.
Unlike other garments, socks are knitted, not sewn. This means that in a single phase, yarn is fed through a machine, where needles perform a swift pattern of movements to form a stretchy tube of interconnected loops of yarn. (It takes 20,000 steps to knit one pair of children's socks.) Other apparel begins as a bolt of fabric, which is then cut and sewn into items such as shirts and pants, a process that is labor-intensive. Knitting is a capital-intensive enterprise; a malfunctioning machine or damaged spool of yarn can ruin an entire batch of socks. After a sock is knit, it is "finished," much of it by hand. That's the part of the process that requires the most labor. A single seam is sewn to close the toe, and the sock is dyed and then ironed on a hot metal form shaped like an upside-down foot; this is called "boarding." Socks are then paired, folded, cuffed and packaged for shipment. Even including these steps, labor comprises a much smaller percentage of the cost of sock production than does knitting.
Unlike many other apparel and textile jobs, no hosiery manufacturing jobs are unskilled. Although seaming, boarding and finishing can be learned fairly quickly, knitting technicians often undergo two to five years of on-the-job training to operate and maintain their complex machines. In the past, these skills were zealously guarded by men, then called "fixers," who passed them on to their sons and nephews. These same men often purchased older knitting machines and capitalized on their specialized skills by operating mini-mills at home during off-hours, producing stretchy tubes to be finished at larger mills, which were eager to purchase greige (unfinished) goods when a speedy turnaround was necessary. These arrangements helped to foster the spirit of competitive cooperation within the hosiery industry that eventually contributed to the formation of the Hosiery Technology Center in 1989.
According to St. Louis, the HTC was born out of a conversation between mill owners in the back of a bus en route to a trade show in Nashville, Tenn. Local manufacturers were keen on establishing a training center for knitting technicians at the local community college. By the early 1990s, many fixers were the proud fathers and uncles of college-bound sons and daughters who would never return to work in the mills, leaving the industry in dire need of qualified employees. "In this county, and pretty much all of North Carolina, we were at 2 percent unemployment," St. Louis remembers. "If you could fog a mirror, you could get a job."
Local manufacturers envisioned and created a center that quickly trained technicians and machine operators in very precise skills. Courses were specifically tailored to the needs of individual mill owners, who in turn helped St. Louis secure demonstration equipment that matched the machines used in their factories. Knitting machines themselves were becoming increasingly computerized during this period, so many experienced technicians found themselves at the HTC, retraining for the digital age.
During its first five years in operation, the HTC also served as a job-training center for immigrant workers. The Catawba Valley experienced a sharp increase in Hispanic and Southeast Asian immigrants in the early 1990s. In an effort to streamline ESL and technical training, St. Louis and his colleagues developed a "Basic English for Hosiery" curriculum in Hmong, Spanish and Vietnamese. This program helped manufacturers reduce training time and accidents on the job and helped immigrants quickly secure employment upon arriving in the community. Today many Hmong employees are supervisors of both Hmong- and American-born workers in the hosiery factories.
The HTC currently has 12 full-time employees, and its mission has moved far beyond technician training. In 1997 the center partnered with the North Carolina State College of Textiles to develop standardized product-testing methods after a regional manufacturer nearly lost an $80 million order due to confusion over the procedure. Today the HTC boasts a full Hosiery Testing Lab and provides the official seal of approval for hosiery sold in Kmart and Gap stores, among others.
Seventy percent of hosiery companies in the United States employ fewer than 100 people. These small businesses do not have the capacity to compete with Chinese manufacturers for large orders from American retailers. At the same time, these small firms often don't have the time or money to experiment with new products, despite their profit potential. The HTC operates as a research-and-development firm for these companies, free of charge. It develops new ideas into profitable niche products like hemp socks, golf club and fly rod covers, and yarns with special moisturizing properties to line the inside of a medical cast.
The HTC also helps firms market themselves and find new business on the Internet. Hosiery manufacturers pay $50 for a Web site on which they can advertise and sell their products. The HTC's own industry site, Legsource.com, is immensely popular among mill owners, as well as suppliers and retailers. It receives 8,000 hits each day and is a major tool for laid-off employees looking for new jobs, manufacturers seeking government-procurement opportunities and retailers on the lookout for new products.
In order to retain its MEP funding, the HTC is evaluated each year to assess its services and its impact on the performance of the manufacturers it serves. MEP programs are required to demonstrate at least an $8 return for every government dollar spent. In 2002, the HTC generated $85 per MEP dollar.
Phil Mullins, president of Menzies-Southern Hosiery Mills Inc. in Hickory, visited Moldavia and Romania after the fall of communism. He didn't like what he saw. "I just looked around," he recalls. "Every building was made identically. Every door you entered was the same. And this is what Wal-Mart is doing to the retail business: Each store is a big, identical box."
Mullins, 63, is a compact man with a neatly trimmed silver beard and sharp blue eyes. He speaks slowly, in the rolling cadence of western North Carolina. He doesn't trust officials in Washington to help Hickory's ailing manufacturing sector. "I don't think our country has any honest representation," he says. "I've lost all confidence in our government, Democrat or Republican. They're all driven by greed." He pauses. "I hate to say that."
Mullins entered the hosiery industry 39 years ago in the firm his father-in-law started in 1945. Back then, the mill ran 165 knitting machines and made plain nylon socks for brands like Pierre Cardin. The firm currently runs 52 machines, and its high-end socks mainly retail in specialty stores like REI. Three years ago, Mullins employed 200 people. Today, 75 people work for the company, among them Mullins' daughter, the office manager, and his son, the director of sales. Although the mill has seen its sales drop by nearly 57 percent since 1997, Mullins plans on staying in business as long as he can purchase yarn from American suppliers. But that is becoming increasingly difficult, as many suppliers purchase their yarn from foreign makers. "If I'm going to have to import," he says, "I'm going to put the key in the door and fold up."
Hickory can't handle many more closings. Its hopes for a booming technology sector were dashed virtually overnight, as more than 4,700 of these jobs vanished between 2001 and 2003. In July the area's 10.1 percent unemployment rate was the highest of the state's 11 metropolitan areas; nearly 20 percent of the Hickory metropolitan area's manufacturing employment between the first quarter of 2001 and the first quarter of 2003 was eliminated. And those factory jobs and industries aren't likely to reappear. Says Rachel Willis, "If we do absolutely nothing, those skills will be gone in a matter of months. People will be absorbed into other sectors. ...We won't be able to turn around in five years and take back American textile manufacturing. It will be too late."
Yet as stark as Hickory's unemployment figures might be, they don't tell the whole sad story. The town's manufacturing firms employ workers from across the educational spectrum. Unlike jobs in retail or hospitality, small increases in productivity at a factory can result in higher wages and other compensations for workers. And most important to employees, these jobs offer regular hours and benefits such as health insurance and on-site day care.
As these good jobs have disappeared, Dan St. Louis encounters many former mill workers around town who are now employed at Wal-Mart and other retail chains. "I see people I know were making $14 or $15 an hour -- with benefits -- before they were laid off," he says. "Now they're making $8 an hour. That is a reduction in their standard of living -- there's no way around that." The number of families requesting food stamps in Catawba County has increased by 36 percent in the past five years, and a Salvation Army homeless shelter is operating at peak capacity -- 72 beds -- nearly every night.
Free-trade advocates will tell you that the decline of American hosiery is simply the work of the global economy's invisible hand. But that is not completely true. While the market has certainly played a role in building China's competitive advantage, Beijing's intervention in the economy is also a big part of the story. The artificially low value of the yuan makes Chinese exports attractive to American consumers while ensuring that Chinese workers have insufficient income to purchase goods from abroad. And China's violations of trade rules such as transshipment and patent protection put American manufacturers even further behind. Assistant Commerce Secretary William Lash said in November that he would give China a "gentleman's C to a D+" grade on its performance over the past year in enforcing World Trade Organization commitments.
St. Louis takes this seriously. "We don't need lip service," he says. "Nothing's being done. ... If you don't enforce the rules, they are not gonna play fair."